Marijuana Dispensaries Are Facing New Scrutiny
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Marijuana Dispensaries Are Facing New Scrutiny
Posted by CN Staff on January 08, 2011 at 18:43:58 PT
By Zusha Elinson
Source: New York Times
California -- Medical marijuana dispensaries try hard to maintain the appearance that they are nonprofit health centers. Customers are referred to as “patients,” and merchandise as “medicine.” Yoga classes are often available, along with health-related literature. But the rivers of cash flowing in and out of these businesses are attracting scrutiny from local and federal authorities who say they are trying to distinguish between legitimate health practitioners and sellers of illegal drugs.
“We’re trying to get to a point where we get we can weed out — for lack of a better word — to filter out the people that are really perverting this law just to sell drugs,” said Frank Carrubba, deputy district attorney in Santa Clara County. Last month, the four operators of New Age Healing Collective in San Jose were charged with illegal marijuana sales and money laundering after the police said they turned up two sets of books. The raid was part of a series of recent investigations into San Jose dispensaries by the Santa Clara Special Enforcement Team. One ledger, kept at the tiny dispensary, showed New Age Healing losing $123,128 since May, according to the police. Another, which the police said had been discovered inside a cash-filled shoe box in the home of the couple that operated the center, told a different story: $222,238 in profits. The couple said it was operating a legitimate marijuana dispensary and had done nothing wrong, according to one of their lawyers. In Oakland, Harborside Health Center, one of the largest dispensaries on the West Coast and a model for the medical marijuana industry, is being audited by the Internal Revenue Service, said Harborside’s chief executive, Stephen DeAngelo. An I.R.S. spokesman said the agency neither confirmed nor denied audits. Last month, officials in Oakland postponed plans to license large-scale marijuana farms in the city after the Justice Department and the city attorney warned separately that the businesses could violate state and federal marijuana laws. The medical marijuana industry has continued to flourish since a state proposition to legalize cannabis was defeated in November. Oakland finance officials estimate that the city’s three dispensaries generated $35 million to $38 million in revenue last year, up from $28 million in 2009. San Jose now boasts 98 dispensaries — four times the number of 7-Eleven convenience stories in the city. State law allows collectives to cultivate medical marijuana, but the law is less clear when it comes to selling the product, said William Panzer, a lawyer who helped write California’s seminal medical marijuana law, Proposition 215. Under guidelines issued by the state attorney general, dispensaries are advised not to profit from their activities. But the guidelines are fuzzy, Mr. Panzer said, and there is virtually no case law on the issue. “Let’s come out from under the shadows and say, ‘Here are the rules,’ ” Mr. Panzer said. “The law around distribution is very hazy, and we need the Legislature to do something. We’ve fallen behind other states on regulations for medical marijuana sales.” After staking out the New Age Healing Collective for eight months, Santa Clara County narcotics agents raided it on Oct. 7. They found marijuana and a black ledger listing sales and expenses, a police report said. The ledger stated that the collective’s $255,642 in sales from May through September were offset by $323,170 in operating expenses and $55,600 that the dispensary spent on rent and payroll. The same day, officers raided the home of Jonathan Mitchell and Sheresie Dyer, the operators of New Age Healing. In a clothes closet, according to the police report, they found a Glock pistol, a pound of marijuana and a shoe box containing $15,971 and a “cash book.” The ledger, the report stated, showed that New Age’s gross receipts were $601,008 for those five months, a $222,238 profit. “Their described activity as a collective is nothing more than a retail store,” wrote Sgt. Dean Ackemann, who is now with the San Jose district attorney’s office. “Their only actions are providing marijuana to customers at street-level prices.” The police say they also found state tax returns, listing $84,111 in gross sales for the second quarter of 2010, which the report characterized as “highly suspect.” Geoffrey Rawlings, Mr. Mitchell’s lawyer, said that he would not comment on the specifics of the case, but that his client was legally providing medical marijuana to patients. Mr. Mitchell and the others have all pleaded not guilty. Mr. Rawlings noted that the police were not raiding pizza restaurants, which are also cash businesses, but that the profile of marijuana dispensary operators might play a role in attracting the attention of the authorities. “When you’re dealing with medical cannabis and you see these blond, dreadlocked corporate officers coming and going, it kind of agitates law enforcement and raises their hackles a little more than the pizza shop owner down the street,” Mr. Rawlings said. “They are convinced that these people are breaking the laws without any evidence in advance that they’re breaking the law.” Medical marijuana activists have loudly protested the raids on San Jose dispensaries, which have proliferated without any city regulations. “We are extremely concerned by the raids,” said Paul Stewart, executive director of the Medicinal Cannabis Collective Coalition, which represents several San Jose dispensaries. “They are acting on what could be considered a specious legal finding by the D.A.; their finding is that all collectives are operating illegally because they are making a profit.” Mr. Stewart said the dispensaries were easy targets since they were out in the open, unlike methamphetamine labs or other illicit drug operations. “There is a concern that it appears they are attacking the low-hanging fruit,” he said. Because laws are murky, dispensaries increasingly operate in the gray area between large-scale businesses and nonprofit health centers. “It’s almost a hybrid operation,” said Betty Yee, the Bay Area’s representative on the Board of Equalization, which oversees state taxes. “It’s kind of difficult line to straddle for them, but a lot of them are doing it.” Ms. Yee also said that although money was pouring into dispensaries, that did not mean operators were making big profits. “The cost of their product is so huge that there is sometimes a perception that they’re making a lot of money when in fact their margins are pretty thin,” she said. Though federal authorities have halted raids on medical marijuana dispensaries under the Obama administration, the I.R.S. has shown a new interest. Harborside officials said the I.R.S. was raising questions about a section of the tax code known as 280E. That section, aimed at drug kingpins, prohibits companies from deducting any expenses if they are “trafficking in controlled substances.” Harborside, which serves 70,000 members, has been lobbying the federal government to exempt medical marijuana dispensaries from the law. It sent a letter to Senator Barbara Boxer, Democrat of California, stating that it could be taxed out of business if the law was not changed. “Harborside Health Center currently employs approximately 80 individuals in Oakland, CA,” the letter reads. “Unless we can change this law, these jobs are in jeopardy.” Mr. DeAngelo, the Harborside chief executive, said that all the profits were put back into the business — and that the dispensary was not a drug dealer. “Our contention is that what we’re doing is legal and not trafficking, and it’s not appropriate to apply it to us,” he said. “This is an industrywide issue.” A version of this article appeared in print on January 9, 2011, on page A23A of the National edition.Source: New York Times (NY)Author: Zusha ElinsonPublished: January 8, 2011Copyright: 2011 The New York Times CompanyContact: letters nytimes.comWebsite: Medical Marijuana Archives
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Comment #17 posted by museman on January 11, 2011 at 09:55:14 PT
I share your perspective, and the "I told you so"s But too many compromisers, capitulators, and SQAKS chimed in to divert the discussions into personal vendettas.But no matter how you cut it, compromise with the truth leads only to lies, and loss of freedom, not the other way around.LEGALIZE FREEDOM
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Comment #16 posted by FoM on January 10, 2011 at 16:43:24 PT
I hope you are right.
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Comment #15 posted by duzt on January 10, 2011 at 16:35:46 PT
IRS wont be a prob
I know Harborside well and don't believe there will be a problem. The books are very tight there, everything is done very well, there is no skimming. They can audit, but what they will find is a company that is run very well. I encourage it, as they say at Harborside, out of the shadows, into the light....
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Comment #14 posted by The GCW on January 10, 2011 at 14:59:36 PT
Sinsemilla Jones 
Thanks for the update
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Comment #13 posted by Sinsemilla Jones on January 10, 2011 at 14:02:57 PT
GCW 4 - Response from DP reporter to my email:
"Alcohol in his system had already been reported by The Post. The THC was new information, it was news.
That's why THC was up top and alcohol was below."
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Comment #12 posted by BGreen on January 10, 2011 at 13:48:23 PT
Ah, yes, our "voluntary" tax system
I'm going to remind all of you as regularly as possible that I told you this would happen if complete legalization for adults wasn't implemented. Even if it wasn't the law you wanted, the effect of distraction and overwhelming the law enforcement goons was the only answer in taking the pressure off of MMJ.You who argued with me got exactly what I told you would happen. I'll bet even you were stunned by the speed by which you were attacked.I sure wasn't.Now, you're probably going to lose your MMJ, too. You fell for their insidious plans. They don't need to rule you when you roll over upon command.It's only going to get worse until that first state gets the gonads to free the cannabis plant to adults, then the domino's will fall. All of you in CA who voted "no" thinking it would help you should be not only scared right now, but you should hang your heads in shame because of the damage you've inflicted on the entire cannabis movement. You've set us back at least a decade and that means millions more will suffer because of your boneheaded stubbornness.The Reverend Bud Green
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Comment #11 posted by FoM on January 10, 2011 at 08:36:00 PT
I am not disappointed with Obama. I have watched the VA get more efficient and the VA hospital has been cleaned up under his administration. It was so dirty under Bush. He is doing the best he can with all the anger that has been thrown at him. As far as our issue I remember what he actually said and I have never expected more then he said.
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Comment #10 posted by herbdoc215 on January 10, 2011 at 08:26:38 PT
FoM, they have a vested financial intrest
in not seeing or doing some things...just like the cops, it is amazing to me what people will do and believe to keep the $$$ flowing. I am also extremely disappointed in the President, after voting for change all we got was more of the same with shuck and jive attached...he could down-schedule with the stroke of a pen but a town hall meeting has shown me he thinks we are all a bunch of suckers and stoners. The Democrats are no better than the Republicans to me, they are all one big ripping off party whom was sold to the corporations a long time ago. Personally I no longer know what it will take to fix this police state we live in, violence isn't the answer as like lying the govt are the pro's and we ain't got a chance unless we can get them to experience empathy! peace, steve
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Comment #9 posted by FoM on January 09, 2011 at 14:03:01 PT
I always thought they would track the big people with tax issues. That's how they got Capone. Re-scheduling is necessary. I have never figured out why those who have clout in reform circles don't make more of re-scheduling an issue.
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Comment #8 posted by herbdoc215 on January 09, 2011 at 13:54:34 PT
The above story will prove to be a game-changer
These IRS goons are what I was afraid of all along, this isn't the last time we will see this subject. This is a backdoor attempt to shut down the industry and bring all that dough back into the black market, Richard Lee just proved the pigs worst fears true with the prop 19 initiative this year...what if we got involved in politics? I will say again, the time is now for pushing rescheduling down the throat of the FDA and only by going for this are we not just taking turns being stuffed down a cannon for a few folks amusement and incomes? Only with down scheduling can real industry develop free from shadows and gray areas also would ensure affordability for those whom need it most instead of the lottery it is now for those whom have enough to play? Peace, Steve
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Comment #7 posted by runruff on January 09, 2011 at 13:30:10 PT
Know thyself?
My brain doesn't recognize that my body has a mind of it's own!
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Comment #6 posted by runruff on January 09, 2011 at 12:56:42 PT
I've been chided!
Another poster on another web-site chided me by saying,"talk is cheap!I told him that, yes talk is cheap, that is why it is the currency of the poor! The next cheapest thing is bullets!
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Comment #5 posted by Sam Adams on January 09, 2011 at 11:10:58 PT
flowing rivers
strange, when I read articles about Oxycontin abuses there was NEVER any mention of "rivers of cash" running through CVS and are the rivers that flow through liquor stores talked about very much.suddenly basic economics becomes dark and evil when cannabis is involved.
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Comment #4 posted by The GCW on January 09, 2011 at 09:36:07 PT
Sinsemilla Jones,
Thanks, I missed that article.Living in the Colorado mountians, I followed that story a little because it's not too uncommon in winter for people to over drink and go missing till found dead in a snowbank,,, and also read about it once they found him. They stated the alcohol amount and that was that. -Now this.
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Comment #3 posted by runruff on January 09, 2011 at 03:46:44 PT
W.C.Fields had a great career...
..and his blood alcohol was never below 0.30%.He used his urine as anti-freeze.My point is, Boy he could hold some booze!Aldrich? Not so much?
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Comment #2 posted by Sinsemilla Jones on January 09, 2011 at 03:05:30 PT
BTW, How to contact Denver Post author -
Kieran Nicholson: 303-954-1822 or knicholson denverpost.comI wrote and asked -Why was the headline and focus of this story cannabis, when it's obvious alcohol was the cause of this accident?
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Comment #1 posted by Sinsemilla Jones on January 09, 2011 at 02:54:38 PT
Denver Post blames cannabis for drunk death.
The headline -Marijuana found in system of man who died in Pitkin County fallThe lead line -A 28-year-old ski-lift operator who fell to his death from a Pitkin County bridge had marijuana in his system, according to toxicology reports.The next to last line, as an afterthought -Aldrich also had a blood-alcohol content of 0.294 percent, which is 3 1/2 times the legal limit for driving.
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