Negative Economics Of Crackdown On Medical Marijuana Dispensaries

12.17.2011 San Diego News article link : https://local.sandiego.com/news/negative-economics-of-crackdown-on-medic...
Text: "In October, U.S. Attorneys in California launched a crackdown targeted at the medical marijuana industry. Dispensaries and collectives were given 45 days to shut down.

The feds added a little muscle to the action by forcing banks to close accounts of medical marijuana businesses, burdening dispensary owners with federal taxes not required by other businesses, ruling that that medical marijuana patients can not purchase firearms, and threatening to seize the property of landlords or send them to jail for renting to marijuana dispensaries.

In San Diego, United States Attorney Laura Duffy said she would even go after media outlets that ran medical marijuana advertising.

By the end of November, more than half of San Diego’s estimated 222 pot shops had complied by closing their doors. More were expected to shutter their businesses in the coming weeks.

What's the cost to an already sagging San Diego economy?

"The city has turned its back on the only real booming industry in San Diego," says medical marijuana user Rudy Reyez. "I don't see any other industry taking off. Let's face it. The city had the potential of taking in so much more tax revenue." Sales tax alone, says a source who prefers to remain anonymous, can amount to $80,000 or more annually from a thriving pot shop, bringing a loss to California in the range of $8-10 million in annual taxes with the current closures.

Reyez, 33, has been a patient since he suffered burns in the 2000 Cedar Fires. He teaches archaeology at Palomar College, and, he is running for County Supervisor in the 2nd District. He thinks as many as 2,000 San Diegans may be put out of work by the U.S. Attorney's actions. "And, think about the landlords who will have to rent out their now-empty spaces in a down economy." Reyes says he has helped open three such shops in San Diego County. He says each had anywhere from 5-10 employees, plus separate security staff for a total of 15 to 20 employees at some shops.

Given that the average unemployment check is $330/week, and the average time period of unemployment is six months, closing just half of the 222 shops could potentially run up a tab of $9-13 million in unemployment checks from the government. Dispensaries also advertise to the tune of $2,000-10,000 or more a month in local media and websites. That revenue, which also translates into paychecks down the line, will now be lost as a result of the U.S. Attorney. Plus, like any other business, dispensaries pay utilities, tenant improvements, telephone, and Internet fees. The construction, upkeep, and security systems of a dispensary keep local contractors busy.

And, thriving dispensaries are known to draw commerce to their neighborhoods. Consider an area in uptown Oakland known to some as Oaksterdam (a combination of the words Oakland and Amsterdam, where marijuana has been legal for decades.) The dispensaries in Oaksterdam are known to have brought foot traffic, tourists, and dollars to neighboring coffee shops, restaurants, and other area retailers.

“We’ve hurt our economy even more during a bad time.”

Alex Kreit is a professor at the Thomas Jefferson School of Law. In 2009, he chaired the City Council’s Medical Marijuana Task Force. “The problem in San Diego,” he says, “is a lack of real regulations in the city.” And because the city declined to adopt regulations, Kreit says there is really no accurate head count as to how many pot shops there really are. But the larger threat Kreit says is this: that the U.S. Attorney’s action not only eliminates future revenues, but it also feeds crime.

“This in no way affects the Medical Marijuana user’s ability to get marijuana. If they have a recommendation they’ll get it somewhere, and presumably,” he says, “from the black market.”

The back story of medical marijuana is that in 1996 California became the first state in the nation to legalize pot sales to people with doctor’s prescriptions by passing the Compassionate Use Act, otherwise known as Proposition 215. Voters in some 16 other states would follow suit and pass their own referendums to legalize the sale of medical marijuana. In time, marijuana would become the nation’s numberone cash crop, surpassing corn and other commodities. But at the federal level, marijuana is and has always been illegal, and that's the trump card that is being played at present.

But don’t blame Obama for the current mess.

The dispensary crackdown was in truth a collective decision of the four U.S. Attorneys in California. Aside from the administration’s 2009 announcement that federal prosecutors would not prosecute patients or dispensaries in compliance with state laws in pot-friendly states, no new edict has been passed down from the White House. But even in the boom days following Obama’s election the medical marijuana business, contrary to public opinion, is no road to riches says a local attorney named David Speckman.

“For the most part, they are not.”

Speckman, a civil litigation attorney, has helped half a dozen medical marijuana collectives set up legal storefront dispensaries and co-ops. He says that many dispensaries failed because the owners have bad business models. “It is a business, and not everybody is experienced in running one.” He says people get into the medical marijuana business for three reasons: “They believe in the cause and consider this a step toward legalization, they used to deal illegally and want to come in and legitimize the operation, or a business person wants to run a shop for the [perceived] profit. That person is the first one out the door.”

Speckman says the medical marijuana business makes no sense when the legal risk is considered into the equation. “There is a very huge financial risk that your door will be kicked in and you assets confiscated by the police.”

Not to be overlooked, he says, is the fact that the Department of Justice is in some respects a producer of cash for the government. “When you hear that several hundred pounds of marijuana and thousands of dollars were confiscated in a raid, where do you think the money goes?” The fed’s bank account, he says. “The government can come in and seize substantial amounts of money. They have an almost unchallenged ability to confiscate assets.”

Sources close to the investigation say that a second round of demand letters has been delivered to the few dispensaries in San Diego that have remained open. How many of these there are, and, where patients with doctor’s recommendations will be able to procure medical marijuana in the future is not known; as of press time, the U.S. Attorney’s office in San Diego had not responded."