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An Industry Emerges: The Rise of Medical Marijuana

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The following is excerpted from Smoke Signals: A Social History of Marijuana–Medical, Recreational, and Scientific.  Reprinted by permission of Scribner, a Division of Simon & Schuster, Inc.

It was not what she wished for on her birthday. On January 17, 2007, the day JoAnna LaForce turned fifty-five, 120 heavily armed Drug Enforcement Administration agents wearing masks and bulletproof vests descended upon eleven Los Angeles-area medical-marijuana dispensaries. Assisted by the LAPD, the feds seized 5,000 pounds of pot and detained several dispensary proprietors in the largest single-day law-enforcement operation aimed at medical-marijuana clubs in California to date.

"They raided and pillaged," recalled LaForce, cofounder and director of the Farmacy, an innovative West Hollywood dispensary. "We were not able to get credit card service because of the nature of our business, so we had a lot of cash on hand. They took $250,000 worth of product and $60,000 in cash and wrote us a receipt for only $42,000."
The Farmacy, with it's "Very Open" neon window sign, was back in business two days later. "We practice civil disobedience every time we open our doors," said LaForce, a confident, even-tempered woman who prides herself on being the only registered pharmacist in America to manage a medical-marijuana dispensary. LaForce maintains that cannabis should be regulated as an herbal remedy, not as a pharmaceutical and certainly not as a controlled substance.

Before launching the Farmacy in November 2004, LaForce specialized in geriatric pharmacology and hospice care for dying patients. "I saw the value of alternative medicine, particularly cannabis, in helping with appetite, pain management, and anxiety," she told The New Yorker. "I found that I could use cannabis to decrease pain medication, which in turn made patients able to spend their last days talking to their friends, spouses, to share good times."

Upscale but modest, the Farmacy established branches in Venice and Westwood, in addition to West Hollywood. Each store offered a variety of Chinese medicaments, Ayurvedic remedies, and traditional North American healing herbs, as well as several dozen marijuana strains, imparting a mélange of therapeutic aromas ("a riot of perfumes," as Rimbaud once said). The Farmacy's family-friendly atmosphere appealed to young professionals, stay-at-home moms, stiletto stoners, and senior citizens who learned about the nuances of indicas and sativas from helpful attendants behind the counter. The Farmacy also produced its own array of cannabinated beverages, tinctures, sprays, and topicals. Some patients who never smoked pot came to get cannabis lotion for their arthritis — lotion that did not make them feel high.

The Farmacy was at the forefront of a belated surge of dispensaries in Los Angeles. The film industry took notice and Showtime developed a series using the emerging industry as a backdrop. Set in a fictional Los Angeles suburb, Weeds featured a sympathetic soccer mom who becomes a pot dealer out of necessity to support her family after her husband's death. Cannabis was depicted as a harmless, ordinary part of everyday life in America. The show's banality and success was one of many examples that underscored how far the serrated pot leaf had penetrated popular culture — in song lyrics, on T?shirts, at hempfests and hip-hop concerts, on medical-marijuana and hydroponics billboards. Acceptance of the weed seemed to be growing throughout the land. "In the court of public opinion, marijuana has been charged and been found relatively innocent," observed psychologist Dan Rose, director of a counseling center at Columbus State University in Georgia.

In 2005, when Weeds debuted on prime-time cable TV, there were 4 medical marijuana dispensaries operating openly in Los Angeles. By 2007, 187 reefer retail outlets were operating in LA County, which was home to one third of California's 300,000 authorized medical-marijuana patients, according to estimates by Americans for Safe Access. Thanks to a pent-up demand and entrepreneurial energy, the number of storefront dispensaries in LA would quadruple by the end of the decade. Newsweek called Los Angeles "the wild West of weed." No other city in California had seen such an explosion of medical-marijuana facilities. At least four local ad?filled glossy magazines served a burgeoning weed-smoking clientele. Hundreds of medical-cannabis dispensaries and delivery services advertised on websites such as WeedMaps and WeedTracker. In Hollywood (dubbed "Hollyweed" by stoners), there were more pot clubs than Starbucks.

On July 6, 2007, the DEA sent threatening letters to more than one hundred landlords in Los Angeles whose buildings were being leased to medical-marijuana dispensaries. A spokeswoman for the DEA told the Los Angeles Times that the letters were meant to "educate" landlords that they could face federal prosecution, the forfeiture of their property, and up to twenty years in prison if they rented space to anyone engaged in selling a controlled substance. The DEA also sent menacing missives to property owners in Santa Barbara, San Francisco, Marin, Alameda, and several other counties. Some landlords capitulated. Many dispensaries kept lawyers on retainer. When an attorney representing the Arts District Healing Center in LA argued that a landlord had no right to evict a medical-marijuana dispensary if the tenant had not broken the terms of the lease, the judge agreed.

Medical-cannabis providers in the Golden State, meanwhile, braced themselves in anticipation of more federal attacks. On July 25, 2007, DEA agents in combat gear, flanked by LAPD officers, raided ten more pot clubs in the Los Angeles area, including the California Patients Group (CPG), which served, among others, more than a thousand patients over the age of fifty. Directed by Don Duncan, cofounder of Americans for Safe Access, the CPG had become a focal point of local activism, hosting meetings for patients and dispensary operators. Duncan viewed the DEA's latest heavy-handed maneuvers as paramilitary theater designed to send an intimidating message rather than to enforce the law. The timing of the raids coincided with a press conference by Los Angeles City Council members announcing a one-year moratorium to block new medical-marijuana storefronts from opening while officials fashioned a comprehensive ordinance to regulate the fledgling industry. The measure was widely seen by local dispensary operators as sanctioning already existing pot clubs.

The DEA was also intent on sending a message when it targeted medical-marijuana users and providers outside California during the summer of 2007. In August, a multiagency drug task force composed of DEA and local law-enforcement officers raided the home of Leonard French, a forty-four-year-old paraplegic in Malaga, New Mexico, who had state approval to medicate with cannabis; the raid came shortly after New Mexico became the twelfth U.S. state to legalize medical marijuana. A few weeks later, the DEA raided a medical-marijuana dispensary in Portland, Oregon. But California continued to bear the brunt of Uncle Sam's anticannabis obsession.

"The medical-marijuana business is not an endeavor for the risk-averse," said Michael Backes, founder of the Cornerstone Collective, a state-of-the-art dispensary in Los Angeles. "When it got out that there was going to be a moratorium," Backes explained, "hundreds more clubs opened so they could register before the moratorium started. And then the landlord letters hit, which meant that some clubs might be forced to move. So they put in a hardship exemption drafted by the city attorney's office with very vague language that appeared to present a loophole." The hardship exemption was widely exploited and before long nearly one thousand (mostly small) pot clubs had taken root in Los Angeles County, while city officials bickered over how to handle the situation.

Councilman Dennis Zine, a former LAPD officer, called upon the federal government to cease its attacks on medical-marijuana facilities. Wearing pink armbands to show their support for therapeutic cannabis, Zine and several like-minded city council members asked the LAPD to review its policy of cooperating with the DEA. But prohibitionists on the city council and in the city attorney's office opposed any regulations that would legitimize the distribution of medical marijuana. They denounced cannabis clubs as "crime magnets" without offering any statistics to back up this claim. LAPD Chief Charlie Beck, hardly a medical-marijuana advocate, set the record straight when he asserted that armed robbers were far more likely to target a bank than a cannabis dispensary.

Mired in reefer madness and legislative paralysis, a split LA City Council did nothing for several years. As a result, unlicensed dispensaries continued to operate near playgrounds, schools, and senior centers. An increasingly competitive marketplace led to gaudy promotional gimmicks, such as scantily clad "nurses" on roller skates and carnival barkers handing out invitations to a hash bar on Venice Beach. A handful of pot clubs in LA stayed open all night, barely maintaining a medical pretense.

The Farmacy, Cornerstone, and fifty other high-caliber, community-oriented medical-cannabis providers formed the Greater Los Angeles Caregivers Alliance (GLACA). In the absence of sensible regulations from local officials, this trade association developed accreditation standards and other guidelines for organic-only med-pot stores. In 2010, when the city council finally got around to issuing a draconian ordinance that would have banned most medical-marijuana facilities, a Superior Court judge ruled it invalid.

Amid all the chaos in Los Angeles, support for medical marijuana grew. According to public opinion polls, three-quarters of LA residents favored regulating dispensaries rather than eliminating them. In November 2010, 60 percent of the voters went for Measure M, a citywide ballot provision that imposed new taxes on the sale of marijuana at brick-and-mortar dispensaries. The measure levied a 5 percent sales tax on medical-cannabis transactions in the city. To voters, it was easy money for a cash-strapped metropolis. While not in principle against a med-pot tariff, GLACA and Americans for Safe Access denounced Measure M on the grounds that it wasn't fair to patients for the tax on medicinal cannabis to be ten times higher than the next highest business license tax in the city.

LA County District Attorney Steve Cooley wasn't keen on the medical-marijuana tax, either. A drug-war die-hard, Cooley kept insisting that all pot sales were illegal under federal as well as state law, despite a 2005 California appellate court ruling (People v. Urziceanu), which reaffirmed that nonprofit consumer cooperatives could accept money in exchange for medicine. In 2009, the California Board of Equalization announced for the first time that all medical-marijuana retailers must pay a state sales tax, a requirement opposed by some dispensary operators who worried that any information they reported to the Franchise Tax Board in Sacramento could be used against them by the federal government. And why should they fill the state's coffers with cash when California law-enforcement officers continued to assist the DEA's remorseless campaign against medicinal cannabis?

While Los Angeles caused chaos by failing to rein in its dispensaries, Oakland authorities crafted regulations for medical-marijuana outlets with positive results. In 2004, Oakland became the first municipality in California to issue permits to cannabis clubs. The city council limited the number of dispensaries to four and banned on?site smoking.

The Harborside Health Center, situated on a scenic stretch of the Oakland waterfront, emerged as a model medical-marijuana facility, a media showcase that exudes professionalism and entrepreneurial panache. Friendly uniformed security guards monitor Harborside's hundred-car parking lot and check personal ID and doctor's notes before waving patient-members through the front door. A steady stream of customers are ushered into a spacious, tastefully designed room with hemp carpets, blond wood trim, natural light, and fresh flowers. A statue of a large laughing Buddha watches over eight glass display cases featuring the latest product line — flawlessly manicured green lumpy buds, tinctures, concentrates, and rubbing ointments, all labeled according to strain and THC content. A sophisticated point-of-sale system tracks inventory.

Within a year, Harborside had nearly fifty thousand members. Steve DeAngelo, Harborside's high-profile, pigtailed CEO, was featured in a 2009 Fortune magazine cover story entitled "How Pot Became Legal: Medical Marijuana Is Giving Activists a Chance to Show How a Legitimized Pot Industry Can Work. Is the End of Prohibition Upon Us?" As DeAngelo explained, "Whenever a patient comes into the clinic for the first time, they sign a collective cultivation agreement. They authorize all the other patients in the collective to grow medical cannabis on their behalf. That sets up a 100% closed loop distribution system that isolates my patients from any contact with the illicit market??.?.?.??For a variety of very valid reasons, most patients are unable to grow their own medicine. We act as a clearinghouse between patients who are able to grow and patients who aren't able to grow."

DeAngelo was a veteran cannabis activist who had accrued considerable business experience dealing weed and marketing hemp apparel prior to founding Harborside, his dream project, in October 2006. His roots in the marijuana movement stretched back three decades to his teenage years in the nation's capital, when he teamed up with a cadre of Yippie holdovers and organized a series of July 4 smoke-ins to protest marijuana prohibition. DeAngelo campaigned for Proposition 59, the D.C. medical-marijuana ballot measure that passed by a huge majority in 1998, only to have the vote discounted by Congress. Three years later he moved to the Bay Area, where he reunited with Rick Pfrommer, his trustworthy Nut House comrade. After DeAngelo was licensed by Oakland to open Harborside, Pfrommer came on board as the dispensary's chief purchasing agent.

During his day job, Pfrommer handled and sniffed more varieties of bud than anyone else on the planet. He urged growers to adopt techniques developed by the Clean Green certification program, a grassroots self-regulatory effort modeled after the U.S. Department of Agriculture's organic labeling process. Founded by Chris Van Hook in 2004, Clean Green visited cultivation sites, edibles manufacturers, and medical dispensaries to confirm that the herb was being grown, processed, and packaged in accordance with defined best practices. It was a nasty little secret within the marijuana world that many growers sprayed their plants with chemical contaminants, not unlike your typical American farmer.

Some of the cash generated by cannabis sales was plowed back into patient-oriented projects. Harborside provided free marijuana for low-income members and counseling for patients with substance abuse problems. DeAngelo's business partner, David Wedding Dress, was Harborside's director of holistic services, which included free acupuncture, chiropractic adjustments, naturopathy consultations, hypnotherapy, Reiki, and yoga sessions. A large, full-bearded heterosexual man, "Dress" wore a woman's gown every day to make a political statement against gender stereotyping. Dress oversaw Harborside's patient activist resource center, which included a computer station so members could sign online petitions, write letters to politicians and newspaper editors, or correspond with pot prisoners.

By 2009, Harborside employed seventy-four people and took in about $20 million in annual gross earnings. Workers got paid vacations and 401(k) plans. This dispensary contributed $2 million annually in state sales tax and another $360,000 to the city of Oakland. Before long, Harborside expanded into San Jose, California's third-largest city, where cannabis clubs went from zero to nearly sixty in 2010. DeAngelo eyed opportunities in other medical-marijuana states, as well. "It's a great growth industry," he declared on National Public Radio. "Anybody who's interested in a career, there's a great future in cannabis." But Stevie D also issued a warning: "Anybody who opens a dispensary has to be ready to go to federal prison."

Harborside tried to play the role of exemplary community citizen, but its bank accounts were closed several times and the Internal Revenue Service initiated an audit of its finances. The IRS also notified several other medical-marijuana dispensaries, including the Farmacy in Los Angeles, that they were under investigation for allegedly misreporting expenses and shirking their tax obligations. Specifically, the IRS cited a section of the federal tax code known as "280E." This section, aimed at drug lords, prohibited companies from deducting any expenses if they are "trafficking in controlled substances" — which meant that Harborside and other medical-marijuana providers could not subtract rent, payroll, and other standard business expenditures when calculating what they owed Uncle Sam.

Why would the federal government harass a thriving economic sector during an economic downturn? Why would banks shun a business that created dozens of new jobs at a time of high unemployment? "We do not deserve to have our accounts frozen or to be taxed out of existence," DeAngelo asserted. "280E was intended for cocaine kingpins, international smugglers and meth dealers. It was not intended for community organizations like ours and should not be applied to organizations like ours."

Wheelchair-bound ever since a freak accident left him paralyzed from the waist down as a young man, Richard Lee migrated from Texas to California after the passage of Proposition 215. In 1999, he launched the Bulldog, a medical marijuana dispensary in Oakland that was named after Amsterdam's infamous Bulldog Café, one of the first Dutch coffee shops. Lee quickly established himself as one of the most influential players in the California cannabusiness circuit. In 2004, he launched a local ballot initiative, Measure Z, which made adult use of reefer the lowest law-enforcement priority in the city. It passed with 65 percent of the vote. Several other municipalities — Berkeley, San Francisco, Santa Barbara, Santa Cruz, West Hollywood, and Santa Monica — did the same, but Oakland voters went a step further by declaring that "the city??.?.?.??shall establish a system to license, tax and regulate cannabis for adult use as soon as possible under California law."

Lee anticipated that waves of people would be interested in making a cannabis-related living. In 2008, he founded Oaksterdam University, a trade school in downtown Oakland that offered classes in horticulture, cannabis cuisine, bud-tending, business administration, marijuana law and history, economics, and political activism. Within three years of its launch, more than 13,000 students would graduate from this unique institution of higher learning, which moved to a four-story, 30,000-square-foot building to accommodate a waiting list of applicants. Oaksterdam University was so successful that it opened a Los Angeles branch and inspired imitators in California and other medical-marijuana states.

Though physically disabled, Lee considered himself first and foremost an adult cannabis consumer. Dubbed "the mayor of Oaksterdam," he saw vast commercial potential in his community's de facto legalization of marijuana. "I was trying to figure out the best way to promote the idea of a cannabis industry," Lee told the Los Angeles Times, "instead of all these nonprofit cooperatives, a bunch of hippies, peace and love, sharing their bud together, like a Coca-Cola commercial-you know, ‘teach the world to sing.' No, this is like Budweiser and Jack Daniel's. It's a business."

Perhaps it was just a pipe dream, but Lee envisioned cannabis as a salve for California's financial woes. He would spearhead a statewide ballot initiative in 2010 to legalize marijuana for adult use. Although this effort came up short, businesses associated with medical marijuana would continue to flourish while much of the country struggled. The demand was real and kept growing, no matter how hard the DEA tried to suppress cannabis commerce. What started as a social-justice movement was evolving fitfully into a full-fledged, multifaceted industry with ample opportunities for young entrepreneurs and buttoned-down professionals who were smitten by "the great California weed rush," as Rolling Stone called it.

The market for medicinal cannabis was estimated to be $1.7 billion in 2011-and it was poised for dramatic expansion, as more states edged closer to legalizing cannabis for therapeutic purposes. Like health food and hip-hop, cannabis was going corporate. Various stakeholders sought to build brands and boost profit margins. The medical-marijuana scene fractured into competing camps. Some erstwhile political allies became bitter business rivals. Hard-core profiteers into get-rich-quick schemes vied with those who sincerely championed the cause of patients' rights. As a wave of newbies began to challenge the old guard, some movement veterans recalled the difficult days before Proposition 215 when there were no medical-marijuana storefronts selling sinsemilla to certified patients. "The younger generation doesn't understand how much sacrifice the preceding generations had to make to get to the point we're at now," said Rick Pfrommer, the cannabis sommelier, during a break between shifts at Harborside. "A lot of people want to cash in or get a nice safe job. But they really don't have an appreciation of what it took to get here. They don't know the history."

Copyright © 2012 by Martin A. Lee.


Teaser image by Neeta Lind, courtesy of Creative Commons license.

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