California cities eye pot tax

2010-11-22 13:27

Berkeley - As numerous cities get set to levy voter-approved taxes on medical marijuana retailers, some municipalities in Northern California are already moving aggressively towards creating government-sanctioned marijuana farms to help supply them.

Cities hope to rake in even more tax revenue from medical marijuana cultivation, which has remained in the shadows although it has been legal in the state since 1996.

On Monday, Oakland will begin the application process for four permits to run industrial-scale marijuana farms within city limits.

In Berkeley, a successful ballot measure to allow medical pot cultivation in industrial zones has would-be growers scrambling to score scarce real estate.

Farther north, the Sonoma County wine country town of Sebastopol passed an ordinance on Tuesday allowing for the creation of two large gardens for medical marijuana dispensaries, and two more "collective" gardens where patients could grow their own.

In Eureka, the Humboldt County seat, a committee is taking applications for medical marijuana cultivation and processing permits to serve as-yet-unopened dispensaries in the city.

Hopeful sign

All this is taking place even though the state's medical marijuana laws require any businesses in the medical marijuana trade to operate as nonprofits - and even though the amount of marijuana the cities are authorising growers to cultivate could net a typical drug trafficker decades in federal prison.

The US Drug Enforcement Administration did not return messages seeking comment on how the agency might respond if the city-approved operations actually started growing pot.

Oakland City Councilmember Rebecca Kaplan, who co-sponsored that city's cultivation ordinance, said the DEA had contacted her office but only to request copies of the regulations and background materials. She said the agency advised her that they were conducting research into the ways various cities were handling medical marijuana regulation.

"I think that's a very hopeful sign," Kaplan said.

California voters earlier this month rejected a ballot proposition that would have legalised marijuana for recreational use, but the already thriving medical marijuana industry shows few signs of decline.

The state's loose standards for medical marijuana use allow Californians to easily obtain a doctor's recommendation for the drug. Yet the law provides little guidance for how patients or their caregivers can legally cultivate the drug, which has forced growers underground.

No limits on grown amount

Oakland officials hoped to bring pot growing into the light and curtail the environmental damage, fire danger and crime associated with covert grow houses.

The City Council over the summer authorised four permits for large-scale growing. The permits would not set limits on the amount of pot that could be grown, but growers would have to implement environmental protections, security, labour standards, transparent finances and inventory tracking.

Permit holders would have to pay an annual $211 000 fee as well as a special higher tax rate levied on marijuana businesses by the city.

About 300 individuals and groups have expressed interest in obtaining cultivation or dispensary permits, city records show.

First on that list is Debby Goldsberry, a longtime fixture on the Northern California medical marijuana scene and a founder of Berkeley Patients Group, a pot dispensary in operation for more than 10 years.

Goldsberry said that two-thirds of her dispensary's patients live in Oakland, indicating a need for more medical marijuana outlets.

Business opportunity

"As an Oakland resident, I'm very interested in expanding any industry that can help our city," Goldsberry said.

Goldsberry also campaigned for Berkeley's Measure T, which authorises up to six 2 800m² growing facilities in the city.

Also on Oakland's list is a Boston-based company called Pharmasphere Systems. Chief executive David Darlington says the company is not interested in obtaining a permit for itself but in partnering with a grower who would use Pharmasphere's indoor growing technology.

Right now, the only plant Pharmasphere grows is Madagascar periwinkle, which contains compounds used in chemotherapy to treat some kinds of cancer. But Darlington says the business opportunity presented by medical marijuana outweighs any stigma that might be attached to being associated with pot.

"We clearly think that the risk is manageable and that the market is potentially so large that you can't ignore it," he said.

How large? An economic analysis prepared for a nonprofit seeking one of the Oakland cultivation permits found that a 9 300m² growing facility could generate up to $71m in annual sales.

Coveted real estate

Under the city's newly approved special 5% tax on medical marijuana businesses, sales from just that one facility would result in more than $3.5m in additional tax revenue.

The report also estimates that the operation would create more than 370 jobs with an average annual salary of nearly $54 000.

Growers anticipate such high returns that one developer says he has received serious inquiries from about a half-dozen would-be growers for what could be Berkeley's most coveted pot-growing real estate - a defunct ink factor being offered for $2.5m.

The 0.61ha site includes a 3 400m² building with high ceilings ideal for growing marijuana and thick concrete walls that make the facility easier to secure.

James Madsen of Orton Development, who is co-ordinating the sale, said potential buyers have established businesses and appear serious about delving into the science of cultivating marijuana as a medical treatment.

"For us, it wasn't an industry we sought out. It sought us out," Madsen said.

- AP

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