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More Scrutiny for Calif. Medical Marijuana Dispensaries

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California medical marijuana dispensaries are facing raids and tax audits from local and federal officials skeptical about their finances and their legitimacy, The New York Times reported Jan. 8.

Frank Carrubba, a Santa Clara County deputy district attorney, said, “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,”

Although a state initiative to legalize marijuana was unsuccessful at the polls in November, medical marijuana dispensaries continue to pull in cash. Officials in Oakland estimate that dispensaries there brought in between $35 million and $38 million last year.

San Jose, The New York Times wrote, “now boasts 98 dispensaries – four times the number of 7-Eleven convenience stories in the city.”

Recent raids on the New Age Healing Collective in San Jose, and the home of its owners, turned up two sets of books. The store ledger showed the dispensary was $123,128 in the red. The ledger found in the owners' home showed a profit of $222,238 for the same time period. The owners denied wrongdoing.

The chief executive of Harborside Health Center, a large Oakland dispensary, said his business was being audited by the Internal Revenue Service. Though the I.R.S. did not confirm whether it was performing such an audit, company representatives said the I.R.S. was focused on a part of the tax code that says companies cannot deduct expenses when they are “trafficking in controlled substances.”

Harborside said it was operating legally. It has appealed to Senator Barbara Boxer for help, stating in a letter to her that about 80 jobs are at stake.

The state law allowing medical dispensaries is unambiguous that collectives may grow marijuana for medical purposes, but hazy when it comes to selling it, said the author of the law, William Panzer. He argued that state lawmakers should act to create clearer guidelines.  

“Let's come out from under the shadows and say, 'Here are the rules,'” he 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.”

In the absence of regulatory guidance, dispensaries operate both as large businesses and as nonprofit health centers.

“It's kind of difficult line to straddle for them, but a lot of them are doing it,” said Betty Yee, who sits on the board that oversees state taxes.

Yee added that dispensaries don't necessarily have large profit margins. “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.

Representatives for marijuana dispensaries objected to the police raids. Paul Stewart, who directs the Medicinal Cannabis Collective Coalition, said, “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.”

Geoffrey Rawlings, lawyer for one of the owners of the New Age Healing Collective where the duplicate books were found, said, “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.”

He added, “They are convinced that these people are breaking the laws without any evidence in advance that they're breaking the law.”

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