Almost immediately, federal prosecutors went on the attack. Their first target: the city of Oakland, where local officials had moved to raise millions in taxes by licensing high-tech indoor facilities for growing medical marijuana. A month after the DEA issued its hard-line position, U.S. Attorney Melinda Haag warned the city that the feds were weighing "criminal prosecution" against the proposed pot operations. Abandoning the Ogden memo's protections for state-sanctioned "caregivers," Haag effectively re-declared war on medical pot. "We will enforce the Controlled Substances Act vigorously against individuals and organizations that participate in unlawful manufacturing and distribution activity involving marijuana," she wrote, "even if such activities are permitted under state law." Haag's warning shot had the desired effect: Oakland quickly scuttled its plans, even though the taxes provided by the indoor grows could have single-handedly wiped out the city's $31 million deficit.
Two months later, federal prosecutors in Washington state went even further, threatening state employees responsible for implementing new regulations for pot dispensaries. U.S. attorneys sent a letter to Gov. Christine Gregoire, warning that state employees "would not be immune from liability under the Controlled Substances Act." Shocked by the threat – "It subjected Washington state employees to felony criminal prosecution!" – Gregoire vetoed the new rules. A similar federal threat in Rhode Island forced Chafee to follow suit, putting an indefinite hold on the planned opening of three state-licensed "compassion centers" to distribute marijuana to seriously ill patients.
In isolation, such moves might be seen as the work of overzealous U.S. attorneys, who operate with considerable autonomy. But last June, the Justice Department effectively declared that it was returning to the Bush administration's hard-line stance on medical marijuana. James Cole, who had replaced Ogden as deputy attorney general, wrote a memo revoking his predecessor's deference to states on the definition of "caregiver." The term, Cole insisted, applied only to "individuals providing care to individuals with cancer or other serious illnesses, not commercial operations cultivating, selling or distributing marijuana." Pot dispensaries, in short, were once again prime federal targets, even if they were following state law to the letter. "The Cole memo basically adopted the Bush policy," says Kampia, "which was only that the Justice Department will not go after individual patients."
In reality, however, the Obama administration has also put patients in the cross hairs. Last September, the Bureau of Alcohol, Tobacco and Firearms moved to deprive Americans who use medical marijuana of their gun rights. In an open letter to gun sellers, the ATF warned that it is unlawful to sell "any firearm or ammunition" to "any person who uses or is addicted to marijuana, regardless of whether his or her state has passed legislation authorizing marijuana use for me dicinal purposes." If your doctor advises you to use medicinal pot, in other words, you can no longer legally own a gun. Hunting advocates were outraged. Sen. Jon Tester, a Democrat from Montana, wrote a furious letter calling on the Justice Department to reassess its "chilling" policy, declaring it "unacceptable that law-abiding citizens would be stripped of their Second Amendment rights."
Since the federal crackdown began last year, the DEA has raided dozens of medical-cannabis dispensaries from Michigan to Montana. Haag, the U.S. attorney for Northern California, claims the federal action is necessary because the state's legalized pot dispensaries have been "hijacked by profiteers" who are nothing more than criminals.
It's true that California has no shortage of illegal pot dealers. Nonmedical marijuana is the state's largest cash crop, raking in an estimated $14 billion a year. And demand is growing, in part because former governor Arnold Schwarzenegger thwarted a ballot measure aimed at full legalization in 2010 by removing criminal penalties for possession of up to an ounce of pot. But instead of focusing limited federal resources on off-the-grid growers in places like Humboldt County, who are often armed and violent, Haag targeted Matthew Cohen, a medical-marijuana farmer in Mendocino who was growing 99 plants under the direct supervision of the county sheriff. As part of a pioneering collaboration with local law enforcement, Cohen marked each of his plants with county-supplied tags, had his secured facility inspected and distributed the marijuana he grew directly to patients in his nonprofit collective.
Cohen appeared to be precisely the kind of caregiver that the Ogden memo advised should be given safe harbor for operating in "clear and unambiguous compliance with existing state law." But last October, DEA agents stormed Cohen's farm in the middle of the night and cut down his crop. Sheriff Tom Allman, who learned of the raid on his turf only an hour before it was executed, was outraged. "Matt Cohen was not in violation of any state or local ordinances when federal agents arrived at his location," Allman says. In January, Haag took the fight to the next level, threatening county officials like Allman with federal sanctions. Three weeks later, county supervisors voted to abandon the program to license and monitor Mendocino's legal growers. "This is a huge step backward," says Allman.
Haag's treatment of urban dispensaries has been equally ham-handed. She recently shuttered one of the oldest dispensaries in the state, a nonprofit that serves a high percentage of female patients in Marin County, which has the nation's highest rate of breast cancer. She has threatened to seize the properties that landlords rent to legal pot dispensaries. And in San Francisco, she targeted Divinity Tree, a cooperative run by a quadriplegic who himself relies on prescribed cannabis for relief from near-constant muscle spasms. At a time of high unemployment and huge budget deficits, the move killed more than a dozen jobs and deprived the state of $180,000 in annual tax revenue. In San Diego alone, the feds have shut down nearly two-thirds of the county's dispensaries. Statewide, the United Food and Commercial Workers Union estimates, the federal crackdown has destroyed some 2,500 jobs in California. It also sent street prices soaring by at least 20 percent, putting more money in the hands of actual criminals.
In addition, the federal war on medical marijuana has locked pot dispensaries out of the banking system – especially in Colorado, home to the nation's second-largest market for medicinal cannabis. Top banks – including Chase, Wells Fargo and Bank of America – are refusing to do business with state-licensed dispensaries, for fear of federal prosecution for money-laundering and other federal drug crimes. In a House hearing in December, Rep. Jared Polis of Colorado warned Attorney General Holder that strong-arming banks will actually raise the likelihood of crime. If pot dispensaries have to work outside the normal financial system, Polis told Holder, "it makes the industry harder for the state to track, to tax, to regulate them, and in fact makes it prone to robberies, because it becomes a cash business."
The IRS has also joined in the administration's assault on pot dispensaries, seeking to deny them standard tax deductions enjoyed by all other businesses. Invoking an obscure provision of the tax code meant to trip up drug kingpins, the IRS now maintains that pot dispensaries can deduct only one expense – ironically, the cost of the marijuana itself. All other normal costs of doing business – including employee salaries and benefits, rent, equipment, electricity and water – have been denied.
The agency has used the provision to go after Harborside Health Center, one of the largest and most respected providers of medical cannabis in California. Its Oakland branch, serving 83,000 patients in conforming with state law, paid more than $1 million in city taxes last year – placing it in the top 10 percent of local businesses. "It's incredibly tightly run and very, very professional," says Nadelmann of the Drug Policy Alliance. "But it's also big – and it may be that big is bad as far as the feds are concerned." Slapped with an IRS bill for $2.5 million in back taxes, Harborside now faces bankruptcy. "It's profoundly inaccurate to characterize us as a 'drug-trafficking' organization," says Harborside president Steve DeAngelo. "We are a nonprofit community-service organization that helps sick and suffering people get the medicine they need to be well. This is not an attempt to tax us – it's an attempt to tax us out of existence."
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