RIDING HIGH

With Little Fanfare Until This Month, Los Angeles County Has Quietly
Become the Country's Capital of Medical Marijuana.

In the last two years the number of marijuana dispensaries in the
county has ballooned from a relative handful to more than 200,
according to most estimates.

And in the city of Los Angeles, police said, 45 such shops opened in
December alone as entrepreneurs sought to beat a proposed moratorium.

Many of them have opened in strip shopping centers, typically using
such names as "compassionate caregivers" or "patient collectives"
names that seldom mention marijuana.

Even the Rev. Scott Imler, who co-authored the ballot initiative that
legalized medical marijuana, thinks the industry that he
inadvertently helped create has gotten out of control.

"We created this beast that frankly the state and local governments
have been too slow to regulate," Imler said. "We're a liberal state
and everyone wants to bend over backwards to be compassionate and
understanding and groovy. And they get taken advantage of."

The high-profile raid of 11 marijuana dispensaries by U.S. Drug
Enforcement Administration agents on Jan. 17 highlighted the sudden
industry, as well as its shaky legal foundations: The shops are legal
under Proposition 215, passed by state voters in 1996, but still
illegal under federal law.

"Los Angeles has had a significant growth in the number dispensaries
recently, but remember that this is the second largest (metropolitan
area) in the U.S.," said William Dolphin, communications director for
the Oakland-based pro-medical marijuana group Americans for Safe Access.

So far, there isn't a good handle on the value of the economic
activity that medical marijuana generates in the county. While
dispensaries pay employee taxes and some collect retail sales taxes,
public agency record-keeping is sketchy given the quasi-legal status
of the enterprise.

A report presented to an Oakland oversight committee last fall
estimates Californians consume between $870 million and $2 billion
worth of medically related marijuana each year and anywhere from a
third to a half of that is likely consumed in Los Angeles County
alone, given the county's size.

The rapid growth of the industry has taken city officials, law
enforcement agencies and others by surprise. Many have started to ban
or at least regulate marijuana clinics more tightly.

However, the local actions have not been enough to halt the raids by
the DEA officials, who categorize the dispensaries as illegal drug
selling operations despite California law.

"Granted they're acting under the guise of legal state law, but under
current federal law they're still drug organizations," said Sarah
Pullen, spokeswoman for the Los Angeles field office of the DEA. The
agency's Jan. 17 sweep was the first time the Los Angeles office had
targeted multiple clinics at the same time.

Mushrooming Industry

California was the first of 10 states to pass a medical marijuana
law. But no other metropolitan area has nearly as many marijuana
storefronts as Los Angeles. The Bay Area, for example, has about 70.

Still, the medical marijuana industry got a slow start in California.

The state ballot initiative approved by voters in 1996 legalized
marijuana for medical use. (Marijuana is said to help with nausea and
stimulate appetite for cancer patients and others who are seriously
ill.) Though not originally conceived in the law, cooperatives
developed so that patients could cultivate, process and distribute
marijuana among themselves.

However, in 2001 a West Hollywood cooperative that was organized by
Imler was raided by federal authorities and shut down. He faced
criminal charges and a possible prison sentence.

As that case made its way through the courts, the California
Legislature in 2003 passed SB 420, which recognized the right of
patients and caregivers to associate collectively to cultivate
medical marijuana. Subsequent court decisions expanded that
protection to retail-style dispensaries.

However, the industry remained stunted because of criminal cases such
as Imler's. But in 2005, Imler's case was settled. He got one year's probation.

Attorney John Duran, a councilman in West Hollywood who successfully
defended Imler, said that once it was clear that Imler wouldn't be
heading to prison, local entrepreneurs were emboldened to launch
their own clinics despite the threat of federal raids.

The dispensaries were aided by the lack of specific regulations
covering these businesses within many jurisdictions of Los Angeles
County, particularly in the city of L.A. The county and many cities
inside it scrambled to enact moratoriums to give them time to decide
whether to regulate or ban the shops.

At least eight cities now have moratoriums in place, while Torrance
and Pasadena in the past year have banned clinics. On Jan. 16, West
Hollywood gave initial approval to an ordinance intended to lower the
number of clinics in the city from six to four. L.A. County passed an
ordinance that went into effect in June that regulates when and where
the shops open.

In November, Los Angeles police officials began talking seriously
about enacting a moratorium. That set off a scramble by many to open
shops to beat any decision and led to the 45 shops that opened in the
city. In all, the city of Los Angeles has 148 retail-like medical
marijuana shops or home-delivery services.

"Out of the chaos, that's where the opportunists move in," Duran said.

Dispensary owners who contend they work hard to run a reputable
operation take issue with the opportunist label, though several
declined to talk to the Business Journal for this story. However, one
operator who opened a small dispensary north of downtown L.A. five
months ago, said he pays sales taxes, is insured by Lloyd's of
London, and desires a good working relationship with the officers who
patrol his neighborhood.

"This is new territory for us," said the operator, who would only
allow his first name, Ed, to be used in the wake of the DEA raids.
"Everyone is very spooked right now. We are not drug dealers and we
don't want to be confused with that."

Under state law, in order to receive medical marijuana, patients must
get a doctor to provide a written recommendation nicknamed scripts,
although they're technically not prescriptions. The scripts also give
the recipients the right to legally grow marijuana for medical purposes.

For roughly $70 to $100, depending on the neighborhood, patients with
a script can purchase one-eighth of an ounce of processed marijuana
for personal use. They can roll a joint to smoke on premises if the
dispensary offers a smoking lounge, or take it home. Many shops also
offer pot-laced edibles for those unable or disinclined to smoke.

Prices at dispensaries, sometimes known as cannabis clubs, tend to be
equivalent to or slightly higher than pot available on the street,
with clinic owners touting the greater safety and cleanliness of
their facilities.

Investigators contend that much of the marijuana sold by L.A. clinics
comes from many of the same sources as what's available on the
street. It's often imported from Canada and Mexico, Pullen said, in
violation of California law that requires medical marijuana to be
grown within the state.

A dispensary might pay $3,000 to $4,000 wholesale for a pound of
marijuana then mark that amount up by as much as 100 percent,
according to the DEA.

But clinic owners such as Ed consider the DEA's contentions
ludicrous, at least for clinics that care about their clients.
Mexican pot is apt to be laced with allergy causing pesticides, he
said, and Canadian weed tends to be grown indoors, producing a
product that's less potent and hence less effective for therapeutic purposes.

Instead, many clinics prefer to obtain their pot from small
California suppliers, often patients themselves who have the legal
right to grow it.

"In any case, why would you need to import marijuana when California
has the best climate for growing anything you want," Ed said.

Taking Precautions

However, even some patient advocates admit larger dispensaries often
turn to underground growers. The DEA also believes that clinic sales
to people without scripts or under false pretenses are more
widespread than the clinic community acknowledges.

Ed said he drills his staff on state law and recommended codes of
conduct promoted by patient advocacy group Americans for Safe Access.
Clinic staff workers must independently verify new clients, Ed said,
and will fax forgeries to other clinic owners as an alert, much as
retail businesses do for bad check writers.

But even Ed acknowledged that more than a few bad apples have snuck
into the local clinic community in recent months. He said an
increasing number of clinic operators, with support from ASA, are
organizing to self-police their industry using peer pressure and
other means he wouldn't specify.

Still, many law enforcement officials and community critics paint a
sordid picture of the clinics as crime magnets that are often located
too close to schools and parks and are too lax in screening clients.
They also are apt to become targets of robberies and other crimes
themselves because of their large caches of drugs and cash.

L.A. Police Chief William Bratton's staff report to the Board of
Police Commissioners in December called for a moratorium and strict
operating rules. In addition, facilities would be forced to move if
located within 1,000 feet of houses of worship, parks, schools and
day care facilities.

But cops on the beat in communities friendly to medical marijuana
tend to be circumspect when describing their relations with
dispensaries. Capt. Benny Goodman, who heads the West Hollywood
station of the Los Angeles County Sheriff's Department, said a
station liaison meets bi-monthly with clinic managers, who have been
responsive to neighborhood complaints.

"We have not been actively pursuing these clubs as illegal places of
business, but when there are complains we deal with that," Goodman
said. "We focus on the other crime priorities in the city."

City Councilman Duran maintains that the services provided by the
clinics in his community, which has a large HIV-positive population
and elderly residents with various age-related ailments, make the
clinics "the lesser of two evils."

"We can have these commercial enterprises that likely sometimes
provide marijuana to people they shouldn't. Or we can have patients
looking for drug dealers in the back alleys of the Sunset Strip," he said.