LA. TO SET POT-CLUB RULES

LOS ANGELES -- The city council here could vote as early as Tuesday
on a set of rules for hundreds of local medical-marijuana
dispensaries, amid a growing debate about whether many of those pot
shops should be allowed to operate at all.

California voters passed a law in 1996 that allowed a seriously ill
person with a doctor's clearance to use marijuana. Another law in
2004 permitted patients and their primary caregivers to open
collectives to procure and distribute marijuana to their members.

But in Los Angeles, city officials say the number of outlets -- and
the freewheeling fashion in which many of them operate -- has gotten
out of hand. The city now has as many as 1,000 dispensaries, several
hundred of which opened in the past year. That growth has been driven
in large part because the city council never set regulations on how
they should operate. San Francisco, which has rules for dispensaries,
has about 30.

Though the council is now trying to craft guidelines -- including
possible rules on the number and location of dispensaries -- Los
Angeles County District Attorney Steve Cooley contends that many of
the outlets are simply illegal, drug-selling operations that are
reaping huge profits, much of it in cash. He says that if the stores
don't close voluntarily, he will move to have them closed and file
criminal charges against their operators. "The sale of marijuana is
illegal under state law," said Mr. Cooley.

Dispensary defenders argue that such sales are allowable, noting that
one state agency has even put out a directive saying that legal
marijuana transactions are subject to sales tax.

According to 2008 guidelines from the California attorney general,
qualified users and their primary caregivers can form cooperatives or
collectives to grow and supply pot to members. Those entities have to
operate on a not-for-profit basis but can recoup expenses; dispensary
defenders say that is where the over-the-counter sales come in. The
Los Angeles city attorney's office, another critic of
over-the-counter sales, says the costs have to be recouped through a
mechanism such as monthly membership dues. Law-enforcement officials
also say dispensary operators often don't qualify as primary caregivers.

Law-enforcement officials also argue that a doctor's recommendation
is easy to get. They note that some physicians openly advertise for
marijuana-seeking patients, with one such ad promising that "if you
do not qualify for a recommendation" the $150 examination fee would
be waived. There is "a corruption of a portion of the medical
community," said Mr. Cooley, who said he will also seek to punish
offending doctors.

While there are bad actors among dispensaries, "I believe that the
vast majority are trying to operate legally," said Don Duncan of
Americans for Safe Access, a marijuana advocacy organization. The
lack of clear rules in Los Angeles doesn't help, he added.

Possession and sale of marijuana remain illegal under federal law.
During the Bush administration, federal prosecutors here won criminal
convictions against some dispensary operators.

Early this year, President Barack Obama's attorney general, Eric
Holder, said federal prosecutors wouldn't go after people complying
with state marijuana laws. Since then, several hundred new
dispensaries filed notifications with Los Angeles city officials. Mr.
Holder "was widely heard," said David Berger of the Los Angeles city
attorney's office.

A Justice Department spokeswoman said nothing in Mr. Holder's remarks
should have given "any encouragement to people to open illegal
marijuana operations." Those found to violate federal and state
marijuana laws will be prosecuted, she added.

Local law-enforcement officials say the case of Luis Godman
illustrates the kind of operation they are worried about. A former
real-estate agent who became a marijuana dispenser, Mr. Godman was
arrested last year in an underground parking garage while purchasing
more than three pounds of marijuana. Mr. Godman told officers he
bought marijuana for $3,000 a pound and received the equivalent of
$9,000 a pound at a roughly $20-per-gram "donation" from collective
members, according to court filings.

Mr. Godman pleaded guilty to possession of marijuana with intent to
sell and tax evasion related to under-reporting of what authorities
calculated was hundreds of thousands of dollars of income.

The district attorney recommended a year in jail. The judge gave Mr.
Godman 180 days of home confinement.

Mr. Godman's attorney, Bruce Margolin, said his client "was acting in
good faith" in operating the dispensary. The home-confinement
sentence, he added, shows "the court didn't think he was acting in a
criminal fashion."

Arrested with Mr. Godman was Nathan Holtz, who has been charged with
illegal cultivation of marijuana, theft of utility services and other
crimes. In court filings, the district attorney's office linked Mr.
Holtz to two houses that had been converted into indoor
marijuana-growing facilities that contained more than 1,300 plants.
To power pumps and grow lights, main utility lines were tapped and
more than $60,000 of electricity stolen, the filings said.

Mr. Holtz has pleaded not guilty and is awaiting trial. He is a
member of a number of "lawful" collectives and supplies marijuana to
each, said his attorney, Bradley Brunon.