MARIJUANA CO-OPS EVOLVE AS THEY MATURE

Trusted Friends, one of the oldest medical marijuana collectives in
Redding, was doing brisk business last summer.

One of the few cannabis clinics in Shasta County, Trusted Friends
generated about $200,000 in sales in July.

"At times, I had 250 patients a day coming through," said Executive
Director Jess Brewer, whose co-op opened in December 2008.

Fast-forward.

Today, the competition to accommodate medical marijuana patients in
Redding is fierce.

Some estimated the city had upward of 40 collectives operating
before Redding enacted new rules, which require cannabis clinics to
register with the city so the businesses could be regulated. About
20 collectives have submitted applications to operate in Redding
since the ordinance went into effect.

Simple economics have cut into Brewer's bottom line, and at times,
he has had to scale back his work force. Trusted Friends boasts
3,000 members and two locations.

"I might be crying sour grapes, but that doesn't help my business,"
Brewer said of the proliferation of medical marijuana co-ops. "This
town should not have more than seven."

Ironically, Redding dwarfs Oakland (a city with a population about
four times bigger than Redding's), where officials have capped the
number of medical pot co-ops within city limits at four.

Meanwhile, medical cannabis is treated like any other retail item in
the state, so sales tax is tacked on to each transaction. In Shasta
County, that means an additional 8.25 percent is added to cover the tax.

But while marijuana co-ops need a seller's permit, the state Board
of Equalization (BOE) doesn't require the holder to state what it
specifically sells.

"So some dispensaries can be listed as either health food stores,
general merchandise, pharmaceutical facilities," BOE spokeswoman
Anita Gore said. "So we don't have a good handle on the number of
dispensaries or the exact amount paid in taxes."

However, it's estimated that medical pot generates $200 million in
annual sales in California, with roughly $18 million in sales tax
receipts, Gore said.

In July, Oakland voters approved a 1.8 percent tax - on top of state
sales tax - on gross receipts of cannabis businesses. Oakland
officials estimate the tax will raise $294,000 in additional revenue in 2010.

While cannabis collectives charge sales tax, some north state
operators are leery about labeling their transactions "sales."

Jamie Kerr, CEO of 530 Collective in Shasta Lake, said it's one of
the contradictions of California's medical pot law.

"Legally, I can't sell it, but it still requires a seller's permit.
It's the first of many incongruities that exist" in the law, Kerr
said. Kerr's collective, which opened in September, has nearly 340 members.

The marijuana sold at collectives comes from members, who will bring
in the excess cannabis they grow.

Brewer at Trusted Friends will buy marijuana from his members for $5
a gram, then turn around and sell it for $10 a gram, plus sales tax.

The indoor growing season, manipulated by lights, is a year-round
cycle. The harvest for growing marijuana outdoors typically starts
in October, Brewer said.

About 300 of Brewer's members, or 10 percent, sell the marijuana
they don't use back to Trusted Friends.

In 2004, when California expanded state rules for medical marijuana
to allow patient co-ops or collectives to distribute the herb, the
caveat was do it without making a profit.

But the law also allows designated primary caregivers to charge for
their labor and services, which means marijuana cooperatives can
have employees and pay salaries.

Brewer at Trusted Friends said his employees make an average of
$12.50 an hour. As director, Brewer estimates he made about $50,000 in 2009.

Kerr at 530 Collective said her co-op has not generated enough
business to pay wages. The co-op makes enough to pay the rent,
utilities and insurance, and to keep an attorney on retainer.

However, Kerr believes that by next month, 530 Collective will hire
a part-time employee.

"I want to provide medical benefits (to employees), retirement
options, but we are not there yet," Kerr said.

By contrast, Trusted Friends' monthly payroll has ranged from
$10,000 to $38,000. Brewer pays $5,000 to rent two buildings and
$1,000 a month in utilities.

California's medical marijuana law doesn't dictate how much a
collective employee can make or what's considered a reasonable salary.

The attorney general's office said the salary question is something
for the courts to resolve.