CITY OF OAKLAND: POT FARM TAXES TO NET $38 MILLION PER YEAR

Plus Rand Corp Study Finds That Legalization Would Lead to Big Drop in Price.

The City of Oakland's cutting-edge approach to its medical cannabis
sector is about to make national headlines again with the
long-awaited release of city plans for licensing large-scale
marijuana grows. If the draft ordinances pass, the city stands to
reap almost $38 million in taxes per year by growing one-fifth of all
statewide medicinal marijuana.

The city is looking at permitting up to four large-scale grows with
no limitations on each farm's size. The rules would still let
patients and caregivers home-grow up to 96 square-feet, but larger
grows would require a $211,000 cultivation permit to be issued
starting January 1, 2011.

The potential rules are scheduled to go before the city's Public
Safety Committee on Tuesday, July 13, and represent the first attempt
by the city at regulating its numerous indoor cultivators.

The staff report from Councilman Larry Reid and Councilwoman Rebecca
Kaplan's offices says permitting large-scale grows will increase
safety by undercutting the price of homegrowers, who are prone to
fires and robberies. The Oakland Fire and Police departments told
city staff of seven cannabis-related electrical fires in 2008 and
2009, though "many more cannabis-related fires have likely gone
unreported." Residential electrical fires in Oakland rose from 133 in
2006 to 276 in 2009. Police tallied eight robberies, seven
burglaries, and two homicides clearly linked to cultivation in the
last two years. "Again, these statistics are likely to understate the
extent of the problem."

"You've got people who are going around putting their own systems in
place the wrong way and the fire department says there is potential
for even greater fires to happen in residences," Councilman Reid told
Legalization Nation.

Permittees will be subject to heavy regulation including quarterly
reports, a perennial state of audit, taxes, a $5,000 application fee,
and a $211,000 yearly registration fee. Potential permittees would be
ranked on a points system by the planning department, with bonus
points for local ownership, local hiring, third-party oversight, and
community benefits.

The draft rules would also up the number of local dispensaries from
four to six, allow them to be near each other, allow on-site
consumption, mandate THC testing, track how much dispensaries get
from city grows, and increase annual fees from $30,000 to $60,000.

The city says increasing the amount of dispensaries prevents market
domination by any particular one. That explanation would seem to
contradict permitting just four large-scale grows where the city is
essentially picking a winner - a fact that has some local
dispensaries grumbling.

The City of Oakland's four dispensaries made $28 million in gross
sales in 2009 and dispensary sales are up 40 percent from 2008.
Locally, they dispensed 6,000 pounds of cannabis last year, which
required 45,000 square-feet of growing space. The state as a whole
consumes an estimated 175 tons of medical cannabis per year, which
requires 1.75 million square-feet of growing space. Oakland assumes
it can grow 20 percent of the state's supply on a combined 350,000
square-feet, netting the city almost $38 million annually.

Rand Study Predicts Price Drop

The cost of high-grade cannabis could drop to around $70 per ounce
from $350 if California legalizes over-21 possession and consumption
of the plant, a leading think tank disclosed last week. "Altered
State? Assessing How Marijuana Legalization in California Could
Influence Marijuana Consumption and Public Budgets" by the Rand
Corporation finds that most of today's pot costs are actually risks
to growers, distributors, and sellers who face arrest and jail time.
Lifting that risk, along with automation, and economies of scale
would cause about an 80-percent drop in the price of sensimilla and
put billions of dollars back in the pockets of California consumers.
The study could not say what would happen to rates of consumption
with certainty, but use could double from 7 to 14 percent of the
adult population.

"The pretax price will go down, we're very clear about that," said
Beau Kilmer, the study's lead author and a policy researcher at RAND.
"Where we're less certain is about what happens with consumption."

Rand also found that California could make dramatically more or less
than an estimated $1.4 billion per year taxing cannabis at $50 an
ounce, depending not only on taxes collected but also tourism and
possible exports. Enforcing the state's pot laws costs Californians
about $300 million a year, the study found. The emergency room costs
of increased usage represent a tiny fraction of projected revenue, Rand found.

Seeds & Stems

Support for Prop 19 slipped to 44 percent versus 48 percent against,
a Field Poll concluded Friday, just as three US Congresspeople from
California said they endorsed the initiative. ... The White House
disclosed last week that pills are drawing more new users than pot.
Seven of the top ten drugs abused by 12th graders are prescription
drugs like OxyContin. The Centers for Disease Control and Prevention
recently reported that prescription and over-the-counter drugs were
responsible for the 25-percent increase in drug-related emergency
department visits between 2004 and 2008. Since 1999, deaths from drug
use have more than doubled, surpassing homicides, suicides, and
gunshot wounds as causes of death. This increase in drug overdose
death rates is largely because of prescription opinoid painkillers,
the White House said.