PROPOSAL FOR MARIJUANA FACTORIES PROMPTS A BATTLE FOR CONTROL

A proposal to create four large-scale marijuana factories in Oakland
has touched off a turf war in the lucrative market for medicinal
marijuana. Established local merchants are trying to hold their
ground against entrepreneurs who are seeking to gain a foothold in
the rapidly evolving industry.

Under the proposal, which will be debated by the City Council on
Tuesday, Oakland would issue four permits to operate the factories,
which are currently not limited in size or scale. One would-be
applicant is planning a 7.4-acre complex that could produce over
21,000 pounds of marijuana a year.

Based on current prices, such a factory would generate about $60
million in annual revenue, more than twice the gross receipts for
Oakland's four medical marijuana dispensaries last year.

Taxes on cannabis cultivation and sales could generate millions of
dollars for Oakland, once the program is up and running, and create
hundreds of jobs, according to supporters. The ordinance -- written
by Councilwoman Rebecca Kaplan, who is also a mayoral candidate, and
Councilman Larry Reid -- would also require the factories to pay a
$211,000 "regulatory fee."

"I think it's a total win-win for everyone," Ms. Kaplan said last
week, after the Public Safety Committee voted 3 to 1 on Tuesday to
send the cultivation ordinance to the full City Council.

The proposal is creating discord between businesses seeking to
preserve the status quo and others who are trying to carve out new
businesses in advance of Proposition 19, a November ballot measure
that would legalize marijuana for adult recreational use in California.

"It's big business; you're talking about manufacturing gold," said
Jeff Jones, a longtime marijuana activist working with the
legalization effort. "There's going to be stakeholders, different
opinions and different approaches, which lead to bickering like in
any other marketplace."

One of the most vocal critics of the cultivation proposal is Stephen
DeAngelo, executive director of Harborside Health Center, the largest
medical marijuana dispensary in the world. With outlets in Oakland
and San Jose, Harborside has 58,000 members, or patients, who can buy
dozens of strains of marijuana packaged in vacuum-sealed bags or in
edible forms ranging from cookies to gelato.

The dispensary receives its marijuana from about 400 member/suppliers
who deliver one or two pounds of cannabis at a time. Allowing
large-scale production in Oakland would crowd out those small
growers, according to Harborside officials and the dispensary's lawyer.

"Why does this whole new system have to be created?" Mr. DeAngelo
asked in an interview. "Let's bring these citizen farmers out of the
shadows and into the light and give them a role in this new industry."

Jeff Wilcox, a Bay Area businessman, is an outspoken proponent of the
industrial pot permits as well as a leading advocate for the
Proposition 19 initiative. Mr. Wilcox is hoping to obtain one of the
four permits to build AgraMed, a marijuana production complex on 7.4
acres beside Interstate 880 near Oakland International Airport.

AgraMed would include a bakery to create edible forms of marijuana, a
lab to test for potency and contaminants and 100,000 square feet of
cultivation space. If he obtains a permit, Mr. Wilcox said, he will
offer to lease space to smaller growers.

James Anthony, a lawyer for Harborside, said Mr. Wilcox was a
"Johnny-come-lately" motivated by profit, not by the desire to help
patients who use marijuana for medical reasons.

Mr. Wilcox responded that Harborside and its supporters had been
"sitting in the back just waiting."

"They started this campaign of lies to kill the cultivation permits," he said.

Mr. DeAngelo said he was not opposed to the Oakland plan, but wanted
to see a permit process that would benefit smaller growers, an
opinion that was echoed by many Tuesday at the meeting of the Public
Safety Committee.

Oakland is known as a marijuana-friendly city, but friendliness was
sometimes in short supply last week as Council members heard hours of
contentious public comment on the proposed ordinance.

The Council chambers were filled with members of the Bay Area
cannabis industry: dispensary owners, lawyers specializing in
medical-marijuana law, would-be permit applicants, subcontractors who
see the proposed factories as a means to expand their businesses and
growers of all stripes. The Bay Citizen

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Some expressed concern that allowing industrial marijuana factories
would drive down prices and squeeze out local cultivators.

"I think this ordinance is nothing more than a municipally sanctioned
monopoly on medical cannabis," one grower told the committee.

In a compromise effort, Vice Mayor Jean Quan and Councilwoman
Patricia Kernighan suggested that Ms. Kaplan and Mr. Reid devise a
similar permit process for medium-sized facilities. Those new rules
will be up for discussion in September, but in the meantime, some
growers worry that they are being run out of business.

"It's politics," said Dan Grace, who runs a 3,000-square-foot nursery
for young pot plants called clones. "All you can count on is what we
have now, and what we have now is not a process that allows for
medium-sized growers."

Councilwoman Nancy Nadel drew some applause from the audience when
she raised concerns that the cultivation ordinance was not legal
under state or federal law. "I don't see any rush to do this until we
know what happens in November," Ms. Nadel said, referring to the
ballot initiative.

Ms. Quan warned, however, that if Oakland did not act quickly, other
cities could seize the opportunity to become a hub for the expanding
medical-marijuana industry. "I want Oakland to be in place, so I want
to move this out," she said.

The debate was heated in part because the proposed ordinance has gone
through several revisions, and rumors have swirled about the
regulations. City Council members said they received a flood of calls
amid concerns that all dispensaries would be required to buy
marijuana from the industrial facilities. But that is not a requirement.

Until recently, cultivation of medical marijuana has not been closely
regulated in any California cities.

"Our real goal is to eliminate a lot of the public problems stemming
from illegal and unregulated cultivation," said Dhar Mann, an Oakland
businessman who plans to apply for one of the permits if the proposal passes.

A report attached to the proposal said residential electrical fires
in Oakland rose from 133 in 2006 to 290 in 2009, a spike, it said,
"likely attributable to cannabis cultivation." There were also eight
robberies, seven burglaries and two homicides linked to marijuana
growing, the report said.

Mr. Mann, 26, owns a 15,000-square-foot hydroponic supply store
called iGrow, which will soon open franchises in eight states. He
recently scouted another large-scale warehouse with an architect and
security contractor in the hope of growing marijuana there.

If he receives a permit, Mr. Mann said, he will outfit the building
with solar panels, a grass roof and a state-of-the-art security system.