ALTERED STATE: CALIFORNIA'S POT ECONOMY

In the late 1990s, soon after California became the first state in
the nation to legalize medical marijuana, Matt Cohen moved to Oakland
and began growing pot for a local dispensary. He ran a large buyers'
club for a while, got involved in a lawsuit that arose out of a
federal raid and eventually made his way north to the so-called
Emerald Triangle, the lush marijuana-growing haven that includes
Mendocino, Trinity and Humboldt counties.

These days, he lives deep in the ultra-private hills northeast of the
town of Ukiah, doing what he loves best: cultivating organically
grown cannabis with boutique names like Malawi Epic Blend, Purple
Legend and Purple Urkle.

Cohen, 33, has a long ponytail and wears jeans, patterned shirts and
pointy leather boots.

He lives with his fiancee and their dog in a sprawling ranch house
that has an aquamarine-tiled pool and a porch with a barbecue resting
atop wooden planks.

Potted sunflowers add a splash of yellow.

Off to the side flies a large American flag. But for all these
laid-back trappings, Cohen doesn't really have a hippie vibe. Rather,
he seems to style himself, first and foremost, as an entrepreneur.
His property is surrounded by $10,000 worth of state-of-the-art
security sensors, protection for ninety-nine enormous cannabis plants
capable of producing perhaps $1 million worth of pot in a good season.

The crop, licensed and regulated by Mendocino County, is grown for
Northstone Organics, a medical marijuana co-op that serves more than
800 patients in Northern California. Northstone is a paid-up member
of the local Chamber of Commerce; along with fifteen other licensed
pot-growing sites in the county, it is increasingly considered a
pillar of the local business community.

Under the gorgeous night sky of the remote countryside, Cohen,
carrying a long flashlight, offers me a tour of his site. There are
rows of Super Silver Haze-a prize winner at the High Times Cannabis
Cup in Amsterdam, he mentions.

KC Jones plants soar up to fourteen feet in the air. Maui Wowie.
Kush. LA Confidential. An English clone improbably named Blue Cheese.
I can't decide if they're beautiful or intimidating. There's
something primeval about them, something Triffid-like.

Cohen talks about Michael Pollan's The Botany of Desire, nature's
ways of luring admirers in via gorgeous aromas and other
aesthetically pleasing adornments. Rub the ripening buds between your
fingers and smell the sticky resin, he suggests, stroking his goatee
as he talks.

There are lemon smells, orange, sickly sweet air puffs and gentle,
almost menthol-like timbres.

In Cohen's freezer, in a shed off to the side of the grow area, are
an array of edibles, from brownies to peanut butter cookies to
cooking oils, some vacuum-sealed, some in simple plastic containers,
all with the requisite warning labels.

The future of marijuana distribution, he has concluded, lies in
packaging: seal the goods well, and you can store them for months,
enough to tide a user over from one harvest to the next.

"We want Mendocino to be the Napa of cannabis," Cohen explains in a
soft but authoritative basso voice. "Tasting rooms,
cannabiseries-like a winery.

You have a huge tourism industry in Amsterdam-and there the coffee
shops aren't legal; they're just tolerated. And growing is
underground. Tourism in Mendocino could be bigger than pot tourism in
Amsterdam. Sustainable cannabis production, lots of beautiful smells
in the air." One day, he imagines, there could be "bud 'n' breakfast"
inns and boutique mom-and-pop marijuana farms.

Sure, there's an element of utopianism in all this. But then again,
this is the part of the country that saw a generation of '49ers come
to seek their fortune in gold and more recently brought a generation
of hippie back-to-the-landers to its hills, and, farther to the
south, a flock of dot-com dreamers to Silicon Valley. Today, from the
producers' perspective, there's no doubt that a modern-day gold rush
has been unleashed.

The California State Board of Equalization estimated that the state's
medical marijuana industry brought in as much as $105 million in tax
revenue last year. As growers like Cohen scramble to capture their
share of this booming market, they are fighting to protect their turf
as aggressively as the '49ers did their gold claims in the
mid-nineteenth century-and, in the process, determining the shape of
the state's pot economy for years to come.

That struggle reached a fever pitch this year as California
considered Proposition 19. The landmark ballot initiative proposed
creating a locally regulated market for recreational pot for adults
21 and older; providing legal protections for those growing marijuana
in areas of twenty-five square feet or less; and establishing
mechanisms for local governments to tax sales of the crop.

Prop 19 was the brainchild of Oakland-based marijuana mogul Richard
Lee, who drafted the legislation and pumped nearly $1.5 million into
the Yes on 19 campaign.

The effort reflected his financial interests, of course-as a large
grower, he stands to benefit enormously from legalization. But it
took off in large part because it also reflected the popular mood. A
recent Gallup poll found that a historic high of 46 percent of
Americans favor legalizing the drug. And many politicians, following
their constituents' lead, have also made it clear that they don't
view marijuana use as a particularly heinous activity. Fiscal
concerns have likely boosted prospects as well: a recent study on
legalization by the RAND Corporation's Drug Policy Research Center
estimates that the state could see tax revenues in the $650 million
to $760 million range, rising perhaps to $1.5 billion with increases in demand.

At the same time, law enforcement costs would decline by several
hundred million dollars per year as the state absented itself from
the business of anti-pot enforcement. All tempting numbers for a
state as cash-strapped as is California.

In the months leading up to the midterm elections, many legalization
advocates were convinced they were on the cusp of a historic victory.
Through October most polls put Prop 19 ahead.

But in the final weeks of the campaign, after Attorney General Eric
Holder announced that the government would continue to "vigorously
enforce" federal drug laws in California even if the measure passed,
support dipped below 50 percent.

Deepening the problems for proponents, young voters, who were
expected to help secure victory by coming to the polls in big
numbers, weren't enthused by the election.

On November 2, with a low youth turnout and the electorate
disproportionately made up of elderly, culturally conservative
voters, marijuana legalization went down to a seven-point defeat.

In areas like the Central Valley and, more crucially, the
conurbations of Southern California, large numbers of elderly voters
shied away from the Yes on 19 campaign.

Many of these aging boomers fervently support medical marijuana laws,
but they aren't quite ready to make the leap to full legalization.
"Why it lost," argues Stephen Gutwillig, the Los Angeles based state
director of the Drug Policy Alliance, "is pretty pedestrian: it
always faced the enormous structural challenges posed by a midterm
election, by the typical midterm electorate."

But there's another factor that contributed to the campaign's defeat,
one that reflects an essential and increasingly significant split
within the community of California growers.

As John Geluardi documents in his new book Cannabiz, old-timers, who
had viewed their growing activities as part of a larger
back-to-the-land organic movement, felt blindsided by younger, less
eco-conscious, more aggressive growers infatuated with the quick
profits to be made using hydroponic techniques and raising pot plants
indoors year-round. As a result, some of the most vocal opponents of
Prop 19 weren't politicians opposed to marijuana use but small
growers and medical marijuana advocates, many of them elderly, who
felt that the initiative was intended to corporatize marijuana, a
Trojan horse that would pave the way for a market takeover by the
"Oakland oligarchs." Windows to their Linux, Budweiser to their
microbrews. Richard Lee is as loathed by many growers today as were
the Campaign Against Marijuana Planting (CAMP) enforcers of the
Reagan era, so brilliantly portrayed by Thomas Pynchon in his book Vineland.

In Mendocino and Humboldt counties, only 47 percent of the electorate
voted in favor of Prop 19. "Most were voting no on this out of
fear-conspiracy theories that are out there that R.J. Reynolds is
buying up the land," says Cohen, who supported the initiative but who
knows many people in the industry who voted no. "There's this
consensus among these underground growers that once it's legalized
the prices will drop so much they won't want to be in the business."

For 55-year-old Syreeta Lux, chair of the Humboldt Medical Marijuana
Advisory Panel and the matriarch of a family with three generations
involved in the Emerald Triangle pot culture, Prop 19 would have been
a mixed blessing.

On the one hand, Lux, whose great-uncles were Chicago bootleggers
during Prohibition, thought it would have been good to bring growers
in from the cold and put them into the tax and Social Security system.

On the other hand, she was terrified by the implications of legitimacy.

"I would like to see the best practices of what is already going on
in the industry be highlighted and become examples for the rest of
the state and country," Lux says. An ideal pot market, she thinks,
would be one in which small-scale growers would have a single license
for growing, processing and retailing, and could get tax credits for
embracing sustainable, environmentally conscious methods.

But Lux feared that Prop 19 would have created a rather different
situation in which trimmers' wages would decline from the current
rate of $18 per hour to $8 (the recent Teamsters' move to unionize
pot workers might well have stood in the way of such a wage cut) and
family growers, no longer able to make a decent living, would instead
have to rent themselves out to agribusiness.

"We thought it was important to air the issues now," says Richard
Lee. The campaign, he adds, "achieved a lot of our objectives by
making people take the issue seriously.

That's the first step to getting people to pass it in the future.

We've got a lot of new allies: unions, civil rights organizations. We
see it as a good start."

Prop 19 did indeed help forge an impressively broad coalition.

And even in defeat, the campaign significantly advanced the national
debate about marijuana.

A large number of Californians bought the arguments that pot ought to
be taxed and that legalizing the drug would deal a more powerful blow
to the bloodthirsty cartels running marijuana up from Mexico than
would the enforcement activities of the US and Mexican governments.
If pot is big business, many concluded, far better to do away with
the violence associated with it and render the industry licit-as
occurred following the renormalization of the alcohol market in 1933.

In many ways, though, the "good start" Lee refers to occurred years
ago. Prop 19 also highlighted the dirty little secret that California
and an increasing number of other states are well on their way to
creating an above-ground, sophisticated marijuana cultivation and
distribution system.

The participants in this system do not behave as if they are engaged
in criminal transactions on the black market.

It is, says Lux, a "gray market," straddling the boundaries of licit
and illicit. To a large degree, as long as the participants don't
cross certain informal lines, neither do law enforcement agencies or
district attorneys.

That new reality was reflected in Governor Arnold Schwarzenegger's
signing of a law, at the height of the Prop 19 campaign, that makes
possession of marijuana no more serious than a parking ticket.

It was also reflected in a proposed bill, introduced by State
Assemblyman Tom Ammiano, that was intended to create a statewide
taxation and regulation infrastructure for the sale of cannabis in
the event Prop 19 passed.

Increasingly, as cities and counties look to tap into the tax
potential of this gray market, large producers are discovering that
they have a seat at the table.

Even with the defeat of Prop 19, the Oakland City Council is poised
to approve four mega-grows, each with about 5,000 hydroponic lights;
the council would charge each mega-grow an annual fee of $211,000.
Before the election, rumors were doing the rounds in Humboldt County
that the big growers of the region had formed a cartel to lobby the
county to approve a series of three-acre grows-far larger than the
twenty-five-square-foot grows ostensibly permitted by the
proposition-the produce from which they would, of course, pay hefty taxes on.

Prop 19's defeat might have postponed this process, but it hasn't
really neutralized it. Because of the rise in medical marijuana use
and the increasing political clout of the dispensaries, as well as
growing public acceptance of marijuana, California's pot industry
isn't about to be delegitimized anytime soon. The outcome of the
closely contested election for state attorney general, in fact, makes
expansion even more likely: Los Angeles District Attorney Steve
Cooley, who ran for state attorney general on the GOP ticket, wanted
to rein in the medical marijuana industry; his opponent, San
Francisco DA Kamala Harris, showed no such enthusiasm for a new
antimarijuana campaign.

Harris's narrow victory should provide medical marijuana advocates
space to develop their industry over the coming years.

In the fourteen years since California voters passed Proposition 215,
legalizing medical marijuana and, in effect, decriminalizing pot use
for millions of Americans, California's cities and counties have
struggled with how to regulate the industry and shape the market.
Some officials passed tough restrictions, trying to drive the nascent
industry out of their jurisdictions. Others tried to ignore the
issue, hoping that medical marijuana was a fad that would run its
course and disappear.

In Los Angeles, a sort of anything-goes pot mania developed, forcing
city leaders to try belatedly to curb the hundreds of dispensaries
that had sprouted up around the city, many hardly bothering to
disguise their pot-pimping interiors with a medical facade. (By 2010
an estimated 500 dispensaries were operating in LA.)

A few areas, like Oakland, Berkeley and, most recently, Mendocino
County, moved aggressively to establish broad regulatory structures,
hoping to bring in large amounts of tax revenue by becoming medical
marijuana friendly.

Oaksterdam University, a somewhat seedy and decidedly nonacademic
institution in downtown Oakland run by Richard Lee-its entrance is
guarded by beefy, tattooed young men who look more like bouncers than
university service employees-flourished, as did a rising number of
huge dispensaries cum marijuana clubs. Proponents stated the goal of
Oakland becoming the nation's cannabis capital.

At first, under Presidents Clinton and George W. Bush, the Office of
National Drug Control Policy threatened to close down the
dispensaries and to prosecute users and sellers alike.

Sometimes-in actions that bore similarities to the aggressive sweeps
of the Reagan-era CAMP-they made good on their threats with heavily
publicized raids and trials.

More recently, however, under President Obama, the feds have toned
down the rhetoric, letting more and more states go their own way
(medical marijuana use has been legalized in fifteen states and the
District of Columbia, and several others are considering it).

As growers gained limited legal protections, they began to grow more
and sell more openly.

Psychologically, even if not according to the letter of federal law,
the industry began to come in from the cold, its producers and
consumers asserting their "right" to dabble with a substance that
until recently was as little tolerated by the courts and political
establishment as cocaine, heroin, meth and the other illicit
chemicals catering to Americans' narcotic fancies.

For politicians in many districts, the marijuana industry became an
important friend.

Prices plummeted in the wake of Prop 215, from about $5,000 a pound
for high-grade cannabis to about $3,000. Had Prop 19 passed in
November, some growers predicted, the prices would have continued to
collapse, sinking to $1,000 or even $800 in coming years.

That was enough to push many growers into the No on 19 camp. But
others were quick to point out that lower prices have, at least in
the past, been offset by a huge increase in the volume sold. After
medical marijuana passed, more Californians, protected by the
designation "patients," were smoking ever more pot, no longer fearful
of law enforcement sanctions; and, say producers, an increasing
surplus of the state's weed ended up on the black market elsewhere in
the country.

A study by researchers at Humboldt State University found that before
Proposition 215 the per-capita energy usage rates in Humbolt were
consistent with the state's average.

These days, the authors found, the rates far exceed the state average.

The spike, they postulate, has to do with the explosion in the number
and size of indoor grows in the region in recent years.

Humboldt pot was morphing from being an eco-conscious fringe crop to
being an ecologically devastating agribusiness. In Emerald Triangle
towns like Garberville, local businessmen quietly asserted, upward of
80 percent of the economy was kept afloat on cannabis dollars.

In the erstwhile counterculture Mecca of Venice Beach, one storefront
dispensary after the next set up shop. In the antechambers, marijuana
"recommendations" were filled in for any and all "patients" willing
to part with a few hundred dollars for an instant (and implicitly
guaranteed) diagnosis offered up by a "kush doctor." Elsewhere, the
new trade was somewhat more discreet but just as prevalent.

Marijuana produce distributors and co-ops began advertising online,
many, like Northstone, offering door-to-door delivery service.

Today, California has more than 300,000 registered medical marijuana
users. These residents puff openly, hold conferences, share recipes.
They talk about the "right" to marijuana.

And they are backed by a network of drug reform groups, from the Drug
Policy Alliance to NORML to the Marijuana Policy Project, more than
willing to go to court to defend these "rights."

While at least some of the medical benefits attributed to the drug
are real-the pain and nausea relief that marijuana affords patients
suffering from cancer, Parkinson's, AIDS and a range of other serious
diseases is well documented-the rhetoric around it is rather
self-serious. At the 707 Cannabis College, hosted in a small building
down a little alley in Garberville, just south of the Avenue of the
Giants redwood groves, a NORML staffer lectures an aging audience on
the medical uses, down through history, of marijuana.

There are interesting trivia points-Queen Victoria was prescribed pot
for her menstrual cramps; Robert Louis Stevenson was a fan; Indians
used hashish to counter muscle spasms and to treat rabies and
tetanus-and there's also a huge amount of earnestness. Cannabis, in
this world, is no longer about illicit pleasure, hedonism, fun.
Rather, it's about curing aches and pains, medicinal rights.

This isn't the pot of Easy Rider or Cheech and Chong; instead, it's a
public service announcement, full of bureaucratese, somewhat dour,
deliberately antihedonistic.

In San Francisco, at the end of September, the fabled Cow Palace
arena-host to most every large rock music act over the past
half-century-even held an International Cannabis and Hemp Expo.
Vendors were selling every drug-growing, drug-ingesting invention
under the sun; lawyers, bail bondsmen, security system specialists
and insurance agents were hawking their wares to growers; and doctors
set up shop inside discreet blue-curtained cubicles to sign marijuana
recommendations that would allow hale-and-hearty-looking young
"patients" access to a smoke- and reggae-filled "Proposition 215
area" adjacent to the parking lot. Sealing the deal, extraordinarily
scantily clad "promotional models" lured customers to part with their
money at the various booths.

It was pot-meets-Vegas glitz.

It was also confirmation of many small growers' fears that as the pot
economy scales up, the eco-values on which it was once based will be
lost in the mix, their communities overwhelmed by kitsch tourism
catering to weekend stoners who come to have a good time and take
some photos before heading home to Levittown.

"How can we hold on to the values that we have had?" asks Lux. "The
people who came as part of the back-to-the-land movement were exiting
from the mainstream. Now what's happening is forcing a counterculture
industry into the mainstream, and it'll have to play by mainstream
rules. Everybody is freaking out about it."

Her friend Charley Custer-who runs the Tea House Collective, a group
of growers determined to resist the indoor-grow business
model-agrees. Wiry and tall, decked out in Buddy Holly spectacles, a
red-and-brown checked shirt and jeans with a turquoise-buckled belt
and a red bandanna poking out of the back pocket, Custer sips his
herbal tea, picks at a plate of onion rings and talks about the
organic outdoor-grown pot he has cultivated for a generation.

"As Louis XVI so rightly observed, 'All change is inherently bad,'"
he says, half-serious, half-joking. "We didn't move here to
modernize; and I say that as a leftist activist." For Custer, a
onetime community organizer on Chicago's tough South Side, Humboldt's
"precious, ancient, herbal botanical" is at risk of being lost to
"corporate captivity," what he describes as "the Babylonian prison of
lights and monocultures, bug sprays and industrial pollution." Yes,
he says ruefully, a lover pondering a vanishing love, Humboldt's
back-to-the-landers were, and are, generally of privileged
backgrounds. But they managed to create something unique, and that
something, he fears, would likely be swept away by legalization.

Following the demise of Prop 19, it's likely that the pot economy in
California will settle back into the odd but familiar equilibrium of
the gray market.

Despite Richard Lee's optimism that a Prop 19 like initiative will
pass in 2012-and despite a poll released immediately after the
election that found that 31 percent of those who had voted no on Prop
19 favored some form of legalization or reduced penalties but didn't
like specific language in the measure-the defeat suggests that,
absent a change of heart at the federal level, full legalization may
not be on the immediate horizon.

Yet that doesn't mean the drug is being pushed back into the closet.

In the wake of Prop 19, growers will return not to the darkness of
the underground but to the dim lights of the shadows-still
vulnerable, in theory at least, to federal raids but increasingly
tolerated and even wooed by local and state politicians. The market
is in place, and no one in California is talking seriously about
tearing it down.