MEDICAL MARIJUANA INDUSTRY GROWS MAINSTREAM

WASHINGTON -- The medical marijuana industry is beginning to show its age.

After humble California beginnings in 1996, 15 states and the
District of Columbia now have legalized marijuana use for ill
patients who have a doctor's recommendation.

Medical marijuana has been found to help with chronic pain, nausea
and other symptoms of diseases including cancer, muscular dystrophy
and AIDS. Nearly 25 million Americans are medically eligible to buy marijuana.

Sales are expected to hit $1.7 billion this year. Just last week, a
San Francisco-based outfit, the ArcView Group, formed the industry's
first investment network to link cannabis entrepreneurs to qualified
investors with "seed" money.

"It doesn't take a rocket scientist to realize that this industry is
growing and that there are untold riches to be made here," said Troy
Dayton, the chief executive of the ArcView Group.

In coming months, Arizona, New Jersey, Rhode Island and the District
of Columbia will launch programs, joining eight states where medical
marijuana is sold legally. Those states are California, Colorado,
Maine, Michigan, Montana, Oregon, Washington and New Mexico.

But around the country, some law enforcement officials have expressed
concern that medical marijuana could be obtained by relatively
healthy people who could get a recommendation from a physician by
lying or overstating their pain and suffering.

They also worry that some dispensaries could grow more marijuana than
their patients could consume, leaving an excess that could make its
way to the illegal market.

While legal for medical purposes in many states, marijuana remains an
illegal controlled substance under federal law, although since 2009,
the Justice Department has said it won't prosecute medical marijuana
use within the bounds of states' laws.

With more than 1,500 growing operations and dispensaries nationwide,
the medical marijuana industry has defied the recession and prospered
even as the broader economy stalled. This month, Maine began allowing
dispensaries to provide cannabis to seriously ill patients.

One of the new operators, Maine Organic Therapy, has been making home
deliveries to more than 20 patients for about three weeks, said chief
executive Derek Brock. Patients in Maine can purchase as much as 2.5
ounces every two weeks, or a maximum of 5 ounces a month.

Strong public support has helped fuel the industry's eastward
expansion, but that growth has also brought growing pains.

Industry reps say section 280E of the Internal Revenue Code unfairly
bars legal medical marijuana operations from deducting business
expenses from their income taxes. Dispensaries nationwide are facing
Internal Revenue Service audits over the measure. Other dispensaries
have found that banks won't maintain their business accounts, fearing
federal scrutiny over reporting requirements for ties to businesses
that violate federal law.

The National Cannabis Industry Association was formed late last year
to help address these concerns. On Wednesday, the trade group held
its first national lobby day, visiting lawmakers on Capitol Hill as
part of a push for greater legislative clout.

"These kinds of days are necessary, because it puts a face on the
industry," said Rep. Jared Polis, D-Colo., one of the industry's
staunchest supporters.

While 76 percent of medical marijuana sales nationally are generated
in California, Colorado has the nation's fastest-growing market. More
than 131,000 Coloradans are registered marijuana patients, up from
only 7,000 in 2008.

Colorado Dispensary Services, which operates three dispensaries and
three commercial growing operations, has had five different bank
accounts in three-and-a-half years, owing to state regulatory
friction. Owner Jill Lamoureux said it's impossible to manage nearly
50 employees and $120,000 in monthly payroll without a bank account.
State regulators have taken notice. "These regulators need to see our
bank accounts, and if we do not have access to banking, it makes it
impossible for them to regulate," Lamoureux said. "Frustrating is an
understatement to say how difficult it is to run a business" without
banking services.

Last year, Polis and seven other Democratic lawmakers wrote a letter
asking the U.S. Treasury to declare that it wouldn't target banks
with account holders that operate in compliance with state medical
marijuana laws. Federal regulators deferred, arguing that banks must
make those calls themselves.

Polis said he'll introduce legislation soon that clarifies banks'
responsibilities when dealing with marijuana dispensaries. He said
support for the issue is bipartisan, citing Republican Reps. Ron Paul
of Texas and Dana Rohrabacher of California as sympathetic to the
industry's plight.

Harborside Health Center, a nonprofit dispensary in Oakland, Calif.,
serves 79,000 patients, pays more than $3 million in state, federal
and local taxes and employs 80 people who get paid vacations and
401(k) retirement plans. Yet they've had their bank accounts closed
three times and are facing an IRS audit.

Stephen DeAngelo, the executive director of Harborside, said the
center is being treated like an illegal trafficker rather than a
community service organization. "We do not deserve to have our
accounts frozen or to be taxed out of existence," DeAngelo said.
"280E (of the IRS code) was intended for cocaine kingpins,
international smugglers and crystal meth dealers. It wasn't intended
for organizations like ours, and it shouldn't be applied to
organizations like ours."

Last year, Polis and five other Democrats asked the IRS to allow
legal medical marijuana operations to deduct their business expenses,
but the agency said it couldn't do so. Only Congress could amend the
Internal Revenue Code or the federal Controlled Substances Act.

Polis said that Democratic Rep. Pete Stark of California will soon
offer legislation to do just that.

Recent history suggests that clearing up the industry's tax and
banking concerns could boost its growth. In 2009, the Justice
Department issued a directive that people won't face federal
prosecution if they use or provide medical marijuana in compliance
with state laws.

That proved to be a "major growth driver" for the industry, prompting
hundreds of new marijuana businesses, while causing raids on
marijuana operations to drop 58 percent, said David Guard, a
researcher at See Change Strategy, an independent financial-analysis firm.

Becky DeKeuster realized medical marijuana's healing potential soon
after she quit her high school teaching job to work in a dispensary
in Berkeley, Calif., in 2002.

"On my first day there, I saw a patient in a wheelchair having
(multiple sclerosis) seizures. And, literally, with two puffs off a
joint, he stopped tremoring, and it was like, 'wow, this is
amazing,'" said DeKeuster, now the executive director of Northeast
Patients Group, which operates four dispensaries in Maine. "I'm
grateful to be in this industry and I consider it a blessing to be
able to do the work I do."