WHAT'S UP WITH OBAMA'S CYNICAL APPROACH TO MEDICAL MARIJUANA?

In October 2009, the Justice Department declared that prosecuting
medical-marijuana users and caregivers who clearly comply with state
laws was not a wise use of its resources. That declaration has
dominated public perception of President Barack Obama's policy on the
issue-minimal progress, but is a welcome improvement on his
predecessors.

In reality, however, the Obama administration has attacked
medical-marijuana providers on several fronts. Since January 2010, it
has staged more than 90 raids on dispensaries and growers, according
to figures collected by the patient-advocacy group Americans for Safe
Access. That represents a pace double the Bush administration's, says
ASA spokesperson Kris Hermes. The administration has also threatened
state officials with prosecution if they participate in licensing or
regulating medical marijuana. The Internal Revenue Service has
expanded auditing dispensaries for tax evasion, on the grounds that
drug-trafficking enterprises cannot legally claim business-expense
deductions.

In April, ASA gave Obama an F for his policy on medical marijuana.
He's "no better than Bush," says Hermes.

Allen St. Pierre of the National Organization for the Reform of
Marijuana Laws calls that stance "hyperbolic." "The previous ten
presidents did nothing," he says. Obama has "taken the federal hand
off the scale a wee bit."'

Most notably, the Veterans Administration and the Department of
Housing and Urban Development have revised regulations to acknowledge
the use of medical marijuana.

For example, although federal zero-tolerance laws prohibit
illegal-drug users from living in public housing or receiving rent
subsidies such as Section 8, HUD has given local housing authorities
in states that allow medical marijuana the discretion to not evict
users.

Still, St. Pierre worries that the combination of raids and IRS
harassment is seriously endangering medical marijuana. An unfavorable
court decision regarding the IRS audits "could end medical cannabis,"
he warns. "They're going the Al Capone route."

The VA is the bright spot, says Michael Krawitz of Veterans for
Medical Cannabis Access. Although it still forbids its doctors from
recommending marijuana, and possession is illegal on VA property, last
year it changed its regulations so that medical-marijuana use is no
longer an automatic violation of "pain contracts"-agreements patients
sign in which they state that they're not going to abuse their
prescription painkillers.

In practice, Krawitz says, some VA doctors still refuse to accept
medical-cannabis use, but "the feedback I've gotten from veterans,
especially Vietnam-era veterans, is that it's the first time the VA
did something because it's the right thing to do. Vets really
appreciate that."

Overall, he says, "I'm just completely baffled by what the
administration is doing. They're using the DEA and the IRS, but
they're trying to look like they're not going after medical marijuana."

Raids Keep Coming

Meanwhile, federal raids on dispensaries continue. On March 14, on the
eve of the Montana Senate's vote to repeal the state's
medical-marijuana law, federal agencies raided 26 growers and
dispensaries there. Hermes calls that "intimidation, with specific
intent to undermine a state law." On April 28, DEA agents raided more
than five dispensaries in Spokane, Washington.

The Spokane raids came three weeks after Michael C. Ormsby, federal
prosecutor for eastern Washington, had sent letters to the landlords
of more than 40 dispensaries in the area, warning them that their
property could be forfeited if they continued to rent to drug
traffickers.

"Nearly half have reported that they have evicted their tenants to
comply with federal law," says Ormsby spokesperson Tom Rice.

The touchstone here is a memorandum that Deputy Attorney General David
W. Ogden sent to federal prosecutors in October 2009. In it, he told
them that they "should not focus federal resources in your states on
individuals whose actions are in clear and unambiguous compliance with
existing state laws providing for the medical use of marijuana."
Prosecuting cancer patients and their caregivers, he added, "is
unlikely to be an efficient use of limited federal resources."

However, a February 2011 letter from U.S. Attorney Melinda Haag,
federal prosecutor for the Bay Area and Northern California, to
Oakland City Attorney John Russo significantly narrowed that policy.
While the "Ogden Memorandum" says the federal government will not
prosecute individual patients, she wrote, "we will enforce the [law]
vigorously against individuals and organizations that participate in
unlawful manufacturing and distribution activity regarding marijuana,
even if such activity is permitted under state law."

The Ogden memo does not grant dispensaries anything remotely
resembling immunity, Rice emphasizes. He points to clauses that state
that "prosecution of commercial enterprises that unlawfully market and
sell marijuana for profit continues to be an enforcement priority of
the department" and "claims of compliance with state or local law may
mask operations inconsistent with the terms, purposes, and conditions
of those laws."

Did the department consider whether Spokane dispensaries were in
compliance with state law before authorizing the raids? "No," Rice
replies. One dispensary, he says, "was across the street from a grade
school."

St. Pierre is not shocked by the raids. Many growers push the limits,
he explains. "The regrettable thing about the medical-cannabis
industry is that it's often acting in violation of state law," he
says. "50,000 plants is crossing that Rubicon."

One thing that provoked the backlash in Montana, he adds, is that some
dispensary owners were "charismatic." "Charismatic" in this context
sounds like a euphemism for the kind of evangelistic stoner who
believes that because they're doing Jah's work, providing the herb for
the healing of the nations, they don't have to worry about following
the finicky feinschmeckery of bureaucratic details-and that making
money is doing well by doing good.

Bill Panzer, a veteran Oakland defense lawyer, voices similar
sentiments. Twenty-five years ago, he says, his clients were mostly
pot smugglers "who knew they were taking a risk. Now, I'm representing
people who think everything they're doing is completely legal. They're
in for a rude awakening."

California law is so murky, he says, that 98 percent of the state's
thousand-odd dispensaries might be illegal. The only form that would
be definitely legal, he adds, would be "a true socialist collective"
in which all cultivated herb was divided equally among the members.
Instead, he says, lots of people are setting up co-ops and "acting
like sellers." The Obama administration has also continued Bush-era
prosecutions of medical-marijuana providers. On May 2, Californians
Dr. Mollie Fry and Dale Schafer turned themselves in to begin serving
five-year federal mandatory-minimum sentences. Fry, a breast-cancer
survivor, and Schafer, a hemophiliac, were raided in 2001. In 2007,
they were convicted of manufacturing and conspiracy charges for
growing more than 100 plants over several years. "The Obama
administration vigorously fought an appeal of their sentence," says
ASA.

In any case, the federal Controlled Substances Act maintains that
marijuana has no valid medical use, and thus any distribution of it in
the guise of "medicine" constitutes criminal sale of a controlled
substance. In the last few months, federal prosecutors have sent
letters reiterating that to governors and other officials in several
states, including California, Colorado, Hawaii, Montana, Rhode Island,
and Washington. The letters threatened that any official involvement
in licensing or regulating medical marijuana would expose state
employees to prosecution.

"We maintain the authority to enforce the CSA against individuals and
organizations that participate in unlawful manufacturing and
distribution activity involving marijuana, even if such activity is
permitted under state law," the Colorado letter, dated April 26,
stated. "It is well settled that a State cannot authorize violations
of federal law."

On April 14, the two federal prosecutors in Washington state warned
Gov. Christine Gregoire that if the state licensed medical-marijuana
cultivation and distribution, government employees who worked with
such a system could be prosecuted, and state property forfeited.

On April 29, Gregoire vetoed most of a bill to regulate
medical-cannabis sales and production. The provisions she rejected
included state licensing of dispensaries and a state register of
patients. She said she feared state workers would be subject to
arrest, and she urged the federal government to move marijuana to
Schedule II under the Controlled Substances Act.

IRS

The IRS first went after dispensaries during the Bush administration,
but it has greatly expanded such efforts under Obama.

More than two dozen dispensaries are now being audited, according to
Henry Wykowski, a former Justice Department tax prosecutor now in
private practice in San Francisco. Most are in California, he says,
including the massive Harborside facility in Oakland and a smaller one
in Marin County; at least one is in Colorado. Allen St. Pierre says he
expects the probes to expand to Rhode Island, Maine, Montana, and New
Mexico.

The law involved is Section 280E of the federal tax code, which
prohibits drug-trafficking enterprises from claiming business expenses
as deductions. "The government has brought 280E cases for years," says
Panzer, but "as far as saying, 'hey, we can use this to go after
dispensaries,' it started with Obama."

"I think the IRS didn't know what to do, because of the conflict
between federal law and state law," says Wykowski. "When it became
clear that there weren't going to be wholesale prosecutions, they
decided it was OK to audit."

However, the one case to reach the courts so far yielded highly
favorable results for medical marijuana. In 2007, the IRS assessed a
defunct San Francisco dispensary called CHAMP--Californians Helping
Alleviate Medical Problems--for $426,000 in back taxes and penalties
on $2 million in sales. A three-lawyer team that included Panzer and
Wykowski got the bill reduced to less than $5,000. The IRS refused to
negotiate-which is highly unusual in tax cases, says Wykowski-and lost
in court.

The IRS argued that because CHAMP sold marijuana illegally, those
sales should count as "an expanding drop of ink in a glass of water"
to disqualify deductions, Panzer explains. But because the dispensary
also provided social services, including counseling, nursing, housing
assistance, and massage; hosted support groups for AIDS patients and
others; and put on social events, the judge agreed that 90 percent of
its rent was deductible.

Paradoxically, the judge also let CHAMP deduct the wholesale cost of
the medical pot it sold. This is a principle called "cost of goods"
that dates back to Prohibition, Wykowski explains. The issue is
complex, but basically, he says, there is legal authority that people
cannot be forced to incriminate themselves in order to pay taxes. The
'70s Harlem heroin dealer Nicky Barnes used to file tax returns
anonymously, and "the right to selectively assert Fifth Amendment
privilege has been recognized by the courts."

It would be self-incriminatory for a taxpayer to report their
occupation as "marijuana grower," Wykowski adds. Disallowing the
cost-of-goods deduction "would have made it impossible for any
dispensary to remain in business." Still, with the IRS continuing to
audit dispensaries under Section 280E, that makes lawyers in the field
fear a bad precedent. Other dispensaries may not have as strong a
case, keep good records, or have the financial and legal resources to
defend themselves.

"We are concerned that someone who doesn't know what they're doing
will take a bad case to court and lose, and jeopardize everyone else
in the industry," Wykowski says." The conflicts between federal and
state law and between tax and criminal law also create a massive
record-keeping dilemma for dispensaries. If they keep accurate and
complete records, they can prove that they're acting like a legitimate
business, a legitimate medical-services provider-but they're
potentially handing the federal government a cut-and-paste indictment.

"The same records that can help you in state court can screw you over
in federal court," says Panzer. If the amount of cannabis a dispensary
grows, buys, or distributes is tallied cumulatively over several
years, it can be large enough to trigger a five-or ten-year
mandatory-minimum sentence.

Rescheduling

The overriding fact is that the Controlled Substances Act, enacted in
1970, puts marijuana in Schedule I, saying it has "a high potential
for abuse, has no currently accepted medical use in treatment in the
United States, and has a lack of accepted safety for use under medical
supervision." Thus, the law does not recognize "medical use" as a
valid defense to charges of possession, sale, or cultivation. As far
as federal law is concerned, medical-marijuana users are the
equivalent of junkies, no matter how sick they are, and the
dispensaries and growers that supply them are little different from
crack dealers and meth-lab operators.

This rule is tied into a host of other laws intended to prohibit
money-laundering and the like. Medical-marijuana users in public
housing and landlords who rent to dispensaries run afoul of laws
intended to close crackhouses.

The obvious solution, at least to those in the medical-marijuana
movement, would be for the federal government to move marijuana out of
Schedule I and into the realm of legitimate prescription drugs. Even
moving it to Schedule II would gain it that status, although under
controls as strict as those for OxyContin or medical cocaine. Marinol,
the synthetic THC that is the prime legal cannabinoid drug, is in
Schedule III, along with codeine.

That is not likely to happen soon. The Drug Enforcement Administration
has jurisdiction over scheduling. In 2002, a coalition including
NORML, ASA, and Virginia cannabis-policy expert Jon Gettman filed a
petition to reschedule marijuana for medical use. It "has been
languishing without a response from the DEA for nearly nine years,"
says an angry Dale Gieringer of California NORML. "They're sitting on
our petition."

The DEA, he says, has also "blocked efforts to establish a legal
medical marijuana research garden," which would provide the scientific
background needed to obtain Food and Drug Administration approval.

"If the federal government would stop fighting the rescheduling
process, we could have a resolution," says St. Pierre. "They're not
choosing to lead."

The DEA, headed by Bush holdover Michelle Leonhart, remains resistant.
Its official stance, the lead item in "DEA Position on Marijuana," a
54-page booklet issued in July 2010, is that medical marijuana is a
"fallacy," that "smoked marijuana is not medicine," and there is "no
sound scientific evidence that smoked marijuana can be used safely and
effectively as medicine."

It blames "organizers of the 'medical' marijuana movement" for failing
to ensure that "the product meets the standards of modern medicine?.
[There is] no safety regulation, no way to measure its effectiveness
(beyond anecdotal stories), and no insurance coverage." It calls the
entire idea that marijuana has medical use "false-trickery [sic] used
by those promoting wholesale legalization."

"I don't think that's happening any time soon," a DEA spokesperson who
refused to give his name said of rescheduling. "I don't see any
movement on that. The science hasn't borne it out."