POT CLUBS' DIZZYING PROFITS DRAWING DEA'S ATTENTION

LOS ANGELES -- Federal agents trailed Sparky Rose as he drove a
Porsche Carrera convertible to his medical marijuana clinic.

For the U.S. Drug Enforcement Administration the fancy car was a sign
Rose might be pocketing big money from the purportedly nonprofit
clinic, New Remedies Cooperative.

An investigation turned up records showing $2.3 million was deposited
in a New Remedies bank account in eight months starting in December
2005. Rose also wrote himself weekly checks of $9,600, according to
court papers.

When Rose was arrested in October and accused of illegal drug
trafficking -- charges he denies -- authorities seized $125,000 in
cash, thousands of pot plants and the Porsche from his San
Francisco-area clinic.

Under California law, clinics are supposed to dispense marijuana just
to seriously ill people and owners are to get only "reasonable
compensation" for their services. But oversight is lax and there are
few specific guidelines for buyers and sellers of a drug still illegal
under federal law.

Who can open a clinic, what constitutes reasonable compensation and
who can grow and supply marijuana are all open to broad interpretation
- -- factors that have helped fuel a surge in new clinics. Oakland,
Santa Rosa and even famously permissive West Hollywood are among
cities that have imposed moratoriums on new clinics amid concerns
owners and buyers are abusing the law.

The DEA also has taken notice, embarking on a stepped-up effort
targeting clinics run by people like Rose who appear to flout the
reasonable compensation provision.

Federal officials raided 11 Los Angeles-area dispensaries in one day
in January, the largest-ever such crackdown.

DEA spokeswoman Sarah Pullen said authorities chose clinics that were
making big money, had become hot spots for crime or were part of large
franchises. The raided clinics on average raked in $20,000 in profits
each day, she said.

Many clinics were buying pot wholesale from street dealers and
reselling it for twice the roughly $100-an-ounce black-market rate,
Pullen said. "It's become something we can't ignore," she said.

The investigation is ongoing and has yet to produce any arrests or
charges. Some clinics have remained closed while others reopened.

West Hollywood City Councilman Jeff Prang said the federal government
should leave it to local governments to monitor and regulate marijuana
dispensaries that provide relief for those suffering from cancer,
Parkinson's, AIDS and other debilitating diseases.

"It's a real sad day for the DEA if these type of facilities are that
high on the list of priorities," he said.

California was the first of 12 states to allow the sale of marijuana
for medicinal purposes, mainly pain control, and is regarded as having
the loosest regulations.

In Los Angeles alone there are about 100 dispensaries, up from just
four in 2005, according to Police Chief William Bratton, who has
called for a moratorium on new clinics in the state's largest city.

Police, clinic owners, activists and legislators -- even the author of
the law -- can't say for sure how much money clinic owners can legally
earn.

Former state Sen. John Vasconcellos, the San Jose-area lawmaker who
authored the 2003 law, has no problem with clinic owners earning hefty
salaries as long as they provide help for ill people. He said the
federal government should mellow out.

"We're helping people who are sick and they have this fascist
mentality against good health and pleasure," Vasconcellos said.

Law enforcement officials like Bratton, however, believe some enhanced
state or local regulations are needed to keep drug dealers from
operating behind a veneer of legitimacy.

They cite recent DEA targets, such as 26-year-old Luke Scarmazzo,
co-owner of a Modesto clinic. A video for his rap song "Business Man,"
shown at his bond hearing, features him counting wads of $100 bills,
puffing what appears to be pot smoke into the camera and cursing
federal authorities.

Records at Scarmazzo's clinic, co-owned by Ricardo Ruiz Montes, 26,
showed the pair made more than $4.5 million in marijuana sales from
October 2004 to June 2006, according to the DEA.

Authorities seized a 2007 Mercedes, two loaded handguns and some 60
pounds of processed marijuana from the clinic.

Rose attracted the DEA's interest after local police raided a West
Hollywood clinic he ran in 2005 and seized almost 700 pounds of pot,
$242,000 in cash and evidence of nearly $2 million in bank deposits
from the business and pay sheets "reflecting enormous profits,"
according to court papers.

Rose claims his clinics are nonprofit, though they and others were not
listed in a database of IRS-registered nonprofit companies.

At the time of the arrest, DEA Special Agent in Charge Javier F. PeIna
scoffed at that claim, saying anyone who uses marijuana proceeds to
"buy fancy cars, boost their bank accounts, and exploit vulnerable
citizens is not compassionate. They're criminal."