California finds pot is a huge cash cow

SAN FRANCISCO — A drug deal plays out, California-style:

A conservatively dressed courier drives a company-leased Smart Car to an apartment on a weekday afternoon. Erick Alvaro hands over a white paper bag to his 58-year-old customer, who inspects the bag to ensure that everything he ordered over the phone is there.

An eighth-ounce of organic marijuana buds for treating his seasonal allergies? Check. An eighth of a different strain for insomnia? Check. THC-infused lozenges and tea bags? Check and check, with a free herb-laced cookie thrown in as a thank-you gift.

It's a $102 credit-card transaction carried out with the practiced efficiency of a home-delivered pizza — and with just about as much legal scrutiny.

More and more, having premium pot delivered to your door in California is not a crime. It is a legitimate business.

Since the state became the first to legalize the drug for medicinal use, the weed the federal government puts in the same category as heroin has become a major economic force.

Based on the quantity of marijuana that authorities seized last year, the crop alone was worth an estimated $17 billion or more, dwarfing any other sector of the state's agricultural economy.

And pot also props up local economies, mints millionaires and feeds a thriving industry of startups — stores that sell high-tech marijuana-growing equipment, pot clubs that pay rent and hire workers, chains of for-profit clinics that specialize in medical-marijuana recommendations.

The plant's prominence does not come without costs, some critics say.

Marijuana plantations in remote forests cause severe environmental damage. Authorities link the drug to violent crime in otherwise quiet small towns.

Still, some lawmakers are pushing for broader legalization as a way to shore up the finances of a state that has teetered on the edge of bankruptcy. The state's top tax collector estimates that taxing marijuana like liquor could bring in more than $1.3 billion annually.

On Tuesday, Oakland will consider a measure to tax the city's four marijuana dispensaries, which the city auditor projects will ring up $17.5 million in sales in 2010. The city faces an $83 million budget shortfall, and it expects the marijuana tax to raise $315,000.

With a recent poll showing more than half of Californians supporting legalization, pot advocates believe they will prevail.

And they say other states will follow.

Tim Blake is the proprietor of a 145-acre spiritual-retreat center that holds an annual marijuana bud-growing contest in the heart of Northern California's pot-growing country.

Politicians, he says, are "going to see the economic benefits, they're going to see the health benefits and they're going to jump on the bandwagon."

Where it's grown

On a property flanked by vineyards, Mendocino County farmer Jim Hill grows marijuana for up to 20 patients, including himself and his wife.

Hill's plants enjoy careful nurturing in a temperature-controlled greenhouse. On a recent spring day, his college-age son spread bat guano to fertilize two dozen 6-foot-tall plants.

Hill, 45, says he spent $10,000 to set up the garden. Patients receive their drugs free in exchange for helping with his crop.

"It's kind of like living on an apple orchard," Hill said. "You don't pay for an apple."

Although marijuana is cultivated throughout California, the most prized crops come from the forested mountains and hidden valleys of Mendocino, Humboldt and Trinity counties — the Emerald Triangle.

The economic impact is difficult to gauge. Authorities say the largest grows are run by Mexican drug cartels that simply funnel money from forest-raised crops into their bank accounts.

Still, marijuana money from outdoor and indoor plots inevitably flows into local coffers. Marijuana increases residents' retail buying power by about $58 million countywide, according to a Mendocino County report.

Business boost

In Ukiah, the county's largest city at 11,000 residents, business owners say the extra cash is crucial. "I really don't think we would exist without it," said Nicole Martensen, 37, whose wine and garden shop is stocked with bottles from county vintners.

Mendocino County Sheriff Tom Allman says medical-marijuana operations that follow state and county laws will face no hassles from his department. His deputies left intact 154 marijuana grows they visited last year, he said.

"If you're living in the boundaries," Allman said, "I'm not going to mess with you."

Which is not to say there is no legal risk to growing, selling or buying marijuana. Federal laws still apply, and pot dealings not deemed medicinal are considered criminal by the state, where police made about 74,000 pot-related arrests in 2007.

Even people accustomed to buying marijuana over the counter are impressed when they visit the Farmacy, a dispensary-cum-New-Age apothecary with three locations in Los Angeles. Decorated in soft beige and staffed by workers in lab coats, the Venice store sells organic toiletries, essential oils and incense along with 25 types of marijuana stored in glass jars.

During a two-hour span, the dozen or so customers who made a purchase all bought pot products and paid the 9.25 percent state sales tax on top of their purchases. The clubs, which are not supposed to turn a profit, call their transactions "donations."

"Green rush"

Allen Siegel is 74; he is dying of cancer and wants to try smoking marijuana to ease his pain without knocking him out like prescription drugs do. So his wife, Ina, brought him to the Farmacy for his first visit as a legal pot patient.

"You go in there, and they have so many choices," she said.

California's "green rush" was spurred by a voter-approved law 13 years ago that authorized patients with a doctor's recommendation to possess and cultivate marijuana for personal use.

Although a dozen other states, including Washington, have adopted similar laws, California is the only one where privately owned pot shops have flourished. Los Angeles County alone has at least 400 dispensaries and delivery services, nearly twice as many outlets as Amsterdam, the Netherlands capital whose coffee shops have been synonymous with free-market marijuana for decades.

California's pot dispensaries now have more in common with a corner grocery than a speak-easy. They advertise freely, offering discount coupons and daily specials.

Justin Hartfield, a 25-year-old Web designer and business student, founded WeedMaps.com, where pot clubs and doctors who write "medi-pot" recommendations list their services and users post reviews. Hartfield says the year-old site brought in $20,000 this month, an amount he expects to double in August.

Like virtually everyone else connected to the cannabis trade, Hartfield has a letter from a doctor that entitles him to buy medical marijuana. But he sees no point in pretending he is treating anything more than his taste for smoking weed.

"It is a joke," he said. "It's a legal way for me to get what I used to get on the street."

The future of cannabis

What would happen if marijuana was legal — not just for medical uses, but for all uses?

Assemblyman Tom Ammiano, D-San Francisco, wants the state to tax and regulate all pot as it does alcohol. State Board of Equalization Chairwoman Betty Yee, a supporter, projects the law would generate $990 million annually through a $50-per-ounce fee for retailers and $392 million in sales taxes. (The state now collects $18 million each year in taxes on medical marijuana.)

Meredith Lintott, Mendocino County's district attorney, argues that big-time growers never would bother filing tax returns. "Legalizing it isn't going to touch the big money," she said.

But others predict the black-market business model would fall apart.

Large-scale agri-businesses in California's Central Valley would dominate legal marijuana production as they already do bulk wine grapes, advocates argue. Pot prices would fall dramatically, forcing growers to abandon costly clandestine operations that authorities say trash the land and steal scarce water.

And legalization, supporters insist, would save state and local governments billions on police, court and prison costs.

But others survey California in 2009 and say the cannabis future is now. Richard Lee has parlayed two Oakland dispensaries into a mini-empire that includes a marijuana-lifestyle magazine, a starter-plant nursery and a three-campus marijuana trade school. Oaksterdam University's main campus is a prominent fixture in revitalized downtown Oakland.

All without legalization.

The information in this article, originally published July 19, 2009, was corrected July, 29, 2009. An Associated Press story on medical marijuana in California gave the impression that the federal government puts marijuana, heroin and cocaine in the same category. In fact, marijuana and heroin are Schedule 1 drugs, defined as having a high potential for abuse and no accepted medical use. Cocaine is a Schedule 2 drug, with the same potential for abuse but with a currently accepted medical use.