Posts Tagged ‘dispensaries’

Because medical marijuana is not recognized under federal law, we all know that the federal government always has the power to bring criminal charges.  Any of a number of Spokane’s many dispensaries could be raided by DEA agents at any time. However, the U.S. Attorney Michael C. Ormsby took an interesting approach to the issue today when he issued this press release.  The statement was directed to the building owners that rent commercial space to medical marijuana dispensaries. The press release starts off: “Today, Michael C. Ormsby, United States Attorney for the Eastern District of Washington, announced that he has notified landlords that marijuana stores are illegal and warned them of the penalties they may face.”  The press release continues: “Our goal is to first seek voluntary compliance with the law by notifying property owners of the non-conforming use of their property, with the expectation that they take appropriate action. If they do not, the U.S. Attorney’s Office will determine the appropriate law enforcement response, which could include the forfeiture of the property used to facilitate the crimes,” said Mr. Ormsby.

Am I the only one who thinks this is a little strange?  It just seems to me that if the U.S. Attorney feels something illegal is going on, that he should simply make arrests. But he probably knows marijuana dispensary owners are not easily intimidated, and many dispensaries are run by activists who are prepared to go jail to fight for what they believe in.  So instead, Ormsby threatens the individuals and corporations who are renting the space to the dispensaries. So what happens tomorrow morning? Do these commercial landlords now post eviction notices on the dispensary doors? It is a standard clause in all commercial leases that the tenant may not use the premises to conduct an illegal activity.  Accordingly, there would be grounds under the law for a landlord to tender an eviction notice.  A typical dispensary is usually in a small commercial strip mall in a low-rent part of town.  You have to wonder a little bit about how many dispensary owners fully disclosed to the landlord what their plans were for the rental place.  Many dispensaries have pretty innocuous looking letterhead and business cards.  In this depressed commercial real estate market, landlords are probably just glad to fill the space.  Under the law, the landlords that are probably in the greatest danger of having their buildings seized are the landlords who have charged the dispensaries above-market rent to compensate themselves for the risk.  I think the federal government won’t be too happy if they subpoena the rental records and find that a landlord took twice as much money from a dispensary as they did for the other units.  Likewise, a landlord that permits a grow operation is running a high risk, even if the marijuana being grown is supplying a dispensary.  Even if a landlord is simply leasing a single unit to a dispensary, the federal government is entitled to seek forfeiture on the entire structure.

I suppose from a resources point of view, the prosecutor’s statement makes sense.  It is resource-intensive to raid and prosecute dispensaries.  Medical marijuana activists have lots of support from lawyers, and they are probably inclined to demand jury trials just out of principle.  Commercial landlords, on the other hand, are probably not looking for a fight.

What do you think of the federal prosecutor’s position on this?

In the economically-depressed small towns of the Inland Northwest, local political leaders and the chambers of commerce all live for the day that a new business will come to town.  But when a local woman opened a medical marijuana dispensary in Kettle Falls, Washington, her idea was not well received.  Many in this small, Stevens County town of 1500 people encouraged the city council to deny the dispensary a local business license.  The dispensary was started by Ginny Thiede, a former employee of Spokane dispensary Club Compassion.  Ginny Thiede apparently started her endeavor by explaining some of the basics to local residents. “People who want to use it recreationally will have to go somewhere else,” she said, “This is not a head shop.”  The Kettle Falls dispensary opens in a time of some uncertainty for Eastern Washington dispensaries.  Last month, everyone was watching the outcome of the Scott Shupe trial in Spokane.  Shupe was convicted of running a medical marijuana dispensary in Spokane.  The jury didn’t accept his version of the law that he was simply acting as a caregiver to one patient at a time.  While the Shupe case seems to set a bad precedent, many other dispensaries in Spokane are using better forms that provide greater clarification as to their roll to patients.  One of the problems with running a dispensary is that the views of local prosecutors vary greatly.  For example, the Stevens County prosecutor stated in his blog that: “Marijuana dispensaries are illegal, whether they have a business license or not.”  However, the elected prosecutor from King County has stated that he believes dispensaries are legal and necessary.  The Obama administration has taken a hands-off approach to marijuana dispensaries that comply with state law.

In the rural parts of Eastern Washington, sick patients face greater obstacles in obtaining marijuana.  Ginny Thiede is providing a valuable service to patients.

See past posts on medical marijuana dispensaries, the taxation, and info on marijuana possession charges.

In the early days of medical marijuana dispensaries, the risk was all about possible arrest and prosecution.  Judging by recent news stories this week, the greatest threats now seem to be from: 1) the Internal Revenue Service, 2) new regulations and rival dispensaries, and 3) gangsters who rob dispensaries.

Taxation of Marijuana Dispensaries

In 2009, after Obama took office, his attorney general Eric Holder announced that the federal government would not prosecute marijuana dispensaries that were operating legally under State and local laws.  Dispensary owners probably breathed a sigh of relief.  Little did they know that they would face perhaps larger problems from the IRS.  The IRS is currently auditing every dispensary across California, and is apparently disallowing a lot of deductions that many took for granted.  Here is the issue: Under section 280E of the federal tax code, people selling controlled substances in violation of federal law can’t claim any tax deductions for their “business”.  This statute was intended so that Al Capone types would have to pay taxes on their gross, and they can’t deduct all their “expenses” in figuring their “profit”.  The “expenses” of selling controlled substances means, the initial cost of the drugs from the suppliers, transportation costs, the costs of paying employee dealers, etc. This makes sense, I suppose, when going after black market criminal enterprises, but this makes less sense when going after gray-market medical marijuana dispensaries that are trying their best to serve patients.  Some of the dispensaries are faced with  millions of dollars of past due taxes.  I blogged last December about the Washington Department of Revenue gouging marijuana dispensaries in Spokane.

New Regulations & Rival Marijuana Dispensaries

In Colorado, the number of dispensaries operating state wide grew to over a thousand after the Obama administration indicated that they would not be prosecuting dispensaries.  These 1000 dispensaries are now facing increased regulation from the Colorado legislature.   In Colorado, the legislature banned convicted felons from operating dispensaries, and then began requiring dispensaries to start growing at least 70% of their own marijuana.  In Los Angeles today, the city announced that they would be shutting down 140 dispensaries for the failure to follow the city regulations.  Meanwhile, dispensary owners from Spokane to Seattle are bracing themselves for SB 5073, also known as the Kohl-Welles bill, which would outlaw just about every dispensary in Washington that exists today.  With all these threats, you would think that the dispensaries would be joining together.  In fact, the dispensaries seem to be fighting each other, or at least their customers.  Try googling “Spokane Medical Marijuana”.  What you see is a bunch of online “reviews” where people are just trashing dispensaries.  You really don’t see the same thing in the Seattle listings.

Robbery of Medical Marijuana Dispensaries

If a visit from the IRS isn’t scary enough, check out this video footage of a Washington medical marijuana dispensary getting robbed.

The police reports in the case indicated that the victim tried to spray the robbers with mace but had difficulty in using the canister. The robbers were known to the victim because they were patients in the past. About 10 pounds of marijuana was stolen.

What do you think of all this?  If you owned a dispensary, would you be looking for another line of work?

I read in the Spokesman-Review last week that the Washington State Department of Revenue sent notices to medical marijuana dispensaries demanding collection of retail sales tax on marijuana sold. This letter took the position that the sale of medical marijuana does not fall within the sales tax exception for prescription drugs. But is this interpretation of the law really correct? Many dispensaries have begun collecting and paying sales tax to the Department of Revenue as a way of seeking legitimacy. However, isn’t paying the tax conceding that “medical marijuana” is somehow of lesser medical value than other prescription drugs?

Medical marijuana cannot be “prescribed” under federal law, but it is important to remember that the definition of “prescription drug” for purposes of Department of Revenue (DOR) regulations is different. Let’s take a look at the DOR code on this subject. Section 1 of RCW 82.08.0281 clearly states retail sales tax “shall not apply to sales of drugs for human use dispensed or to be dispensed to patients, pursuant to a prescription.” Section 4 of RCW 82.08.0281 clearly states: “‘Prescription’ means an order, formula, or recipe issued in any form of oral, written, electronic, or other means of transmission by a duly licensed practitioner authorized by the laws of this state to prescribe.” How exactly does a doctor’s medical authorization for marijuana not fall under this definition? (See sample of authorization form.) Courts have ruled that the DOR is not to use a hyper-technical definition of “prescribed.” In the case Deaconess Medical Center v. DOR, 58 Wn. App. 783 (1990) the Washington Court of Appeals used the common dictionary definition of “prescribed” from Webster’s Third New International Dictionary 1792 (1966). The Webster’s dictionary definition of “prescribed” means “to designate or order the use of as a remedy.” Webster’s uses the term broadly, and provides the term in the following example sentence: “The doctor prescribed three months of physical therapy for my leg injury.” Simply put these dispensaries are the victim of a Department of Revenue shake down.

Let’s remember that medical marijuana dispensaries operate in a gray area of the law. The Washington voters legalized medical marijuana possession, but never provided for a clear legal mechanism for sick patients to obtain the drug. Not every sick cancer patient is able to tend to their own marijuana garden. Consequently patient cooperatives have sprung up, often acting in concert with activists. Most police agencies have held off raiding these dispensaries, but we only have to read yesterday’s Inlander article to see that the police are merely biding their time before further raids continue in Spokane. The truth is that the dispensaries are scared, and no dispensary is likely willing to refuse pay these bogus sales taxes to the Department of Revenue. The attorneys general that work with DOR can simply make a call to the criminal division of the Attorney General’s office to push for prosecution of dispensaries unwilling to pay these “taxes.” No dispensary wants to be the one to stand out and risk criminal charges. To put it another way, the uncertainty in the law makes these dispensaries susceptible to a form of blackmail. Revenue projections calculated by the The Inlander amounted to millions of dollars Olympia is getting from these patient cooperatives. This “sales tax” in turn will be passed on sick patients who can scarcely afford to pay more for their medicine.

You have to wonder also about the legality of collecting sales tax for an activity that is still in violation of federal law. Generally speaking, just because an activity is illegal does not mean that it is tax exempt. However, in the case of Marchetti v. United States (1968), the U.S. Supreme Court held that certain regulations that required the reporting and tracking of the activity for revenue purposes amounted to a violation of the right against self-incrimination.

Why is Washington trying to impose a sales tax on medical marijuana dispensaries when the State of California does not? The dispensaries in California seems to be a little more confident that they will not be raided, and enjoy more protection under their State law. They would be more willing to fight such a state action in my opinion. In Washington, Mike Gowrylow, a spokesperson for the Department of Revenue, explained “right now, every buck counts”. Quite simply the State is hungry for revenue from all sources. In my experience as an attorney who has defended clients from the Department of Revenue, the State often seems to come up with “creative” ways to apply taxes during economic downturns. One time I represented a client who received an assessment for taxes under questionable circumstances. We indicated out intention to fight it and appealed. About 6 months through the process, the Department just dropped the issue, apparently moving on to easier targets.

What do you think about this subject? Should these dispensaries have to pay sales tax? Do you think that all the dispensaries in Spokane will comply? Will these tax payments help legitimize these co-ops? Will more dispensaries be raided as the Spokane police have threatened?