Pubdate: Mon, 28 Mar 2016
Source: Orange County Register, The (CA)
Copyright: 2016 The Orange County Register
Authors: Brooke Edwards Staggs and Jessica Kwong


Seven months after Santa Ana began licensing medical marijuana 
dispensaries, officials say there are up to twice as many unlicensed 
pot retailers as sanctioned shops in the city.

Some licensed dispensaries say competition from unregulated shops 
which aren't subject to the same city taxes, limits on operating 
hours and other oversight  is threatening to put them out of business.

"We're stoked to have a store, and we're trying to do everything 
right," said Jeffrey Holcombe, co-owner of 420 Central dispensary. 
"But the rogue stores are making it extremely tough."

There are unlicensed sellers who openly thwart the law, authorities 
say. Others are challenging the city's procedure for awarding 
licenses or argue they have a legal right to provide medical 
marijuana as collectives under the state's 20-year-old Compassionate 
Use Act, which legalized medical marijuana.

The Santa Ana Police Department has a dedicated task force working on 
enforcement of the medical pot industry and says it has shut down 
more than 90 of the 109 unlicensed operations identified to date.

Shuttering the remaining 20 or so unregulated shops has been a 
lengthy, difficult process, exacerbated in part by lack of 
information on who is actually running the businesses, said Cmdr. 
Jason Viramontes.

"We do everything within our power to shut these down," Viramontes said.

The ongoing enforcement battle in Santa Ana, which has the only 
sanctioned pot shops in the county, highlights a larger question 
infusing the statewide debate over legalization of marijuana: Can the 
government gain full control of a gray, retail pot market that has 
gone largely unregulated for two decades?


Medical marijuana has been legal in California since 1996, and 
storefront pot dispensaries have proliferated. But until October, 
state law made no provisions for such businesses or placed any 
regulations on their operations.

Cities across the state, including many in Orange County, have 
declared war on unlicensed shops in recent years, using police raids 
and court actions. Other jurisdictions opted to regulate and tax the 
businesses, as Santa Ana did when voters approved Measure BB on Nov. 4, 2014.

After the measure passed, the City Council approved a plan to allot 
20 licenses on a lottery basis  only 10 of which have completed the 
permitting process. The City Council also pledged $1.5 million 
annually toward enforcement to gain "rapid closure of any 
collectives/dispensaries operating illegally." Illegal pot shops lead 
to "a proliferation of crime" and lower the quality of life for 
residents, Viramontes said.

The locations of unlicensed shops may not be a mystery  police say 
they follow crowdsourced locations on the website Weedmaps. But 
Viramontes said determining who's behind the operation often involves 
getting search warrants and sometimes conducting lengthy surveillance.

"There's no background checks on the people. There's no way of 
knowing who's working inside of these places," Viramontes said.

None of the dispensaries that appear on Weedmaps but not on the 
city's licensed list agreed to speak with the Register for this story.

Some unlicensed shops have operated under the assumed protection of a 
limited liability corporation, masking the true identity of the 
owners, Viramontes said. Others operate different types of legitimate 
businesses, but sell pot on the side, he said, citing one store, 
since shut down, that was selling hats out front and marijuana in the back.

Landlords often aren't aware pot is being sold from their buildings 
until they get complaints or see electricity bills skyrocket due to 
the extra air conditioning units and grow lamps used to cultivate pot.

"That's when the property owners call us and say, 'Hey, we think they 
are selling marijuana out of this shop,'" Viramontes said.

Most of the time, once a dispensary is closed, it remains closed, 
Viramontes said. But he said there are certain locations that have 
reopened numerous times.

For years, the city has been trying to shutter the Sky High 
collective, which opened in 2010 in a storefront on West 17th Street.

Attorney Matthew Pappas said he's fighting for that dispensary and 
others to be able to stay open under state disability laws, which 
protect people with physical or mental impairments.

"It's my belief that they provide for patients legally because they 
fall under the same provision as a methadone clinic or any other 
health care provider," he said. "Disability law should protect these patients."

Santa Ana police garnered unwelcome international attention after a 
May raid caught on video showed officers forcing Sky High customers 
to the ground and eating merchandise. Three officers involved in the 
raid were charged this month with petty theft and vandalism.

Attorney Anthony Curiale, who is also representing Sky High, said the 
city used "strong-arm tactics" to try to shut down the dispensary. A 
more responsible approach, he argued, would be to file a lawsuit and 
go to the court to obtain an injunction.

"We think it's a violation of the Fourth Amendment and other civil 
rights because they're using unreasonable force to enforce a law that 
typically doesn't involve force," Curiale said.

Attorney Arthur Travieso is representing Live2Love and four other 
unlicensed pot shops in lawsuits against Santa Ana, claiming the 
city's lottery process was unfair because it allowed multiple entries 
by the same individuals, as long they applied and paid a $1,690 fee.

"If the city of Santa Ana was really serious about making this about 
safety and not just about money, then one would think they would have 
done a little bit more of a thorough check before they even let 
people into the lottery process," he said.

Travieso added he is not against regulation, "but to pigeonhole (the 
industry) into very limited locations" deprives access to medicinal 
marijuana to patients who have difficulty traveling to licensed shops.

Those high-profile conflicts haven't affected enforcement efforts, 
and the city continues to seek the permanent shutdown of all illegal 
dispensaries, Viramontes said.

But as long as some remain, Holcombe said, shops like his are handicapped.


Unregulated shops aren't paying the 5 percent tax Santa Ana imposed 
with Measure BB. That tax may be raised to as much 10 percent, 
although it's not clear if or when that would occur. Holcombe said he 
believes some unlicensed competitors probably aren't paying an 8 
percent state sales tax, either, meaning they can cut prices.

Generally, as taxes and regulation on licensed shops get more costly, 
other sellers of various kinds can get a marketing advantage, said 
Beau Kilmer, co-director of RAND Drug Policy Research Center. "It 
largely comes down to price," he said.

Travieso said the five unlicensed dispensaries he represents can't 
pay city taxes because they didn't win the city pot-shop lottery.

"My clients would be ecstatic to be paying taxes," he said. "They 
could literally go to City Hall offering to hand them money for 
taxes, and the city would not take the money."

In addition to not paying city taxes, unlicensed shops don't have to 
close by 8 p.m. most nights, as Santa Ana requires of approved 
dispensaries. They also don't face weeks of lag time hiring employees 
as they wait for police background checks to be completed. Holcombe 
contends many unapproved shops also grow their own supply, further 
reducing costs.

420 Central opened Oct. 10 as Santa Ana's third legal dispensary. The 
owners have invested close to $1 million so far, Holcombe said, as 
they try to use high-quality customer service and products to lure 
customers who've grown accustomed to getting their supply from 
nondescript storefronts or delivery services.

"It just takes time to get those people in the fringe culture more 
comfortable with that," Holcombe said.

At OC3, the second licensed shop to open in Santa Ana, owner Chris 
Francy said he is continuing to absorb the extra costs to operate 
legally, while he waits for the city to shutter the remaining illegal shops.

"This is still an industry in Santa Ana that is dealing with an 
abundance of enforcement problems," Francy said. "But it will take 
time, and we as a business are understanding of that."


Sanctioned dispensary owners generally are optimistic their concerns 
will be addressed when requirements of California's new Medical 
Marijuana Regulation and Safety Act, enacted in October, kick in.

The act, which is made up of three bills, establishes a licensing 
program for marijuana-related businesses and imposes criminal 
penalties on illegal pot shop operators.

"The best remedy will be when it is criminalized at a state level," 
Francy said. "Then we'll be sitting pretty."

However, the new law's provisions for licensing and taxation don't 
take effect until Jan. 1, 2018. And Holcombe isn't sure if 420 
Central will be able to keep competing with unregulated dispensaries 
for 21 months.

"That's really the bottom line for us," Holcombe said. "Can we make 
it that long?"

As things stand now  with a mishmash of regulation from city to city 
and state to state  there's no end to the larger battle over 
effectively regulating marijuana sales on the immediate horizon.

Consumers will continue to cross jurisdictional lines to buy cheaper 
weed. Growers will continue shipping from states where laws are more 
lenient to those where the supply chain is more restricted.

Even if Santa Ana shut down all of its unlicensed pot shops, 
bargain-hunting shoppers could drive 5 miles to Anaheim, where 
authorities are doing battle with 12 dispensaries they say are 
operating illegally.

Staff writer Scott Schwebke contributed to this report.
- ---
MAP posted-by: Jay Bergstrom