Measure M is one of those voter initiatives that at first glance look a lot more straightforward than they really are. There are, after all, hundreds of medical marijuana dispensaries in Los Angeles — just look for the green crosses — that pay state sales tax but not city taxes. Measure M would make them pay their fair share and then some, by imposing a steep gross receipts tax. That sounds like a reasonable way to help the city avoid cuts in public services as it digs itself out of a budget hole. But it's a dangerous step.
State lawmakers and municipalities still haven't agreed on how to regulate a drug that the state considers medicinal and the federal government considers illegal, so cities are deciding for themselves. Several — including Oakland, Berkeley, Sacramento, San Jose and Long Beach — have already approved taxes similar to the one that would be imposed by Measure M. And yet the city attorney's office believes that Los Angeles "should not, and indeed legally cannot, allow and tax marijuana sales," and opines that passing Measure M "would be of little or no effect." How can that be?
At the heart of the question is whether or not medical marijuana dispensaries — or collectives, or cooperatives, or whatever they choose to call themselves — are for-profit operations. Back when Gov. Jerry Brown was California's attorney general, he issued an opinion that they can operate only as nonprofit cooperatives or collectives in which patients or their "primary caregivers" grow marijuana and supply other members. They can charge members for their cannabis, but only enough to cover their overhead costs. Yet Brown's opinion hasn't been tested in court, and there is no telling how many of California's storefront dispensaries are really operating as nonprofits. In December, the operators of a San Jose marijuana "collective" were charged with illegal sales and money laundering after police said they discovered two sets of books, one showing an operating loss and the other showing a profit of $222,238.
If marijuana collectives are genuinely nonprofits, they're exempt from city taxes. So why have Long Beach and other cities been able to tax them? Because to be considered tax-exempt charitable nonprofits, organizations have to register as such with the Internal Revenue Service, which is like sending a cable to the federal government to tell it you're distributing a product that Washington considers illegal. Very few, if any, medical marijuana facilities have done this, opting instead to pay local taxes.
Getting in bed with a quasi-legal industry has drawbacks. If city government became reliant on tax revenue from medical marijuana sellers, city officials would be less likely to pass ordinances restricting their operations and police would be less inclined to raid their establishments to check whether they're really running on a nonprofit basis. A decrease in such scrutiny would encourage more illegal for-profit dispensaries, which draw other kinds of crime. Prices for a drug that many people use to relieve suffering (even if others use it to get high) would rise, which is why legitimate patient advocates such as Americans for Safe Access oppose taxation measures.
We agree with Brown that medical marijuana should only be distributed by nonprofit cooperatives or collectives. If they're truly operating that way, it's unfair for the city to tax them, and if they aren't, they should be shut down rather than taxed. That's why we urge a no vote on Measure M.