Cal NORML Release 12/13/07

DEA Robs California of Millions in Tax Revenues

Seizes Tax Payments from State Board of Equalization

         DEA raids on California's medical marijuana dispensaries are costing the state's taxpayers millions of dollars in lost revenues, according to records collected by California NORML.

         The DEA has not only closed facilities that were paying millions of dollars yearly in sales taxes, but also seized as much as $450,000 in sales tax payments that were in transit to the state Board of Equalization. Among them was a $350,000 electronic payment to the BOE from the Compassion Center of Alameda County, which the DEA seized from the bank on October 30th.

         "In effect, the DEA is robbing the state of tax revenues to fight their war on medical marijuana," said California NORML director Dale Gieringer.

Although the DEA has tried to portray dispensaries as illegal drug dealers, records show they have operated as legal businesses, paying income, payroll, business, and sales taxes, and offering workmen's compensation, unemployment, and health insurance benefits to their employees. Several dispensaries closed by the DEA had licenses to operate from local governments, including facilities in Alameda County, Morro Bay, and Kern County.

Recent DEA raids have cost the state millions of dollars in sales tax revenues plus scores of paying jobs, as shown by the following examples.

         The Compassion Center for Alameda County paid $3 million in sales taxes before it was closed by the DEA on October 30th. In the process of seizing CCAC's bank account, the DEA stopped a $348,078.49 bank transfer to the Board of Equalization, which the CCAC had transmitted just before the raid. CCAC had been legally licensed by Alameda county and had employed some 50 workers, paying them health and unemployment insurance benefits.

         Nature's Medicinal in Bakersfield paid almost $1 million in taxes from 2005 until its closure in 2007, including $203,000 in state and federal income taxes, $365,000 in payroll taxes and $427,000 in sales taxes. Included was a $51,935 check to the state Board of Equalization issued on April 27, which bounced when the DEA seized Nature's Medicinal's bank account on May 1. Nature's Medicinal reopened and tried to repay their taxes in monthly installments of $9,000. They made two payments before the DEA raided them again and seized all of their money. Nature's Medicinal had been licensed by Kern county and had 25 employees, 8 of whom were indicted and the rest left unemployed and without health insurance due to the raid.

         The California Healthcare Collective, Inc. in Modesto paid some $500,000 in sales taxes from its opening in December 2004 until its closure by a DEA raid on September 27th, 2006. Just before the raid, the CHC sent a check to the Board of Equalization which was voided by the DEA's seizure of their bank account, leaving the Board holding the bag for unpaid taxes totaling $39,416.70. CHC had 22 employees who were left unemployed by the raid.

         The DEA seized two more BOE checks totaling some $15,000 from the Oakdale Natural Choice Collective, according to owner Addison DeMoura. The checks had been lying on DeMoura's desk when the collective was raided on July 31st, 2007. DeMoura was arrested and forced to close his facility after two months of operation.

The DEA has tried to portray dispensaries as profiteers by citing gross sales revenues in the millions of dollars. However, their net income is modest when their costs are taken into account. For example, US Attorney McGregor Scott charged that Nature's Medicinal in Bakersfield made $16 millions in marijuana sales. However, he failed to mention that their indictment shows they spent $13 million on the purchase of product not to mention payroll, rent, overhead, and nearly $1 million in taxes. Likewise, the DEA accused the CHC in Modesto of making $4.5 million in sales, but CHC's records show that 70% of this was spent on the purchase of marijuana and another 25% on operating expenses, leaving just a 5% profit margin on sales modest by the standards of the pharmaceutical industry.

Altogether, DEA enforcement actions have deprived the state's economy of tens of millions in tax revenues plus hundreds of paying jobs. The retail value of California's medical marijuana market is estimated at $870 million - $2 billion per year, according to a report by Oakland's Measure Z marijuana policy committee. This is enough to generate some $100 million in sales taxes alone plus thousands of paying jobs. However, recent DEA enforcement actions have forced scores of dispensaries to close or move underground.

Most recently, the DEA has taken to sending letters to dispensary landlords warning them that their property is subject to federal forfeiture. Although no landlords have actually been hit with forfeiture suits, many have felt obliged to notify their tenants to cease operations. Last week, the Chairman of the House Judiciary Committee, Rep. John Conyers, criticized the DEA's forfeiture threats and said he would investigate them in oversight hearings.

Meanwhile, the DEA's raids have cost U.S. taxpayers millions more in enforcement costs. This year has seen 53 DEA raids, up from 20 last year and 19 the year before, according to a summary by Americans for Safe Access. Each raid requires dozens of agents. Witnesses say that they saw 20 - 30 DEA agents at each of five sites during the raid on CCAC. Over 100 defendants have faced federal charges for medical marijuana in California, according to a report by Cal NORML. Prosecution, court and imprisonment costs for these cases run into the tens of thousands of dollars each.

"At this time of budget deficits, we can ill afford the DEA's war on medical marijuana," said Gieringer. "Californians are better off having medical marijuana distributed by tax-paying businesses, than being taxed in order to arrest, prosecute, and imprison medical marijuana providers."

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         California NORML is a non-profit, membership organization dedicated to reforming California's marijuana laws. Our mission is to establish the right of adults to use cannabis legally. We publish a newsletter, lobby lawmakers, sponsor events, offer legal, educational, and consumer health advice, and sponsor scientific research. We maintain a separate membership and financial base from NORML (National Organization for the Reform of Marijuana Laws).