Medical Marijuana

special to Drug War Chronicle by investigative reporter Clarence Walker, cwalkerinvestigate@gmail.com

Dispensaries providing marijuana to doctor-approved patients operate in a number of states, but they are under assault by the federal government. SWAT-style raids by the DEA and finger-wagging press conferences by grim-faced federal prosecutors may garner greater attention, but the assault on medical marijuana providers extends to other branches of the government as well, and moves by the Internal Revenue Service (IRS) to eliminate dispensaries' ability to take standard business deduction are another very painful arrow in the federal quiver.

"The 280E provision which requires certain businesses to pay taxes on their gross income, as opposed to their net income, is aimed at shutting down illicit drug operations, not state-legal medical marijuana dispensaries," said Kris Hermes, spokesman for the medical marijuana defense group Americans for Safe Access." Nonetheless, the Obama Administration is using Section 280E to push these local and state licensed facilities out of business."

The provision can be used to great effect. Oakland's Harborside Health Center was hit with a $2 million IRS assessment in 2011 after the tax agency employed Section 280E against. Harborside is fighting that assessment, even as it continues to try to fend off federal prosecutors' attempts to shut it down by seizing the properties it leases. Similarly, when the feds raided Richard Lee's Oaksterdam University that same year, it wasn't just DEA, but also IRS agents who stormed the premises. Lee said it was because of a 280E-related audit.

The attacks on Harborside and Oaksterdam were part of an IRS campaign of aggressive audits using 280E to deny legitimate business expenses, such as rent, payroll, and all other necessary business expenses. These denials result in astronomical back tax bills for the affected dispensaries, threatening their viability -- and patients' access to their medicine.

"Should the IRS campaign be successful; it will throw millions of patients back in to the hands of street dealers; eliminate tens of thousands of well paying jobs, destroy hundreds of millions of dollars of tax revenue; enrich the criminal underground; and endanger the safety of communities in the 17 medical cannabis states," said Harborside's Steve DeAngelo as he announced the 280E Reform Project to begin to fight back.

It's going to be an uphill battle. In the last Congress, Rep. Pete Stark (D-CA) introduced House Bill 1985, the Small Business Tax Equity Act, designed to end the 280E problem for medical marijuana businesses, but it went to the Republican-controlled House Ways and Means Committee, where it was never heard from again.

Still, something needs to happen, said Betty Aldworth, deputy director of the National Cannabis Industry Association, which this year is working with members of Congress to try to find a fix for the 280E problem.

"When Section 280E was created in the 1980s, no one imagined state-legal marijuana providers," Aldworth told the Chronicle. "Whether or not it is part of a larger effort to curtail the development of regulated models for providing marijuana, which is a model that is clearly preferable to leaving this popular and relatively safe medicine (or adult product) in the underground market, these onerous tax rates have severely hampered the development of the regulated market."

It's a brake on the overall economy, Aldworth said.

"Not only has it resulted in stymieing job development, but it also curtails other economic activity such as reinvestment in business and the rippling positive effects of that spending," she argued. "And in many cases, it has created a tax burden that is simply unbearable: many providers have had to close their doors and lay off their staffs because the tax burden was simply too great."

Because of this unintended application of 280E, medical marijuana providers are paying overall taxes at a rate two to three times those of other small businesses, Aldworth said.

"It's important to note that just as they want to apply for licenses, follow regulations, and otherwise participate in the legal business community, state-legal marijuana providers also want to pay their fair share of taxes," she pointed out. "Most small businesses pay an effective tax rate of between 13% and 27% on net income, according to the Small Business Administration. State-legal marijuana providers pay an average effective tax rate of 65-80%. An industry that can provide thousands of jobs is being held back by these crazy tax rates."

While the lobbyists look to Congress for a fix, one academic tax law expert thinks he has hit upon a novel solution, but not everyone agrees.

Benjamin Leff, a professor at American University's Washington College of Law, raised eyebrows at a Harvard University seminar this spring when he presented his report,Tax Planning For Marijuana Dealers, where he suggested that dispensaries get around 280E by registering with the IRS as tax-exempt social welfare organizations, known as 501(c)(3)s or 501(c)(4)s.

The IRS has already ruled that medical marijuana providers can be exempt under 501(c)(3) because its "public policy doctrine" does not allow charitable organizations to have purposes contrary to law, but in the paper, Leff argued that "a state-sanctioned marijuana seller could qualify as tax-exempt under 501(c)(4), since the public policy doctrine only applies to charities, and 501(c)(4) organizations are not charities."

The organization would have to be operated to improve the social and economic conditions of a neighborhood blighted by crime or poverty, by providing job training, employment opportunities, and improved business conditions for commercial development in the neighborhood, just like many existing community economic development corporations that run businesses.

"When taxes get too high, you can drive compliant dispensaries out of business," Leff told the Chronicle.

Americans for Safe Access' Hermes would agree with that, but he's not so sure about Leff's idea.

"The concept of medical marijuana dispensaries registering with the federal government as a 501(c)(4) in order to sidestep section 280E is novel and may be hypothetically valid," he said. "However, the IRS will refuse to grant tax-exempt status to a business that the agency believes is violating federal law. Perhaps, it would be possible for a dispensary to obtain 501(c)(4) status under false pretenses, but such status would not very likely withstand an IRS audit."

There are better ways, he said.

"A much more realistic and sensible approach -- pending a change to the federal classification of marijuana for medical use -- is to amend the tax code to exclude state-lawful medical marijuana businesses from Section 280E," Hermes recommended. "This is the kind of legislation that Congress should pass in order to allow states to implement their own medical marijuana laws, without undue interference by the federal government."

"I agree with everything he said," Leff replied. "But it's not just the Obama administration that is using 280E this way. The Supreme Court has held that there is no exception to the Controlled Substances Act for state-level legal marijuana sales, and since 280E makes references to Schedule I controlled substances, it applies to legal marijuana unless Congress changes the law. I totally agree that Congress should amend 280E to exempt marijuana selling that is legal under state law. Congress could also amend the Controlled Substances Act to remove marijuana from it, which would probably also make sense," he added.

Whether it is by act of Congress, internal policy shifts, or creative thinking by law school professors, some way has to be found to exempt state-permitted medical marijuana providers from the clutches of 280E and its punitive tax burden aimed at dope dealers, or there may not be any medical marijuana providers.

Marijuana rescheduling is headed for the US Supreme Court, the California Supreme Court upheld local dispensary bans, the feds strike again in Berkeley and Washington state, and there is action in state legislatures, too. Let's get to it:

Last week, Americans for Safe Access announced it was appealing to the Supreme Court to overturn the DC Court of Appeals' ruling upholding the DEA's refusal to reclassify marijuana out of Schedule I. ASA's appeal to the Supreme Court asks that the DEA be required to apply the same standard to evaluating cannabis that it uses for other substances. The DEA claims there are no "adequate and well-controlled studies" that show cannabis has medical use, despite the many clinical trials and peer-reviewed scientific studies that show cannabis to be a safe and effective medicine for treating a wide variety of conditions.

Last Wednesday, a Fox News poll had support for medical marijuana at 85% nationwide. The figure included 80% of Republicans and is the highest level of support for medical marijuana ever in the Fox News poll.

Arizona

On Tuesday, Gov. Jan Brewer signed a bill that will allow medical marijuana research on university campuses. Brewer had last year supported successful legislation that banned even medical marijuana on state college and university campuses, but the ban aimed primarily at students had the unintended consequence of blocking serious academic research being undertaken on medical marijuana and PTSD by University of Arizona psychiatrist Sue Sisley. The new law allows medical marijuana on campus for carefully controlled and approved studies.

California

Last Wednesday, prosecutors in Tuolumne County dropped marijuana trafficking charges against the owners of a local medical marijuana collective. Charges were dropped in the case of the Today's Health Collective, which had been raided in May 2011. Prosecutors complained that "inconsistencies in opinions from different courts have required a shift in the focus of law enforcement and jury instruction" and "the cumulative effect of evidence collected in 2011 has been weakened by this development."

On Monday, the state Supreme Court upheld the right of localities to ban dispensaries. Some 200 California towns and counties have already done so, but others had held off because of uncertainty over the legality of bans. The ruling means that patients' access to medical marijuana will depend in part on where in the state they live.

On Tuesday, the dispensary operator in the Monday Supreme Court case said he had closed his shop. Operator and medical marijuana activist Lanny Swerdlow said he would comply with the high court ruling and shut down Inland Empire Patient's Health and Wellness Center.

Also on Tuesday, federal prosecutors filed an asset forfeiture lawsuit against the landlord for the Berkeley Patients Group, one of the most well-respected dispensaries in the state. The feds already forced BPG to move last year, saying it was too close to a school. The dispensary relocated to a site even further from schools, but US Attorney Melinda Haag filed the forfeiture suit without warning anyway.

Also on Tuesday, the Yuba City city council adopted a marijuana cultivation ordinance requiring people growing medical marijuana at home to register with the city and trim their plants out of public view. They also have to install security fences and carbon filtration systems to reduce odor. The ordinance had been in place on a temporary basis since March 2012, but became permanent with Tuesday's 3-2 vote.

Illinois

On Wednesday, a hearing on a medical marijuana bill was underway in the Senate Executive Committee. The bill would allow residents with serious illnesses, such as cancer, multiple sclerosis, and HIV/AIDS, to access and use medical marijuana if their physicians recommend it. If approved, the measure will be considered by the full Senate. It received approval from the full House of Representatives on April 17.

Maryland

Last Thursday, Gov. O'Malley signed a medical marijuana bill into law. The measure, House Bill 1101, will allow patients to qualify for protections from arrest and prosecution if they are enrolled in a program administered by one of Maryland’s teaching hospitals. The law takes effect October 1. But it's not clear how many of the state's teaching hospitals will participate.

Massachusetts

On Wednesday, the Public Health Council approved medical marijuana regulations. The regulations include requiring doctors to complete a full clinical checkup before issuing a recommendations, recommendations will expire after one year, and patients will not be allowed to use medical marijuana at dispensaries. The regulations approved today will go into effect on May 25. They allow the department to establish a competitive application process for non-profits seeking certifications that will permit them to operate. DPH is required to certify at least 14, but no more than 35, medical marijuana treatment centers to open by January, 2014.

Minnesota

Last Thursday, medical marijuana supporters outlined their bill, but conceded that no action on it is likely until next year. The measure dictates the amount of marijuana someone can possess, the types of health conditions that would permit use and the rules medical professionals must follow when issuing prescriptions. It would continue to bar smoking of marijuana on school buses and school grounds, on public transportation, in the presence of a child and while operating vehicles, boats or other transportation equipment.

New Hampshire

On Monday, the Senate Committee on Health, Education, and Human Services approved a medical marijuana bill, but not before removing PTSD as a qualifying condition and removing a home cultivation provision at the insistence of Gov. Maggie Hassan. Other changes to the bill reduced the number of authorized dispensaries allowed statewide from five to four, added a requirement that patients get written permission from a property owner before using medical marijuana on privately owned land, and eliminated protections for out of state medical marijuana patients traveling with marijuana in  New Hampshire. The measure had already overwhelmingly passed the House. Medical marijuana advocates are continuing to fight for a better version of the bill.

New Jersey

Last Thursday, Health Commissioner Mary O'Dowd said two more dispensaries will likely open soon. Years after medical marijuana was legalized in the state, only one dispensary is open. The first dispensary opened in Montclair, Essex County, in December, but is limiting its clientele to North Jersey residents. A second dispensary operator is renovating a former warehouse in Egg Harbor, Atlantic County, and plans an opening in September. A third dispensary operator is renovating its location in Woodbridge, O'Dowd said.

Washington

Last Wednesday, news broke that the DEA had sent cease-and-desist letters to 11 dispensaries. The agency complained in the April 29 letters they were within 1,000 feet of schools. The DEA told recipients of the letters to stop distributing marijuana within 30 days or face property seizure and forfeiture.

Idaho is officially not a marijuana-friendly state. Although it is bordered on most sides by medical marijuana states (Washington, Oregon, Nevada, and Montana), it so far refuses to accept the medicinal use of the herb. And even though one of those states (Washington) has legalized marijuana and two others (Nevada and Oregon) have decriminalized it, Idaho remains firmly grounded in 20th Century attitudes toward the plant. The state legislature this year took the time to approve a non-binding resolution noting its opposition to marijuana legalization.

That campaign is led by Compassionate Idaho, some of whose most stalwart and publicly visible members are Lindsey and Josh Rinehart and Sarah Caldwell. But with an incident that began while Caldwell and the Rineharts were away on a retreat, the trio are learning a harsh lesson in hardball pot politics. When they got back home, their kids were gone, and the police and child social services had them.

According to Boise Police, who released a statement on the matter as controversy grew, on April 23, they were contacted by a local school official about a child who had apparently eaten marijuana and fallen ill. Police "learned from witnesses" that the supposed marijuana supposedly came from the Rinehart residence, and, "concerned for the safety of children at the residence," they went there and found a baby sitter caring for the Rinehart and Caldwell children.

Police persuaded the baby sitter to let them search the residence and "found drug paraphernalia, items commonly used to smoke marijuana, and a quantity of a substance that appeared to be marijuana in locations inside the house accessible to the children." Police at the scene then contacted both narcotics investigators and the department's Special Victims Unit.

(Rinehart, a Multiple Sclerosis sufferer, said she indeed had medical marijuana at home, but that she had a small amount and a pipe on a dresser in her bedroom, a larger amount of trim locked away in a freezer, and some marijuana tincture in a bottle in a kitchen cabinet atop her refrigerator.)

"Based on the fact that illegal drugs and drug paraphernalia were located in an area that appeared to be commonly used by the children in the residence and the fact that one child had already become ill from ingesting what he assumed was marijuana, and the inability to contact the children's parents, detectives made the decision to contact Idaho Health and Welfare officials and place the children in imminent danger, meaning they were placed in the protective custody of the state until it can be determined they are in a safe environment," the statement said.

At this point, it is unclear whether whatever made the school child sick was marijuana. It is equally unclear that any marijuana came from the Rinehart residence. What is clear is that both the Rineharts and Sarah Campbell are up-front, in-your-face medical marijuana patients and activists, and that their children were being subjected to the tender mercies of the state.

Sarah Caldwell has had her kids returned to her -- it was not her child who is suspected of providing the suspected marijuana -- but the Rineharts are still fighting to get their kids returned.

"My sons were not involved," Caldwell said. "They were at the house the police searched, the police decided my kids were in 'imminent danger,' and it took three days to get them back."

While the two boys and the Rinehart kids were held at the same foster home, providing them with the small comfort of being with friends, Caldwell said her younger son was traumatized.

"My six-year-old is autistic," she explained. "I noticed when he came home, he started packing his favorite toys. I asked him why and he said, 'In case the police make me go away again.' He doesn't understand why," Caldwell said, her voice breaking.

While Caldwell has her children at home again, both she and the Rineharts are going to have to comply with the requirements of the child welfare system to ensure that their children can return to their old lives. But, Lindsey Rinehart said, Child Protective Services is moving more quickly than usual in her case.

Sarah Caldwell's boys are back at home now, but the Rineharts are still waiting to get theirs back.

"They seem to be expediting the process because they realize they messed up," she said. The state taking her kids wasn't doing them any favors, she added.

"My oldest son now will only talk if you ask him really specific questions, and my younger one is acting out," she said. "He is upset and argumentative; he has a hard time vocalizing things," she said of her six-year-old. "I told him I had to go to the store, and he freaked out; he didn't want me to leave him. He's reacting like I've never seen before. He was a happy kid; now he's mad and confused. He doesn't understand what's going on."

The older Rinehart son is having issues, too, she said.

"He's mad. Both of the kids have been educated about my medicine, so they know this is wrong," the multiple sclerosis sufferer explained. "They're mad that they were taken away because mommy had her medicine. I'm trying to comfort them as best as I can. They just know that somebody took them away, and now I have to explain that they have to go back to foster care tomorrow," Rinehart said, her voice trembling.

Both the Rineharts and Sarah Caldwell suspect they were set up.

"I'm the director of Compassionate Idaho.  Everybody knows who I am. I'm on the news at least once a month," said Rinehart. "We had just done the Hemp Fest in Moscow and signature-gathering in five towns. The police knew what they were looking for, and they knew where to look without anyone telling them. Those kids on the playground didn't know where to look. There were kids from several other families involved in that playground incident, but we think the police got who they wanted."

"I do think they were targeting us," Caldwell agreed. "That incident at the school was just an excuse for them to try to get us."

"This has got me fired up," Caldwell said. "They took my children to try to keep me focused on getting my kids back so I wouldn't do my activism, but I'm not going to stop."

The use of children as pawns in the marijuana culture wars is shocking and distressing, but nothing new, said Keith Stroup, founder and currently counsel for the National Organization for the Reform of Marijuana Laws (NORML).

"We get calls three or four times a week from people who have lost custody of their children because they tested positive at birth or in a situation where parents are feuding over custody," Stroup said. "One will say 'My spouse smokes marijuana and is thus not a fit parent,' and once that child welfare issue is raised, it's a totally separate matter from the criminal justice system. Even if no one is proposing to arrest the parent, this is far more damaging and destructive to the family."

That's at least in part because once child welfare has its clutches on you, it doesn't want to let go, and it typically has an attitude toward marijuana use that is reminiscent of Reefer Madness, Stroup said.

"They can require that you take parenting and drug education courses right out of the 1950s," he said. "It's a worthless routine, but you have to do it, you have to pay hundreds of dollars to do it, and you can't get your kids back until you do it. It doesn't matter how nice or good a parent you are or how well-intentioned you are, once you get caught up in this, you are in for a bad time."

NORML is doing what it can to assist the Idaho activists, Stroup said, adding some words of advice for other marijuana-using parents, especially (but not only) in places where attitudes toward the herb are hide-bound and hardened.

"If you're in a place like Idaho and you're a young parent, never smoke in front of your kids, so if that issue ever arises, you can make sure nobody can say you were smoking marijuana and kids were playing in the same room," he counseled. "You have to be able to demonstrate convincingly that you are providing a safe and secure place for your kids. In places like Idaho, you could lose custody over your kids for something many of us in many parts of the country take for granted."

Getting the kids back is only part of the problem for the Rineharts. Idaho treats even small-time pot possession seriously -- it's one of those place where people still actually do get jail time for it -- and the couple is facing possible felony charges for possessing more than an ounce of trim.

Lindsey Rinehart tabling at the Moscow Hemp Fest just days before it all went down.

All the stress isn't helping, and now, Rinehart can't have her medicine, either.

"I have prescribed meds to suppress my immune system, but those make me really sick. With cannabis, I only had to take it every other day," she explained. "Now, I have to take it every day, and it's so dangerous we have to regularly check my heart, liver, kidney, and eye function. And if I have pain, I'll have to go back to hydrocodone. I'll be going back on those meds I had been able to taper down from with cannabis."

But despite the trials and tribulations, neither the Rineharts nor Sarah Caldwell have been cowed, and their travails have energized supporters as well.

"People are really mad about this and are getting involved," said Rinehart. "We even have people reaching out to help fund Compassionate Idaho.

"People are coming out of the woodwork after hearing our kids got taken because of our activism," said Caldwell. "People are saying they want to help. Education is key here -- a lot of people here believe the Reefer Madness, but this is a non-toxic plant; it can't hurt you."

"The bigger picture is that we don't want this to happen to more families," said Rinehart.

"We're getting more calls than we ever did about child custody," Stroup reiterated. "There are still people being seriously damaged from what's left of marijuana prohibition. Few go to jail for marijuana anymore, but many lose custody of their kids. These repercussions may be more subtle, but they are not insignificant."

The Rineharts and Sarah Caldwell still have to deal with Child Protective Services, and the Rineharts are still waiting to see if they will face criminal marijuana and child endangerment charges. But in the meantime, there are 55,000 signatures to be gathered to get medical marijuana on the ballot and start changing Idaho's reactionary response to marijuana.

Colorado employers can legally fire marijuana users from their jobs, the state Court of Appeals ruled Thursday in a 2-1 decision. Although the case was brought by a medical marijuana user, the ruling will have any even broader impact given that the state has now legalized marijuana for all adults.

Coats challenged his firing, citing Colorado's Lawful Activities statute, which prohibits employers from firing workers for "engaging in any legal activity off the premises of the employer during nonworking hours." But both the trial court and now the appeals court rejected his challenge, holding that because marijuana remains illegal under federal law, the Lawful Activities statute does not apply.

"For an activity to be lawful in Colorado, it must be permitted by, and not contrary to, both state and federal law," the appeals court said.

Judge John Webb dissented, saying he could not find a case addressing whether Colorado judges must consider federal law in determining the meaning of the Colorado statute.

Coats' attorney, Michael Evans, said in a statement that the ruling will have a broad impact in the state.

"This case not only impacts Mr. Coats, but also some 127,816 medical marijuana patient-employees in Colorado who could be summarily terminated even if they are in legal compliance with Colorado state law," Evans said.

And with adult marijuana legalization now in place in the state, it is not just medical marijuana users who stand to be affected.

The ruling is expected to be appealed.

Similar rulings allowing employers to fire medical marijuana users have been upheld by courts in other states, including California, Michigan, and Montana.