Americas New Growth Industry

It may seem hard to believe but we've had legal medical marijuana usage somewhere in the United States for fifteen years now. It all began in California, of course, in 1996, but since then fourteen other states and Washington, D.C. have authorized the use of cannabis for chronically ill patients who have a recommendation from their doctor. Across the nation it's now being used to treat people with diseases like cancer, AIDS, multiple sclerosis, and chronic pain. It's not just a few patients, either. Recent data suggests that almost 25 million Americans are using - or at least eligible to use - medical marijuana.

What no one predicted in 1996, however, is that an entire industry has grown up around the need for weed. A recent article on the McClatchy news site for Washington, D.C. projected that sales will reach a whopping $1.7 billion by year's end, and just a week ago the ArcView Group, a San Francisco-based organization, created the first investment network to connect wannabe medical marijuana moguls with investors ready to throw some cash into (medicinal) cannabis.

In an interview with McClatchy reporters, Troy Dayton, CEO of ArcView said, "It doesn't take a rocket scientist to realize that this industry is growing and that there are untold riches to be made here."

So far, medical marijuana distribution programs are well established in California, Colorado, Maine, Michigan, Montana, Oregon, Washington and New Mexico, while programs in Arizona, New Jersey, Rhode Island and Washington, D.C., are just getting off the ground. Still it's not all smooth sailing. Law enforcement officers in all of those states have shared their concerns that medical marijuana is too easy to obtain, and that people who are essentially healthy are exaggerating their pain in order to obtain the necessary recommendations from their doctors.

Another common concern is that of volume. Medical marijuana dispensaries, some say, could grow so much pot that any excess product could be pushed to the illegal market. After all, even though those fifteen states (and the District of Columbia) have decriminalized the drug for medical use, under federal law it's still an illegal, controlled substance, and while the Justice Department said in 2009 that it wouldn't prosecute patients, caregivers or growers operating within their states' laws, the concern remains that total control is not possible.

Then there's the financial picture: across the country there are more than 1,500 dispensaries, co-ops and other growing operations, and the industry that has sprung up around them has been successful - even prospered - despite a tanking economy.

Earlier this month, Maine became the first state east of the Rocky Mountains to allow patients to procure their pot from medical marijuana dispensaries. Three weeks in, one of those new businesses, Maine Organic Therapy, is making home deliveries to more than twenty patients, according to company CEO Derek Brock. In that state, patients are allowed to buy a maximum of 2.5 ounces of marijuana every two weeks, or five ounces a month.

Such expansion has been supported by the medical marijuana-using public, but it hasn't been without a few troubles, and one Big Bad: the IRS. Those in the know report that section 280E of the Internal Revenue Code bars legal medical marijuana operations from deducting business expenses from their income taxes (that they're required to pay taxes at all is another issue entirely), and dispensaries in several states are now facing audits because of it.

Another issue is that some banks won't allow dispensaries to open business accounts, because they fear federal repercussions due to their duty to report ties to any business operating in violation of federal law.

In order to help address these - and other - issues, the National Cannabis Industry Association was formed in the latter part of 2010. Last Wednesday, the organization held its first national lobby day, speaking with lawmakers on Capitol Hill and pushing for a louder legislative voice.

Representative Jared Polis (D-Colorado), a strong supporter of the medical marijuana industry, told the press, "These kinds of days are necessary, because they put a face on the industry."

Polis should know. After all, even though Californians are responsible for 76% of national medical marijuana sales, it's his state, Colorado, that has the country's fastest-growing market, with more than 131,000 residents registered as medicinal cannabis users - a significant leap from the mere 7,000 who were registered in 2008.

One of the Colorado-based organizations, Colorado Dispensary Services, operates three commercial growing operations, and three dispensaries and has had five different bank accounts over the last three-and-a-half years because of friction between operators and regulators. Jill Lamoureux, the owner of the company, said that managing roughly fifty employees and almost $120,000 a month in payroll is impossible, and the regulatory officials know it.

"These regulators need to see our bank accounts, and if we do not have access to banking, it makes it impossible for them to regulate," Lamoureux said. "Frustrating is an understatement to say how difficult it is to run a business without banking services."

Last year, Polis was part of a group of eight Democratic legislators who wrote to the U.S. Treasure to give assurances that it wouldn't target banks with account holders who operate their businesses in accordance with state medical marijuana laws, but the Treasury passed the buck back to the banks, claiming it was their call to make. Polis has said since then that he plans to introduce legislation that will clarify banks' responsibilities with regard to cannabis dispensaries. He said that he has bipartisan support for the issue.

The banking issue isn't limited to Colorado, but is a national problem. A nonprofit dispensary in Oakland, CA, Harborside Health Center, pays over $3 million in federal, state, and local taxes, and employs eighty people who get paid vacations and 401(k) plans. Despite this, their bank accounts have been closed three times, and an IRS audit is pending.

Stephen DeAngelo, the executive director of Harborside, said his center, which serves 79,000 patients, is being treated as if it's a criminal entity and not an organization dedicated to community service.

"We do not deserve to have our accounts frozen or to be taxed out of existence," said DeAngelo in an interview with McClatchy. "280E was intended for cocaine kingpins, international smugglers and crystal meth dealers. It wasn't intended for organizations like ours, and it shouldn't be applied to organizations like ours."

Last year, Representative Polis and five fellow Democrats petitioned the IRS to allow legal medical marijuana dispensaries to deduct their business expenses, but the Service said that only Congress had the right to amend either the Internal Revenue Code or the Federal Controlled Substances Act. According to Polis, Representative Pete Stark (D - California) will be introducing legislation to do that.

Eliminating the tax and banking concerns from contention could do a lot to improve the medical marijuana industry's growth. Two years ago, the Justice Department said that people who use or provide the drug in accordance with state laws wouldn't be prosecuted, and that prompted the creation of hundreds of new marijuana businesses, while raids on marijuana operations were reduced by 58 percent, according to David Guard of See Change Strategy, a financial-analysis firm.

So who are these cannabis capitalists? One example is Becky DeKeuster who realized the healing powers of the plant after she quit her job teaching high school to work in a Berkeley, CA dispensary nine years ago.

"On my first day there, I saw a patient in a wheelchair having [multiple sclerosis] seizures. And, literally, with two puffs off a joint, he stopped tremoring, and it was like, 'wow, this is amazing,'" said DeKeuster, who now serves as the executive director of Northeast Patients Group, which operates four dispensaries in Maine. "I'm grateful to be in this industry and I consider it a blessing to be able to do the work I do."