Obama administration warns Oakland on pot farms

December 6, 2010 | Michael Montgomery Ryan J. Reilly/FlickrAttorney General Eric Holder
The Obama administration has warned Oakland over the licensing of four giant pot farms, saying the plan is in violation of state and federal law and could trigger multiple legal actions against the city. 
Officials from the Justice Department’s civil division and the U.S. attorney’s office in San Francisco delivered the blunt message to Oakland City Attorney John Russo, according to two officials who asked not to be identified because they were not authorized to talk about the meetings.
“The warning is clear: These are illegal, large-scale pot growing operations, with Oakland planning to get a cut of the illicit profits,” said one official. 
City Attorney Russo confirmed that Justice Department officials raised objections to Oakland’s marijuana cultivation ordinance in separate meetings last month.
“They've expressed their concerns that the path Oakland is taking is in violation of the law,” Russo said in a statement.
He declined to discuss details of the meetings or disclose the identities of the other participants. A spokesman for the U.S. attorney's office in San Francisco did not respond to phone messages.
At issue is a controversial ordinance, approved by the Oakland City Council last July, to license four “industrial” facilities to cultivate and process marijuana and sell the product to medical marijuana dispensaries around the state. If Oakland issues permits and the facilities are built, they could be the largest of their kind in the world.
In November, Oakland voters approved a measure that imposes a 5-percent business tax on all medical marijuana operators, including future pot farms, opening a potentially lucrative revenue stream for the city.
Supporters say the plan is carefully crafted to comply with Proposition 215 and subsequent legislation, which allow for marijuana to be cultivated “collectively or cooperatively” by patients with a doctor’s recommendation. 
More recent guidelines drawn up by Attorney General Jerry Brown call for a closed-circuit cycle of “marijuana cultivation and consumption with no purchases or sales to or from non-members.”
Even though pot remains illegal under federal law, the Obama Administration has taken a hands-off approach to California's medical marijuana operators so long as they are in unambiguous compliance with state law.
However, after closely studying the Oakland plan some federal officials have concluded the ordinance violates state law because it treats pot farms as distinct business entities for tax purposes, thus severing the direct connection between cultivator and patient that underpins the legal standing of a medical marijuana collective or cooperative.
“Oakland would be on the hook for violating state and federal law,” said one official who foresees possible civil and criminal litigation if the pot farms go into operation early next year as planned.
The Obama administration’s challenge to Oakland over large-scale marijuana cultivation appears to be part of a broader federal effort to bring order to California’s booming medical marijuana industry following last month’s defeat of Proposition 19, the initiative to legalize recreational pot.
Eight days after the vote California’s four U.S. attorneys met with DEA and Justice Department officials to develop a plan to deal with some of the loopholes and gray areas in the state’s medical marijuana program, according to two officials briefed on the discussions.
U.S. Attorney Benjamin Wagner said the Nov. 10 meeting focused on a "state-wide federal enforcement strategy" for marijuana but declined to provide details.
“My responsibility is not to enforce state law. But I do have a responsibility to enforce federal law, which means putting an end to people who use the cover of 215 to try to violate federal law. And there are efforts underway to try to tighten that up,” Wagner said.
Federal officials are particularly concerned about operators who are using medical marijuana as a cover for money laundering and illegal shipments to other states. 
Wagner cited a recent case [PDF] in which several Fresno-based growers are accused of cultivating thousands of pounds of pot under the state’s medical marijuana program, then shipping the product illegally to drug dealers in Boston.
“We are working hard to send a clear message to law enforcement authorities, federal and state and local, that we are determined to go after this kind of activity and bring more cases,” he said.
Wagner declined to say whether targeting Oakland’s pot farms was part of the new federal strategy. But two sources said the city ordinance was discussed in detail at the Nov. 10 meeting.