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 million$ of dollar$ in lost revenues,
according to records collected by California NORML.

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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 another 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
<http://www.canorml.or… background/OakFinancialReportRelse.htm> .
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
(http://judiciary…. house.gov/newscenter.aspx?A=889).

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
compilation by Cal NORML
(http://www.canorml.or… . 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 to arrest, prosecute, and imprison
medical marijuana providers."