The Approaching Storms

By admin on November 25th 2011

Executive Summary

This is a time of crisis and decision for both medical marijuana patient associations (“PAs”) and the City of Los Angeles.  The Second District’s Pack decision threatens to reduce options for the City Council to the polar extremes of banning or draconian restrictions, or else capitulation to unregulated chaos.  PAs that have pushed for greater freedoms through vigorous advocacy and litigation have received significant setbacks in their consolidated case and in renewed enforcement by federal prosecutors, and can see before them the real possibility that one day soon their only choice may be whether to close down or go underground.


Both sides have arrived at this narrow passage because they have had so few tools to work with.  There hasn’t been a genuinely new way of reconciling the issues since the battle was first joined.  Neither side has ever known how to get what they really want and need from the other, and so has settled instead for the present zero sum game of either greater or lesser restriction.  In this game, though, even the winners lose:  if the City Council “succeeds” in a ban or draconian restraints on PAs, after enduring another tidal wave of litigation they will find that they have injured the poorest and most infirm of their citizens, handed over thousands more to the clutches of criminality and the black market, provided a huge financial boon to the worst elements in our society, earned the enmity of a large voting bloc, and turned away desperately needed income at a time of deep and lasting economic hardship.  If PAs were to “win” by forcing more freedoms than the City can tolerate, they would create a “Wild West” situation where they too would suffer or else find the City can still respond with a complete ban or, in the final extremity, with an appeal to federal prosecutors.

There is another way that provides both sides with far mor

e than they thought they could ever have, but it requires an open mind because it is a new paradigm.  The solution lies in a system of third party verification where the City would receive microscopic detail about each PA in its jurisdiction, empowering it to impose fees and exert pinpoint control without the federal preemption issues ofPack, while PAs would support a system that protects them from federal exposure and at long last gives them a way to safely and irrefutably prove their legality under state law.

The answers can be found in the pages that follow.

Dear Council Members:

These are momentous times for the medical marijuana experiment in California and Los Angeles.  Decisions are being made that we will all have to live with for a long time. The City is considering restrictions on patient associations (“PAs) up to and including bans.  BUT THERE IS ANOTHER WAY.  Not the direction that PAs have been pushing for up until now, the path of looser restrictions.  A third way.  Based on concepts that have not yet been part of the discourse.  It is essential that you give these concepts a hearing before making your decision.

The Approaching Storms

All stakeholders for and against medical marijuana have been shaken by powerful currents and riptides of late.  Federal prosecutors have engaged in suppression of PAs with renewed energy and a new tactic, targeting landlords of PAs.  Judge Mohr has ruled against the many litigants seeking injunctive relief against the City of Los Angeles.  The Second District, in Pack v. Los Angeles Superior Court (City of Long Beach, Real Party In Interest), has upended all calculations with a decision which, if upheld by the State Supreme Court, would prohibit permitting of PAs across the state.  Already, Pack has caused many local governments to conclude they have no way to safely regulate PAs and are left with no choice but to ban them.  The Second District also raised the issue of, and requested briefing on, Fifth Amendment considerations that may make it impossible for Los Angeles even to register PAs, let alone control them with permits.  The ramifications of Pack might even make it impossible for Los Angeles to tax PAs.  All this is playing out in a time of crippling budgetary constraints when a sensible system of taxing a sufficient number of well-run legally compliant PAs could help stave off hardship for Los Angeles and its constituents.

Rearranging the Deck Chairs

Despite these convulsions, the parties continue doing all they know how to do, which is pushing for either more oppressive or more permissive regulation in what is essentially a zero sum game.  Either the local governments will see themselves as coming out on top with PAs curtailed or eliminated, to the detriment of their patients, or PAs will “win” with more access for their patients and greater freedom of action than local governments feel is good for their communities.

Yet victory for either side ultimately comes at a cost amounting to defeat.  If the City prevails with bans or draconian restraints, medical marijuana use would not stop, it would simply be driven underground and into the arms of the black market where it cannot be inspected, regulated or taxed, while Los Angeles would be forced to cut its budget to make up for the income it has turned away.  And if PAs had their way, they would find that freedom from local control would either bring about a “Wild West” situation where illegal operators vied for their patients and their movement lost all credibility, or else Los Angeles would simply ban all PAs or call in federal prosecutors to do it for them, as has already happened in some cities.

Some seek a middle ground in the zero sum game where the pain is shared and, as in all compromises, no one is really satisfied. At best, though, they are still only apportioning losses.

There must be another way, a way in which there are no winners and losers, a way in which everyone is a beneficiary.  And there is.  But it requires a new way of looking at things.  It requires a new paradigm.

Daring to Dream

Law enforcement complains that they have no way of really telling if PAs are operating legally.  What if they could tell – infallibly?

What if PAs were no longer a source of neighborhood complaints but were in fact assets to their communities?

What if PAs were incentivized to operate legally and to openly register with their communities?  What if they voluntarily provided far more oversight and control to their local governments than those governments were ever able to require of them?

What if there was a way to avoid the federal preemption issues of Pack?

What if Fifth Amendment issues could also be eliminated, and PAs safely taxed?  What if greater numbers of PAs could be taxed?

PAs fear federal oversight and so are reluctant to reveal much about their activities.  What if there was a way for them to safely come clean about every detail of their operations, and to register openly in their communities?

These are not utopian ideals, they are real consequences of following the protocols we are suggesting.  But to give our protocols a fair hearing, we must first clear away the limiting concepts that have prevented others from arriving at them.  The best way to do so is to go back to first principles and discuss what it is that all stakeholders really want and need – as opposed to the ways they have felt they had to go about satisfying those requirements, ways that have become ends in themselves.

Law Enforcement’s Bottom Line

What then, does law enforcement want?  They want to know that illegal activity is not hiding behind the medical marijuana laws.  Specifically, they want to prevent PAs and their members from paying only lip service to the requirements of the Medical Marijuana Program Act (“MMPA”) while they illegally make profit, divert medical marijuana to nonpatients or to patients outside the closed circuit of the collective, and receive marijuana from black market cultivators.  They want to put a stop to cultivators who claim to grow for a PA but are actually growing for the black market.

Law enforcement also wants to prevent PAs from becoming magnets for crime – not just robbery but also the crime of acquiring medical marijuana as a legitimate patient and then illegally sharing it with nonpatient friends.  They want to prevent PAs from becoming so easy to access that they attract the young and impressionable.  They also want to prevent people without medical conditions from receiving recommendations for medical marijuana, though that is a problem more properly laid at the door of doctors and their medical associations.

Some in law enforcement simply wish that California’s medical marijuana laws had never been passed and misconstrue them in the most limiting way possible.  Included in this camp are those who assert that every member of a PA must physically cultivate for the PA to be protected by law – even the cancer patients (even though the MMPA says “collectively to cultivate,” not “unanimously to cultivate”); that collective cultivation is the only protected activity, despite the plain language of the MMPA; and that any exchange of money is prohibited or that any sale or reimbursement involved in the production of medical marijuana amounts to illegal profit – even though sale is specifically enumerated as protected activity in the MMPA and even though every other nonprofit company in the world engages in reimbursements or sales to pay its expenses.  Even the more openminded in law enforcement, however, are frustrated by their inability to walk into a PA or a cultivation site and know whether the cash and the marijuana they find there is legal or illegal.

Unable to get clear information and fine-tune their response, law enforcement has had no choice but to push for restricting all PAs as much as possible and assuming that any sizable amount of cash or marijuana in a PA is a sign of illegal activity.

The City Council’s Bottom Line

Councilpersons have had similar problems and have had as well to deal with neighborhood complaints and with balancing the competing desires of medical marijuana constituents with those opposed to PAs in their neighborhoods  The Council has grappled with regulating and registering PAs that have been resistant to both regulation and registration, and with doing so in a way that does not flood the City with litigation, entangle it in federal preemption issues or bring down the wrath of federal prosecutors, who have already stated publicly that they would reserve the right to prosecute local governments who directly enabled PAs and have already stepped in in some communities, such as the City of Oakland, to scotch initiatives they considered too far-reaching.  The Pack decision has left the City of Long Beach without any clear direction except to ban all PAs, while other cities, such as San Jose, are also moving to ban out of a fear that Pack will be upheld by the State Supreme Court.

Like law enforcement, the City Council has seen restrictive ordinances as the only way to get a grip on a multifaceted problem, bringing to bear cudgels because it has no scalpels at hand.

PAs’ Bottom Line

What of PAs?  The most important factor driving their behavior is the illegality of their activity on a federal level, with no state law defense in federal court.  PA owners and operators must do all they can to avoid public implication in a federal crime.  Even though in a well-run PA they are only agents for the members and the members collectively own all the medical marijuana in the PA, in the eyes of federal prosecutors, it is the owners and operators solely who possess large amounts of an illegal Schedule One drug.  These are Fifth Amendment issues for owners and operators, and possibly HIPAA issues for member patients.

In the recent federal crackdown, many registered, inspected, scrupulously state-legal PAs across the state have come under attack.  Federal prosecutors knew just where to look thanks to the open registration of those PAs.  PAs that have not registered and have maintained a low profile have avoided this danger. In addition, we are aware of at least one instance in a northern California county where an entire list of PA cultivators was turned over to the DEA by a local sheriff and those cultivators were raided and hauled into federal court.

The danger PAs face isn’t limited to federal agents.  There are countless examples of local law enforcement around the state using registration lists to target enforcement actions, even against state-legal PAs.  PAs also face great danger from criminals when their locations are known.  Registration increases this danger as well – as does misguided legislation that requires all members of a PA to engage in cultivation.

In the face of these threats, PAs shroud themselves in secrecy as much as they can, hiding the names and locations of their cultivators and cultivation sites, storage sites, and membership, sticking to cash transactions, and making their operating data inaccessible.  State-legal PAs do so out of necessity.  Any PA operating illegally, of course, does so out of choice, to hide its illegal nature.

The conflicts here are obvious.  The City needs more transparency and PAs need less. A gain for one is a loss for the other.  Los Angeles needs to control PAs, but doing so risks federal preemption.  How are we to resolve these dilemmas?

The New Paradigm

The answer lies in third party verification.  A trusted and disinterested non-governmental verifier can do for both sides what they cannot do for themselves.  PAs can open their sites and their books to a private, licensed third party verifier, knowing the verifier’s reports will not include full names and addresses unless so directed by subpoena.  Law enforcement can receive extremely specific information on every ounce, plant and dollar at any and all sites in a PA, as well as specific lists of members, the status of their doctor recommendations and allocations in the form of unique codes for each member that are cross-checked to catch fraud and duplication.  This data will allow law enforcement to determine swiftly and accurately if a PA is following the requirements of the MMPA – and if not, the PA’s own verification report will indict them.  If the relationship with the third party verifier is properly set up, local governments will be able to tax and enforce their requirements through a private party not subject to Pack’s federal preemption issues.

Here’s how it would work:  the third party verifier ascertains that no profit is being derived net of legitimate expenses, that a closed circuit is kept from member cultivation through to member dispensation, that all medical cannabis at any location in the PA is legally aggregated based on allocations by patient members of specified percentages of their individual possession limits, that such allocations are not duplicated anywhere else in the system, that all members of the PA are legitimate qualified patients with doctor recommendations less than one year old, that the PA is following voluntary protocols to reduce neighborhood complaints and make them good neighbors in their communities, and that local restrictions regarding security, signage, lighting, cameras, location, etc. are being observed. They provide the results of their inspection and verification in reports that can track every member, doctor recommendation, member allocation, plant, ounce and dollar.

The third party verifier would not be in the business of enforcing the law.  What it would do is compile all this information in a clear and concise format and make it instantly available to law enforcement upon request in a manner that preserves the privacy of the individuals involved to protect their rights under the Fifth Amendment and under HIPAA. These reports would provide law enforcement everything they need to make a determination as to whether or not a PA and all of its sites are conforming to the MMPA and are thus exempt from prosecution.  This information is provided via onsite documentation, online, and through a 24/7 phone hotline.  It will be very easy for law enforcement to review the verification, make a determination as to legality and act on it – and it will become much easier to prove the case in court, in the case of violators, when the PA’s own records document their over-allocation, diversion or profit-taking.

When law enforcement arrives at a cultivation site, third party documentation will be present to let them know exactly how many plants have been legally aggregated by legitimate qualified patient members with doctor recommendations less than one year old, members who have specifically allocated a portion of their personal possession limits to this site in the PA and not over-allocated to other PAs or sites.  If law enforcement finds the stated number of plants or less at the site, they will know that possession limits have been properly maintained.  If they find more than the amount stated on the report, the will know that some marijuana is being grown there outside the closed circuit of the PA and hence the site is not protected from prosecution.

Law enforcement will find the same thing if they stop a transporter:  documentation of closed circuit properly allocated aggregate possession within a specific time frame for transportation.  At the dispensing site, they will find similar possession documentation and also audited reports as to nonprofit status and inspection reports relating to conformity with local restrictions and required neighborhood protocols (availability of a full-time neighborhood liaison for complaints, regular contact with the local precinct, continuous monitoring of the site for lawbreaking, signage limitations, etc.).

The third party verifier will inspect and verify but not enforce.  They will allow their reports to speak for themselves.  However, the third party verifier will not accept as client a PA who is not following all protocols, and if they subsequently learn a client PA is breaking the protocols, they will immediately drop the PA as a client and withdraw their documentation and 24/7 confirmation.  The simple fact of a PA lacking third party verification would be a red flag for law enforcement.

In our experience working with an actual third party verifier for our members, PAs welcome the protocols when they know they are respected and taken seriously by law enforcement, because it provides them a sure way for PAs to prove their compliance with state law and removes the uncertainty that they might be raided or arrested even though they are doing everything right.  It is also our experience that PAs that follow the protocols run their operations in such a way that neighborhood complaints disappear.

Unpacking Pack

As for Pack, a private third party verifier avoids federal preemption issues.  The Second District made it clear that cities and counties are free to place additional restrictions on PAs beyond what the MMPA requires, and that such restrictions, when not associated with a permit or authorization process, do not obstruct or conflict with federal law.  The restriction that L.A. could place is that all PAs in its jurisdiction must engage a private third-party verification service that has been licensed by the City of Los Angeles.  That third party service would not be in the business of authorizing PAs, as that would be a transparent attempt to circumvent federal preemption by inserting a mere catspaw.  Instead, the third party service simply provides reports that allow law enforcement to verify that the PA is following all aspects of state law and local restrictions.

Playing by the Numbers

Just requiring PAs to conform to the all protocols of the third party verifier would probably limit their number in Los Angeles to an appropriate level, and when every PA in Los Angeles is following such protocols and engaging positively with their neighborhoods, the City may very well find it no longer feels the need to limit their numbers and locations quite so much.  But if the City wanted a hard and fast way to limit them to a specific number, it could be managed.  Although the third party verifier would not permit or authorize, what it would do instead is accept only a fixed number of clients.  If the City wanted to limit the number of PAs to, say, 250, then all third party verifiers licensed with the City would agree to collectively accept only 250 clients in Los Angeles.  Were any third party verifier to exceed the number agreed upon with the City, the City could revoke its license as a third party verifier.  Since L.A.’s ordinance would require PAs to engage a licensed third party verifier, any PA without such a verifier, i.e., any PA who is not one of the 250 clients, could be shut down for violating the City’s restriction - NOT for lacking a permit.  Again, though, such a device may prove unnecessary when a third party verifier’s thorough vetting of PAs will naturally limit their numbers.

Taxing Questions

Potential preemption issues regarding taxes and fees can be avoided as well.  The third party verifier could raise whatever fees the City desired by tacking them onto its own modest fees to PAs, and passing them on to the city in the form of licensing fees.  For example, if the City wished to raise a flat $10,000 a year from any PA with 500 or more members, the City would instead charge the third party verifier a licensing fee of $10,000 for every PA it verifies that has 500 or more members.  The verifier would treat that licensing fee as overhead and add it to the fee it charges PAs.  As far as the PA is concerned, it is their fee to gain third party verification services.  As far as the law is concerned, the income to the City comes not from licensing PAs, but from licensing their inspection service.

The Other Choices

Clearly, third party inspection would be a whole new way of operating for the City and there will be considerable inertia to stick with more familiar, but less successful, alternatives, such as the restrictive ordinance provisions presently contemplated by the City.  Those provisions, however, will only drive legal activity underground, create a few very large surviving PAs against the wishes of federal enforcers who prefer small operations, place PAs on the outskirts where severely ill patients can’t easily reach them, reduce the taxable base of PAs, continue litigation and possibly fall victim to Pack or to Fifth Amendment challenges.  An outright ban avoids Pack, certainly, but would be a huge boon only to the black market and would criminalize a significant number of Los Angelenos.

Some are now advocating registration as a way to circumvent the federal preemption involved in permitting.  The argument is that registration only identifies the PAs that the city or county has chosen not to prosecute but does not affirmatively authorize them.  Registration, however, may not be the answer.  If the City accepts only a fixed number of registrants in order to control their numbers, or if the City allows registration only to PAs operating in conformity with local regulations, then a case could and undoubtedly would be made in court that this was simply a de facto permitting process.  The same argument cannot be made against a third party servicer because federal preemption is not an issue for a non-governmental entity.  Further, requiring registration of PAs possibly violates the Fifth Amendment rights of its members, as the Second District pointed out.  Finally, were Los Angeles to resort to a registration regimen, the City would have a tough time justifying under state law its raid and arrest of state-legal PAs that the City refused to register.

Although moving in the direction of third-party verification to maintain an arm’s length between jurisdictions and PAs may at first feel like an uncomfortable innovation, we are confident that it is the best solution for cities and counties now and in the future.

The Winner Is …

For the past year, the Union has been working with just such a third party verifier, Agsite, Inc.  They can be found online at www.AgSite.org.  At our request they have developed an online system of third-party verification to satisfy both sides. It was designed to provide law enforcement far more transparency and accountability from MCPAs than ever before, while protecting individual patient privacy.  While we recommend them as a third party verifier for Los Angeles, the City will undoubtedly want to engage in an RFP process and engage several verifiers if others can be found who can do the job. What’s important right now is that the concept of third party verification find its way into the discourse.

Third party verification can offer a solution that provides PAs with operational guidelines they can live with and the City with a mechanism for regulation that will minimize problems and survive legal challenges, as well as safely provide significant income for the City.  PAs will finally have a way to prove their legality and gain respect and the City will finally know what is going on inside every PA.  Finally provided precise tools, the City may be able to forgo the blunt instruments of repressive zoning, arbitrary limitations or outright bans that drive some patients to, at best, a few large PAs on the outskirts of town and force all other patients into the arms of the black market.

In short, everyone wins. Everyone can win.

We would be happy to provide operational details of AgSite, Inc. to further flesh out your understanding of what is possible through third party verification.  Quite simply, it is an idea whose time has come.  We sincerely hope that you will consider it as a way out of several dilemmas as you consider settlement in the consolidated cases.

Sincerely,
James Shaw
Director Union of Medical Marijuana Patients