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Measure M—as in Marijuana—Is It Smoke and Mirrors?

A tax on medical marijuana facilities might be good for city coffers, but the dispensaries' legal and not-for-profit ambiguity remain murky issues.

It seems counterintuitive and illogical to tax something that the federal government has long deemed illegal—and that’s essentially the rub regarding Measure M on Tuesday's city ballot.

The city of Los Angeles has proposed a 5 percent city tax on gross receipts received at medical marijuana collectives, which are legal in California but unlawful according to the federal government. If Measure M (see PDF file in photo section for details) is approved, medical marijuana dispensaries in the city would be required to pay a business tax of $50 for every $1,000 they receive in gross receipts during an annual accounting period.

The tax would be used to fund general municipal services such as police and fire protection, park and recreation facilities, and improvements across the city.

Arguments in favor of Measure M have been made by council members Janice Hahn and Paul Koretz as well as the president of the United Firefighters of Los Angeles, Pat McOsker. Hahn reportedly estimated that the tax could raise $3 million to $5 million every year, which would help the city close its $319-million budget shortfall for fiscal 2011. Arguments against the measure have been made by council members Jan Perry and Bernard C. Parks.

Opponents of the measure argue that it is not only wrongheaded but possibly illegal to tax a medicinal substance. Further, because medical marijuana collectives are supposed to be not-for-profit entities—not to be confused with "nonprofits" such as religious institutions and hospitals—it would be illegal as well as counterproductive to tax them.

Given “the illegality of the sale of marijuana and the exemption from business taxes or fees for organizations that operate on a not-for-profit basis, the proposed measure would be of little or no effect,” L.A. City Attorney Carmen A. Trutanich was quoted as saying in a Los Angeles Times editorial in December.

Perhaps the most compelling argument against the measure is that if the tax becomes a lucrative source of revenue, the city would want more of it. And that, opponents argue, would encourage the growth of medical marijuana dispensaries despite the fact that few neighborhoods want them in their backyards.

At the heart of the issue is the knotty question of whether medical marijuana facilities are for-profit businesses or not-for-profit collectives. “Back when Gov. Jerry Brown was California's attorney general, he issued an opinion that they can operate only as [not-for-profit] cooperatives or collectives in which patients or their 'primary caregivers' grow marijuana and supply other members,” the Los Angeles Times said in its recent opposition to Measure M.

“They can charge members for their cannabis, but only enough to cover their overhead costs," the Times noted, adding that Brown's opinion hasn't been tested in court, however, and it's unknown how many medical marijuana facilities are operating as not-for-profits.

RWinston March 07, 2011 at 01:50 PM
Since these places have opened, I no longer see people standing around with that "somke" signal as cars drive by. It's the one where it looks like someone is taking a toke, to signal you they are selling pot. That use to piss me off. Everywhere I drove around our city, people selling pot. Not any more. This has cleaned up our neighborhoods a lot.
Rod Kavanagh March 07, 2011 at 04:10 PM
Jeez, what parts of the city are you driving around where you see random drug dealers signalling they're selling marijuana? Because if this tax goes into effect, those "street vendors" are going to become reeeeeeally popular.

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