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The IRS War on Medical Marijuana Providers [FEATURE]

special to Drug War Chronicle by investigative reporter Clarence Walker, cwalkerinvestigate@gmail.com

Dispensaries providing marijuana to doctor-approved patients operate in a number of states, but they are under assault by the federal government. SWAT-style raids by the DEA and finger-wagging press conferences by grim-faced federal prosecutors may garner greater attention, but the assault on medical marijuana providers extends to other branches of the government as well, and moves by the Internal Revenue Service (IRS) to eliminate dispensaries' ability to take standard business deduction are another very painful arrow in the federal quiver.

The IRS employs Section 280E, a 1982 addition to the tax code that was a response to a drug dealer's successful effort to claim his yacht, weapons purchases, and even illicit bribes as business expenses. Under 280E, individuals involved in the illicit sale of controlled substances -- including marijuana, even medical marijuana in states where it is legal -- cannot claim standard business expenses on their federal taxes.

"The 280E provision which requires certain businesses to pay taxes on their gross income, as opposed to their net income, is aimed at shutting down illicit drug operations, not state-legal medical marijuana dispensaries," said Kris Hermes, spokesman for the medical marijuana defense group Americans for Safe Access." Nonetheless, the Obama Administration is using Section 280E to push these local and state licensed facilities out of business."

The provision can be used to great effect. Oakland's Harborside Health Center was hit with a $2 million IRS assessment in 2011 after the tax agency employed Section 280E against. Harborside is fighting that assessment, even as it continues to try to fend off federal prosecutors' attempts to shut it down by seizing the properties it leases. Similarly, when the feds raided Richard Lee's Oaksterdam University that same year, it wasn't just DEA, but also IRS agents who stormed the premises. Lee said it was because of a 280E-related audit.

The attacks on Harborside and Oaksterdam were part of an IRS campaign of aggressive audits using 280E to deny legitimate business expenses, such as rent, payroll, and all other necessary business expenses. These denials result in astronomical back tax bills for the affected dispensaries, threatening their viability -- and patients' access to their medicine.

"Should the IRS campaign be successful; it will throw millions of patients back in to the hands of street dealers; eliminate tens of thousands of well paying jobs, destroy hundreds of millions of dollars of tax revenue; enrich the criminal underground; and endanger the safety of communities in the 17 medical cannabis states," said Harborside's Steve DeAngelo as he announced the 280E Reform Project to begin to fight back.

It's going to be an uphill battle. In the last Congress, Rep. Pete Stark (D-CA) introduced House Bill 1985, the Small Business Tax Equity Act, designed to end the 280E problem for medical marijuana businesses, but it went to the Republican-controlled House Ways and Means Committee, where it was never heard from again.

Still, something needs to happen, said Betty Aldworth, deputy director of the National Cannabis Industry Association, which this year is working with members of Congress to try to find a fix for the 280E problem.

"When Section 280E was created in the 1980s, no one imagined state-legal marijuana providers," Aldworth told the Chronicle. "Whether or not it is part of a larger effort to curtail the development of regulated models for providing marijuana, which is a model that is clearly preferable to leaving this popular and relatively safe medicine (or adult product) in the underground market, these onerous tax rates have severely hampered the development of the regulated market."

It's a brake on the overall economy, Aldworth said.

"Not only has it resulted in stymieing job development, but it also curtails other economic activity such as reinvestment in business and the rippling positive effects of that spending," she argued. "And in many cases, it has created a tax burden that is simply unbearable: many providers have had to close their doors and lay off their staffs because the tax burden was simply too great."

Because of this unintended application of 280E, medical marijuana providers are paying overall taxes at a rate two to three times those of other small businesses, Aldworth said.

"It's important to note that just as they want to apply for licenses, follow regulations, and otherwise participate in the legal business community, state-legal marijuana providers also want to pay their fair share of taxes," she pointed out. "Most small businesses pay an effective tax rate of between 13% and 27% on net income, according to the Small Business Administration. State-legal marijuana providers pay an average effective tax rate of 65-80%. An industry that can provide thousands of jobs is being held back by these crazy tax rates."

While the lobbyists look to Congress for a fix, one academic tax law expert thinks he has hit upon a novel solution, but not everyone agrees.

Benjamin Leff, a professor at American University's Washington College of Law, raised eyebrows at a Harvard University seminar this spring when he presented his report,Tax Planning For Marijuana Dealers, where he suggested that dispensaries get around 280E by registering with the IRS as tax-exempt social welfare organizations, known as 501(c)(3)s or 501(c)(4)s.

The IRS has already ruled that medical marijuana providers can be exempt under 501(c)(3) because its "public policy doctrine" does not allow charitable organizations to have purposes contrary to law, but in the paper, Leff argued that "a state-sanctioned marijuana seller could qualify as tax-exempt under 501(c)(4), since the public policy doctrine only applies to charities, and 501(c)(4) organizations are not charities."

The organization would have to be operated to improve the social and economic conditions of a neighborhood blighted by crime or poverty, by providing job training, employment opportunities, and improved business conditions for commercial development in the neighborhood, just like many existing community economic development corporations that run businesses.

"When taxes get too high, you can drive compliant dispensaries out of business," Leff told the Chronicle.

Americans for Safe Access' Hermes would agree with that, but he's not so sure about Leff's idea.

"The concept of medical marijuana dispensaries registering with the federal government as a 501(c)(4) in order to sidestep section 280E is novel and may be hypothetically valid," he said. "However, the IRS will refuse to grant tax-exempt status to a business that the agency believes is violating federal law. Perhaps, it would be possible for a dispensary to obtain 501(c)(4) status under false pretenses, but such status would not very likely withstand an IRS audit."

There are better ways, he said.

"A much more realistic and sensible approach -- pending a change to the federal classification of marijuana for medical use -- is to amend the tax code to exclude state-lawful medical marijuana businesses from Section 280E," Hermes recommended. "This is the kind of legislation that Congress should pass in order to allow states to implement their own medical marijuana laws, without undue interference by the federal government."

"I agree with everything he said," Leff replied. "But it's not just the Obama administration that is using 280E this way. The Supreme Court has held that there is no exception to the Controlled Substances Act for state-level legal marijuana sales, and since 280E makes references to Schedule I controlled substances, it applies to legal marijuana unless Congress changes the law. I totally agree that Congress should amend 280E to exempt marijuana selling that is legal under state law. Congress could also amend the Controlled Substances Act to remove marijuana from it, which would probably also make sense," he added.

Whether it is by act of Congress, internal policy shifts, or creative thinking by law school professors, some way has to be found to exempt state-permitted medical marijuana providers from the clutches of 280E and its punitive tax burden aimed at dope dealers, or there may not be any medical marijuana providers.

DEA Targets FedEx, UPS in Online Pharmacy Battle

Charged with cracking down on the diversion of prescription drugs, the DEA has pursed doctors, pharmacists, pharmacy chains, and wholesale drug suppliers. It has now turned a baleful eye on shipping companies as well, with differing results -- at least so far.

The Orlando Sentinel reported Tuesday that both UPS and FedEx had admitted in corporate filings that they were the targets of DEA probes into packages of pills shipped from online pharmacies. Prescriptions filled by online pharmacies are illegal if there is not a real doctor-patient relationship, and the DEA maintains that prescriptions written by "cyber doctors" relying on online questionnaires are not legal.

FedEx has strongly pushed back against the DEA probe, but UPS has now buckled under the pressure. In a Friday statement, the DEA announced that UPS had agreed to forfeit $40 million it had been paid for shipments by online pharmacies and to enter into a "compliance program" to ensure online pharmacies can't use its services. The deal was part of a non-prosecution agreement the shipper signed with federal prosecutors in Northern California.

DEA accused UPS of knowingly shipping the illegally-prescribed drugs between 2003 and 2010 because "it was on notice, through some employees" that such activities were occurring. DEA also accused UPS of failing to do anything about it.

"DEA is aggressively targeting the diversion of controlled substances, as well as those who facilitate their unlawful distribution," said DEA Administrator Michele Leonhart. "This investigation is significant and DEA applauds UPS for working to strengthen and enhance its practices in order to prevent future drug diversion."

FedEx may prove a tougher nut to crack. Officials there called the federal probe "absurd and disturbing" and said it threatened customer privacy. They also accused the DEA of failing to cooperate with them in efforts to resolve the problem.

"We are a transportation company -- we are not law enforcement, we are not doctors and we are not pharmacists," FedEx spokesman Patrick Fitzgerald said in a prepared statement. "We have no interest in violating the privacy of our customers by opening and inspecting their packages in an attempt to determine the legality of the contents. We stand ready and willing to support and assist law enforcement. We cannot, however, do their jobs for them."

FedEx complained that rather than working with the shipping industry to come up with solutions, the Justice Department appeared focused on finding ways to prosecute shippers.

"This is unwarranted by law and a dangerous distraction at a time when the purported illegal activity by these pharmacies continues," Fitzgerald said.

FedEx has been a major campaign contributor to US Rep. John Mica (R-FL), whom the Sentinel reported had sent a letter to Leonhart and Attorney General Eric Holder asking them to recognize "the difficulty and unfairness of requiring those carriers to assume responsibility for the legality and validity of the contents of the millions of sealed packages that they pick up and deliver ever day."

Mica told the Sentinel that while he is "concerned about prescription drugs," it was inefficient to try to turn shipping companies into drug policy enforcers. "You can't stop commerce; you can't open every package," Mica said. "I'm only asking them for a reasonable approach."

But it doesn't appear that DEA and the Justice Department see things the same way as Rep. Mica does.

San Francisco, CA
United States

Mitch McConnell Endorses Kentucky Hemp Bill

In a statement last Thursday, Senator Mitch McConnell (R-KY), the minority leader in the US Senate, endorsed pending legislation in his home state that seeks to reintroduce industrial hemp cultivation there. The bill already has the support of the state's other US senator, Rand Paul, and Agricultural Commissioner James Comer, who were instrumental in bringing McConnell on board.

Is it sunrise for industrial hemp in Kentucky? (votehemp.org)
"After long discussions with Senator Rand Paul and Commissioner James Comer on the economic benefits of industrialized hemp, I am convinced that allowing its production will be a positive development for Kentucky's farm families and economy," McConnell said. "The utilization of hemp to produce everything from clothing to paper is real, and if there is a capacity to center a new domestic industry in Kentucky that will create jobs in these difficult economic times, that sounds like a good thing to me."

But McConnell first had to be reassured that industrial hemp wouldn't somehow turn into recreational marijuana. Comer apparently managed the trick.

"Commissioner Comer has assured me that his office is committed to pursuing industrialized hemp production in a way that does not compromise Kentucky law enforcement's marijuana eradication efforts or in any way promote illegal drug use," McConnell said.

In a statement of his own last Thursday, Comer expressed enormous gratitude for McConnell's support.

"When the most powerful Republican in the country calls to discuss your issue, that's a good day on the job," Comer said. "Leader McConnell's support adds immeasurable strength to our efforts to bring good jobs to Kentucky."

The hemp bill, Senate Bill 50, sponsored by Sen. Paul Hornback (R-Shelbyville), would direct the state Agriculture Department to create a program for licensing industrial hemp producers, but would not go into effect until there is a change in federal law, which bans the production -- but not the importation -- of industrial hemp.

In addition to both US senators, the bill has also garnered the support of two of the state's six US representatives, US Reps. John Yarmuth (D) and Thomas Massie (R). The two congressmen, Sen. Paul, and Commissioner Comer will all testify in favor of the bill.

"Our federal delegation is showing tremendous leadership," Comer said. "They recognize this is not a partisan issue. It's about jobs. And we will continue to push forward to make sure Kentucky is first in line for them."

State legislative leaders are also firmly backing the bill. Senate Majority Leader Damon Thayer (R-Georgetown) joined Sen. Hornback in convincing the Northern Kentucky Chamber of Commerce to endorse the bill. It did so Wednesday.

The bill gets a hearing in the Senate Agriculture Committee on February 11.

Frankfort, KY
United States

First Private Marijuana Clubs Open in Colorado

At least two members-only recreational marijuana clubs opened in Colorado Monday, one in Denver and one in the small southern Colorado town of Del Norte, according to the Associated Press. The club openings come less than a month after Gov. John Hickenlooper certified the results of the November vote on Amendment 64, which legalized for adults 21 and over the possession of up to an ounce and the cultivation of up to six pot plants.

BYOB
Amendment 64 also requires the state government to come up with rules and regulations for a legal marijuana commerce within a matter of months. The clubs avoid the regulatory tangle by not actually selling marijuana. Instead, they charge a fee for membership, and paid members can bring their own marijuana and smoke it convivially at the club.

In Denver, Club 64 opened Monday afternoon, less than 24 hours after organizers announced they would create it. It already had 200 members, who had shelled out $29.99 each for the privilege of joining. The club, which will meet monthly at different locations, will charge the same fee each month.

"It's just a place for adults to exercise their constitutional rights together," Denver marijuana attorney Rob Corry told the AP. "We're not selling pot here."

As reggae blasted from speakers below a glittering disco ball and "The Big Lebowski" played on a wall screen, club members shared puffs and hugs as they gathered to celebrate the new year and the new era.

"Look at this!" club organizer Chloe Villano excitedly told the AP. "We were so scared because we didn't want it to be crazy. But this is crazy! People want this."

Not every marijuana reformer in Colorado is on board, according to a CNN report published New Year's Day. "Much of our success with Amendment 64 was making the soccer moms comfortable," an advocate told CNN, adding, "This is not the fight we want to have right now." The advocate spoke anonymously, in order to avoid creating a rift in the community, according to the CNN report.

In Del Norte, the Whitehorse Inn opened Monday afternoon, becoming the first private marijuana club in the state. But according to the Denver Post, publicity surrounding the opening resulting in owner Paul Lovato losing his lease. While Lovato had the keys to the property, his lease didn't actually start until Tuesday, and when the landlord saw the publicity, he canceled the lease before it went into effect.

"By opening early I kind of screwed myself out of my building," Lovato said Tuesday.

He had planned to open at midnight Monday, just after New Year's Eve ticked over to New Year's Day, but moved up his opening by a few hours after hearing about Club 64. Lovato wanted to be first.

"It was really unexpected," he said of the lease cancelation. "I got caught up in the whole 'I want to be the first to open' thing. And I did that. I was the first... I'm pretty proud of that."

If Lovato has lost his location, he hasn't lost his club. He said he was expecting visitors from nearby New Mexico to show up Tuesday.

"We're doing the White Horse Inn at my house today," he said.

America now has its first legal marijuana dens.

CO
United States

Colorado Business Groups Ask Feds to Enforce Marijuana Laws

Some 20 Colorado business organizations wrote a letter to US Attorney General Eric Holder last Friday urging him to enforce federal laws barring the sale and possession of marijuana. In doing so, the business groups are taking direct aim at the will of the voters, who passed Amendment 64 legalizing marijuana with 55% of the vote last month.

"Passage of Amendment 64 left considerable uncertainty for employers and business in Colorado with regard to their legal rights and obligations," the letter said. "We encourage enforcement of the [federal Controlled Substances Act] to provide the certainty and clarity of law we seek."

Amendment 64 legalizes the possession of up to an ounce of marijuana and the cultivation of up to six plants by adults 21 and over. That part of the amendment will go into effect by January 5 at the latest. It also directs the state to craft a system of regulations for commercial marijuana cultivation and sales. The state has until October 2013 to complete that task.

Still, marijuana remains illegal under federal law, but the Justice Department headed by Holder has yet to signal how it will respond. The Obama administration initially backed off enforcing federal laws in medical marijuana states, but for the last two years has stepped up enforcement actions.

For Coloradans and others who want to know who is attempting to undercut the will of the voters and respond in an informed and appropriate manner, here is the complete list of signatory organizations:

  • Colorado Concern
  • Northern Colorado Legislative Alliance
  • Associated Builders and Contractors -- Rocky Mountain Chapter
  • Colorado Technology Association
  • Fort Collins Chamber of Commerce
  • Grand Junction Chamber of Commerce
  • Greeley Chamber of Commerce
  • Pueblo Chamber of Commerce
  • Colorado Springs Regional Business Alliance
  • Northern Colorado Economic Development Corporation
  • Upstate Colorado Economic Development Association
  • Colorado Contractors Association
  • International Electrical Contractors -- Rocky Mountain Chapter
  • National Federation of Independent Business -- Colorado and Wyoming Chapter
  • Club 20
  • Loveland Chamber of Commerce
  • Colorado Bankers Association
  • Colorado Auto Recyclers Association
  • Chrisland Commercial
  • Douglas County Business Alliance

(Update: One of our readers has posted contact information for these organizations, here in the comments section.)

CO
United States

Medical Marijuana Update

The feds continue to play hardball in California and local elected officials across the state are grappling with the issues. Meanwhile, Vermont moves ahead on dispensaries while New Hampshire's medical marijuana bill can't overcome a gubernatorial veto, and that's not all. Let's get to it:

Arizona

On Monday, an applicant for a dispensary and grow site sued Maricopa County, accusing the county of purposefully stalling action on its application to prevent it from seeking a state operating license. The lawsuit by White Mountain Health Center Inc. charges the county would not certify or reject its registration certificate, one of the Arizona Department of Health Services' first requirements for obtaining a dispensary license. Maricopa County last year decided to not allow employees to accept, process, or issue permits for dispensaries or grows until marijuana becomes a federally approved drug, but that puts the county at odds with the Arizona Medical Marijuana Act, which only allows local jurisdictions to impose "reasonable" zoning restrictions for dispensaries, and requires local zoning approval before a permit is processed by the state.

California

Last Tuesday, the Del Mar City Council opted to hear a report on a ballot initiative that seeks to improve access to medical marijuana in the city. The move came after activists handed in almost double the number of signatures required to place the initiative on the November ballot. The council could have adopted the initiative as written, put the issue on the ballot, or ordered a report, and it chose the latter. The proposed ordinance would allow dispensaries in the city and tax and regulate them. The council will have 10 days after receiving the report to either adopt the ordinance or order an election. The report is due by July 13.

Also last Tuesday, the Roseville City Council voted to ban outdoor grows. The council voted 4-1 to ban the grows after some residents complained about odors. The ordinance will take effect November 1, at the end of the outdoor growing season. The ordinance also limits indoor grows to fewer than 50 square feet in the grower's primary residence. Opponents of the ordinance argued to no avail that because Roseville doesn't allow dispensaries, patients must grow their own, and that indoor grows will cost patients money for equipment and operating costs.

Also last Tuesday, the Long Beach City Council held a contentious meeting as it considered whether to completely ban dispensaries later this summer. No votes were taken, but discussion was heated at times as the council revisited its ban on dispensaries and the temporary exemptions for 18 of them, which are slated to terminate on August 12.

Last Wednesday, Malibu's only two dispensaries announced they were closing, saying they had been hit with letters from federal prosecutors threatening prosecution and forfeiture. The letters to the Malibu dispensaries were among 34 sent to what the feds called "illegal marijuana operations" in Los Angeles County. The warning letters targeted all known dispensaries in the communities of Santa Fe Springs, Whittier, South El Monte, La Mirada, Diamond Bar, Artesia, Paramount, South Gate, City of Commerce, Agoura Hills and Malibu.

Last Thursday, Imperial Beach officials approved an initiative to repeal the city's ban on dispensaries and replace it with reasonable regulations. The county registrar said petitioners from Americans for Safe Access and the LGBT nonprofit Canvass for a Cause turned in enough valid signatures to qualify for the ballot. The city could vitiate the need for a special election on the issue by approving the initiative at the City Council, which will be discussing the matter at its July 18 meeting.

Also last Thursday, Fresno made permanent its ban on outdoor marijuana grows. The city council in January approved a temporary ban, and last week decided to join the rest of Kern County in banning outdoor grows. Police said indoor grows were less likely to attract criminals, but medical marijuana advocates countered that instead of thieves jumping fences to steal plants, there will now be home invasion robberies. Advocates also complained that indoor grows require expensive equipment and waste energy.

Last Friday, Lake County's Marijuana Cultivation Ordinance Advisory Committee met to hear an update about an urgency measure to adopt an interim law for marijuana growth but was precluded from directly discussing the merits of the proposal on Friday. The committee chair charged with making recommendations said it would be improper for the panel to discuss the ordinance at that meeting. The proposed temporary law would ban commercial medical marijuana cultivation as well as all growing on vacant properties and ban any grows within 600 feet of a school. It would also limit outdoor cultivation to three mature female or six immature marijuana plants on parcels smaller than half an acre, and six mature female or 12 immature plants on lands half an acre or larger, accessory to an approved residential use. Collective or cooperative organizations consisting of qualified patients and primary caregivers could grow as many as 36 mature female plants on parcels of at least five acres. Those groups would have to adhere to several rules, including that their site must contain a permitted residence and that their growing area must be screened from public view with a wooden fence.

Also last Friday, Vallejo police raided the Better Health Group Collective for the third time in the last three months. Better Health is one of at least five Vallejo dispensaries targeted in recent raids. Local prosecutors have charged six operators with felony drug charges, but dismissed charges against one.

Also last Friday, the mayor of Cudahy and two other city officials were arrested on federal charges they took bribes to support the opening of a dispensary in the city. Mayor David Silva and two city council members are accused of accepting $15,000 in cash from an informant working with the FBI. They're looking at up to 10 years in prison each. The city has a temporary moratorium on dispensaries, which will probably be renewed later this year.

On Monday, a bill to regulate and tax medical marijuana statewide died in Sacramento. Sponsored by Assemblyman Tom Ammiano (D-San Francisco), Assembly Bill 2312, would have created a state Bureau of Medical Marijuana Enforcement to license and regulate industry enterprises. But the bill ran into opposition from some legislators over its provision requiring localities to allow dispensaries unless they are voted down in a referendum. When Ammiano amended the bill to allow local officials to ban dispensaries, the bill began to lose favor among some medical marijuana advocates. Ammiano said he didn't have the votes to get it out of committee, but that a committee will study the bill this summer and he will reintroduce it next year.

On Tuesday, Yuba County supervisors approved the introduction of amendments to the county's public nuisance ordinance for medical marijuana. But while the county is still fine-tuning its ordinance, local growers said it is ignoring critical issues, such as a collective grows and are threatening legal action if the county doesn't move faster. The amendments are supposed to be voted on at the board's July 10 meeting, but that may not happen after one supervisor said more work was needed.

Also on Tuesday, hundreds of unhappy medical marijuana advocates piled into the Lake County supervisors' meeting to protest a pending medical marijuana ordinance. The multitude created a log-jam at the Lakeport courthouse security station, causing the hearing to be delayed until July. The crowd cheered when they learned the hearing was rescheduled for a larger venue. The hearing will be held July 9 in the fairgrounds' theater in Lakeport.

Colorado

On Tuesday, Fort Collins officials announced that an initiative to repeal a ban on dispensaries had qualified for the November ballot. Organizers needed 4,214 valid voter signatures, and election officials stopped counting at 4,302 with 743 more signatures unchecked. They had turned in more than 9,000 signatures last week. The city attorney's office will now draft language for the initiative at the next meeting of the city council on July 17. Last year, voters in the city approved the ban; this year, they will now have a chance to change their minds.

Montana

Last Friday, Montana Republicans approved a resolution calling for regulated medical marijuana. Republicans in the state legislature were responsible for gutting the state's voter-approved medical marijuana law last year, but the new position is that state Republicans would "support action by the next legislature to create a workable and realistic regulatory structure." Montana Democrats a week earlier approved a change in their platform saying they supported access for those who need medical marijuana.

New Hampshire

On Wednesday, the state Senate fell short in a bid to override a veto of the medical marijuana bill passed earlier by the legislature. As he did in 2009, Gov. John Lynch (D) vetoed it, and as in 2009, proponents were unable to get enough votes to override.

Vermont

Last Friday, state officials received four applications from potential dispensary operators. State officials are not revealing who the applicants are and where they want to operate, saying they consider that information confidential. The first dispensaries could be operating by the end of the year, but their locations and identities would be revealed when they seek local approvals.

Washington

On Tuesday, the Tacoma City Council heard testimony about a proposal to allow dispensaries and collective grows to operate in the city. Nearly 11 months after the council issued a moratorium on business licenses to medical marijuana dispensaries, Tuesday's hearing gave the public a chance to weigh in on a zoning framework that since has been formulated to allow such businesses, but regulate them. About a dozen people spoke, most in favor of the proposal. The proposal would allow collective gardens in the city's industrial zones and in certain downtown and mixed-use zones. That essentially would concentrate such operations in Tacoma’s port area and along South Tacoma Way. Dispensaries would be allowed in city zoning districts where commercial uses now are allowed.

Dutch-Only Cannabis Coffee Shop Policy Meets Resistance [FEATURE]

A Dutch government policy aimed at barring foreign tourists from buying marijuana in the Netherlands went into effect in three southern border provinces Tuesday, but it didn't go exactly as authorities planned.

Amsterdam cannabis "coffee shop" (wikimedia.org)
In the southern border city of Maastricht, hundreds of demonstrators filled a central square to protest the move, waving signs saying "Away with the Weed Pass," "No Discrimination Against Belgians," and "Dealers Wanted!" and toting a six-foot long joint. Meanwhile, cannabis coffee shop owners across the city closed their doors to protest the imposition of the scheme, leaving the city's mayor ruffled and pot-buyers to seek out street dealers.

The weed pass plan is the brainchild of the rightist Liberal-Christian Democrat coalition government, which collapsed last month. But the Dutch parliament had already approved the plan, and it is still scheduled to go into effect nationwide beginning January 1.

Under the weed pass plan, cannabis coffee shops will be forced to become "members only" clubs, with membership limited to 2,000 people per club. Members must register their identities, and only Dutch citizens and residents will be allowed to join the clubs.

Marijuana remains illegal in the Netherlands, but under a policy of pragmatic tolerance in effect since 1976, the Dutch government has allowed for the sale of small amounts of marijuana through the coffee shops. The current lame duck government of Prime Minister Mark Rutte, playing to its conservative base, has moved against the coffee shops as part of a broader anti-drug campaign that has also seen it label hashish a "hard drug" and move to criminalize khat, which is used almost exclusively by the country's small Somali immigrant population.

The weed pass plan is now in effect in the provinces of Brabant, Limburg, and Zeeland, which border Belgium and/or Germany. Reuters reported that most coffee shops in cities such as Eindhoven, Roermond, and Tilburg were also shut, or were ignoring the weed pass.

"We've been selling cannabis to anybody who comes, as normal," said William Vugs, owner of the 't Oermelijn coffee shop in Tilburg. "We are being forced to discriminate against foreigners. They don't just spend their money here, they buy groceries and fill up their cars, too," he said.

Vugs said his shop served 800 customers a day, about one-fifth of them from Belgium. Turning them away would have economic consequences beyond the coffee shops, he said.

Vugs is one of the coffee shop owners who hopes to block the weed pass in court by arguing that it is discriminatory. That's the plan concocted by the Maastricht Coffee Shop Union (VOCM), which announced in a press release Monday that it would challenge the law in court.

"Too much is still unclear about the privacy concerns, but also on the exact requirements of the minister, said VOCM leader Marc Josemans, owner of the Easy Going coffee shop in Maastricht. "Therefore we will not register customers and will continue to sell to anyone aged 18 and older who can identify himself. "

Instead, in a surprise move, the city's coffee shops closed their doors -- except for Easy Going. Josemans opened long enough to refuse to sell pot to a group of foreigners, who then proceeded to a local police station to file a discrimination complaint. Such complaints will be the basis of the looming legal challenge to the weed pass.

Josemans then stayed open, selling marijuana to anyone who asked for it, and local police arrived shortly.

"The police paid me a visit about a half an hour later and warned me I was violating the new rules, and if I do it again, I'll be closed down for a month," he said in a telephone interview with the Associated Press. But he added that he planned to continue selling to all comers and that he expected his shop to be shut down. He would then take his case to the European Court of Justice, he said. "Discrimination is never the right answer,"Joseman said.

Previous efforts to overturn the law, both in the Dutch courts and the European Court of Justice, have failed, but the coffee shop owners and their supporters are determined to try again.

Tuesday also saw competing press conferences in Maastricht, with the mayor and city officials at one and coffee shop supporters at the other, held in front of Easy Going.

Maastricht Mayor Onno Hoes said the city supported the weed pass plan and that the coffee shop owners were "rude" to close their doors. "I did not think the owners would be so cheeky," he complained. "By doing this, they are hurting the local population."

But not the street drug dealers, who, according to the VOCM, are flocking to the city to take advantage of the ban on sales to foreigners.

"Maastricht is now faced with drug runners who have never been spotted in the city before, coming from Liege, eastern Europe and northern France," the group said. "They are using flyers explaining the new rules that were issued by the city of Maastricht in order to lure tourists! Thus we are rapidly returning to a long gone past where a separation of markets for cannabis and hard drugs did not exist and dealers controlled the streets."

Former head of the Netherlands Police Union Hans van Duijn echoed that sentiment at the press conference in front of Easy Going. "Everyone who is rejected here will walk a few meters down the street to the drug dealers who drive over from Rotterdam, among other places, and ride around in large numbers," he said.

The primary reasons the Dutch adopted the pragmatic tolerance policy allowing for the coffee shops were to separate "soft" and "hard" drug markets and to reduce the number of street dealers. But it appears the weed pass policy will have the opposite effect.

"This weed pass is a bizarre U-turn by a government of moralistic politicians looking for ways to score points among the conservative part of the nation," said Joep Oomen, director of the European Coalition for Just and Effective Drug Policies (ENCOD) from his home next door in Belgium. "It is a slap in the face of the millions of non-Dutch residents who visit the coffee shops every year without ever causing any nuisance, as well as of Dutch society as a whole, that will now be faced with an increasing illegal cannabis circuit."

Oomen noted that street dealers in Maastricht Tuesday were openly defying authorities by giving interviews on Dutch TV.

"Nobody expects that people looking for good quality cannabis will now cease to do that," he continued. "They will just not be allowed in the coffee shops anymore and will instead find their stuff on the streets."

For ENCOD, the weed pass plan is a repressive last gasp that could have unintended consequences, good as well as bad.

"We consider this as a last convulsion of a dying body," Oomen said. "The problems that this effort to end the coffee shop model will create will cause the Dutch public to see that the only real solution is to regulate the 'back door' of the coffee shops."

Oomen was referring to the peculiarity in the current Dutch system which allows for marijuana to be sold, but does not allow for a legal supply for the coffee shops. That has resulted in increasing black market pot production.

The issue of the "back door" was also on Joseman's mind.

"Let's forget this right wing hobby and focus on the real problem -- the 'back door,'" he said. "This is the Achilles heel of Dutch cannabis policy. When we finally start to regulate the cultivation of cannabis and supply to the coffee shops, we will kill three birds with one stone: significantly less crime, huge profits for public health, and one billion euros a year extra in the national treasury."

But first, the coffee shops have to deal with their current "front door" problem. The looming court cases are one avenue, but the September elections set to replace the current government provide another one.

"Our hope is on the outcome of the trial processes that have started today in Maastricht and Tilburg by the closure of the coffee shops that refuse to carry out the new measure, and on the general elections in September," said Oomen. "Predictions are that at least two of the five left-wing parties that are currently in opposition will participate in the next government, and they will cancel the new measures or at least diminish their impact."

Netherlands

Dutch Court Upholds Cannabis Café Ban on Foreigners

A Dutch judge in The Hague last Friday upheld a law banning foreigners from entering the country's famous marijuana coffee houses. That means that as of this week, foreigners will be unable to purchase marijuana at coffee houses in three southern border provinces.

Amsterdam coffee shop (wikimedia.org)
The ban on foreigners is expected to go into effect nationwide by next year, but whether that will actually happen is unclear, given strong opposition from Amsterdam and other cities, and given that the conservative coalition government that crafted the policy has fallen, and the country will have elections to select a new government this fall.

The government of Prime Minister Mark Rutte has moved on several fronts to rein in the Netherlands' decades-long tradition of tolerance for marijuana and marijuana sales. It has labeled hashish and stronger strains of marijuana as "hard drugs" and forbidden their sale in the coffee houses. And it has moved not only to ban foreigners from the coffee houses, but also to make them "members only" clubs with a membership limited to 2,000 per club. Entry would be allowed only to persons holding a "weed pass," or membership card.

Coffee shop owners in the southern provinces where the ban took effect Monday filed suit to block it, arguing that the ban discriminates against other members of the European Union. But the court in The Hague upheld the law.

Lawyers for the coffee shop owners said they would immediately appeal. They said they would take the case to the European Court for Human Rights and argue that the Dutch government should not be able to discriminate against people based on where they live.

"It's going to cost me 90% of my turnover," said coffee shop owner Michael Veling, who is also a spokesman for the Dutch Cannabis Retailers Association. "That is a very good reason for anyone to oppose any plan. Second, it puts our customers in a very difficult spot, because why do you have to register to buy a substance that is still illegal?" he told the BBC.

The battle over Holland's iconic cannabis cafes is by no means over. In addition to the continuing fights in the courts, both national and European, the issue will undoubtedly be addressed in the coming election campaign.

Netherlands

West Virginia Governor Orders Job Trainee Drug Testing

It's not just Republicans hopping on the drug testing bandwagon. On Tuesday, West Virginia Gov. Earl Ray Tomblin, a Democrat, issued an executive order requiring people who seek state-funding job training to first pass a drug test.

The order turns a pledge from this year's State of the State address into reality. It calls for mandatory, suspicionless drug testing of all participants in the Workforce West Virginia program, which provides training for youths, adults, and displaced workers.

"I continuously hear from business leaders located all across the state, that they have jobs available but the candidates cannot pass a pre-employment drug screening," Tomblin said in a statement. "When this happens, we have wasted taxpayer dollars, hurt our businesses, and limit our economic growth."

Tuesday's order requires testing for 10 categories of drugs and will deny training for applicants for 90 days if they test positive. A second flunked test will bar them for one year. The order allows applicants to appeal over test results. The state will pay for the drug tests and will hire an outside contractor to administer them.

Last year, Indiana became the first state to require people seeking job training to undergo drug tests. West Virginia is so far the only other state to follow.

Tomblin has proven quite a fan of drug testing. He successfully championed a measure this year that requires random drug tests for safety-sensitive jobs in the state's coal-mining industry. The bill was part of a broader mine safety package inspired by the 2010 Upper Big Branch mine disaster in which 29 miners died. Autopsy results showed no evidence that any of those men were using drugs.

Labor leaders and other workers' rights advocates have questioned the need for drug testing. West Virginia AFL-CIO President Kenny Perdue has challenged industries to show more evidence that drug use among the state's workforce is a problem. He told the Charleston Daily Mail he thought it was an excuse for companies to hire out-of-state.

"I do believe that the over-abuse of drugs in this state is not as bad as everybody makes it to be," Perdue said Tuesday. "I've talked to too many people and learned of too many cases that show that it's not as serious as they say."

No word yet on any legal challenges to the executive order or the miner drug testing bill.

Charleston, WV
United States

Federal Court Blocks DEA Effort to Close Florida Pharmacies

In its effort to prevent the diversion of prescription pain medications into the illicit market, the DEA moved last month to bar two Florida CVS drug stores from selling the drugs. But last Wednesday, the US Court of Appeals for the District of Columbia ruled the agency had gone too far and temporary blocked the DEA's order.

The case is Holiday CVS LLC v. Eric Holder, No. 12-5072.

The DEA had argued that the two CVS pharmacies in Sanford, Florida, were inappropriately filling prescriptions for oxycodone, an opioid pain reliever that is widely used. The DEA also said there were "suspicious" sales of other controlled substances.

But CVS argued that the DEA's enforcement actions were "arbitrary and capricious," that it had already taken steps to address DEA concerns, and that it would suffer "irreparable harm" if not allowed to fill prescriptions for controlled substances at its pharmacies.

A federal district court judge had initially blocked the DEA order, but allowed it to take effect on last Tuesday. CVS immediately appealed the decision.

This is the second prescription medicine provider the DEA has gone after in this manner in Florida. Earlier, the agency issued an order to Cardinal Health Inc. to prevent it from selling prescription drugs from its warehouse facility in Lakeland, Florida. Cardinal Health's client pharmacies include the two Sanford CVS stores. Cardinal Health had already won a similar stay, but last Friday, the same DC appeals court upheld the DEA order.

The DEA has identified Florida as an epicenter of an "epidemic" of non-presciption use of opioid pain relievers and has moved aggressively against doctors it accused of operating "pill mills" in the state. Florida is the home of more than 500 pain clinics, down from more than 700 last year after the state tightened regulations on them this year.

DEA and CVS must file responses to the appeals court order next week. In the meantime, CVS can still fill prescriptions and its customers can still pick them up.

Washington, DC
United States

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