City of Oakland: Pot Farm Taxes to Net $38 Million per Year 

Plus Rand Corp study finds that legalization would lead to big drop in price.

The City of Oakland's cutting-edge approach to its medical cannabis sector is about to make national headlines again with the long-awaited release of city plans for licensing large-scale marijuana grows. If the draft ordinances pass, the city stands to reap almost $38 million in taxes per year by growing one-fifth of all statewide medicinal marijuana.

The city is looking at permitting up to four large-scale grows with no limitations on each farm's size. The rules would still let patients and caregivers home-grow up to 96 square-feet, but larger grows would require a $211,000 cultivation permit to be issued starting January 1, 2011.

The potential rules are scheduled to go before the city's Public Safety Committee on Tuesday, July 13, and represent the first attempt by the city at regulating its numerous indoor cultivators.

The staff report from Councilman Larry Reid and Councilwoman Rebecca Kaplan's offices says permitting large-scale grows will increase safety by undercutting the price of homegrowers, who are prone to fires and robberies. The Oakland Fire and Police departments told city staff of seven cannabis-related electrical fires in 2008 and 2009, though "many more cannabis-related fires have likely gone unreported." Residential electrical fires in Oakland rose from 133 in 2006 to 276 in 2009. Police tallied eight robberies, seven burglaries, and two homicides clearly linked to cultivation in the last two years. "Again, these statistics are likely to understate the extent of the problem."

"You've got people who are going around putting their own systems in place the wrong way and the fire department says there is potential for even greater fires to happen in residences," Councilman Reid told Legalization Nation.

Permittees will be subject to heavy regulation including quarterly reports, a perennial state of audit, taxes, a $5,000 application fee, and a $211,000 yearly registration fee. Potential permittees would be ranked on a points system by the planning department, with bonus points for local ownership, local hiring, third-party oversight, and community benefits.

The draft rules would also up the number of local dispensaries from four to six, allow them to be near each other, allow on-site consumption, mandate THC testing, track how much dispensaries get from city grows, and increase annual fees from $30,000 to $60,000.

The city says increasing the amount of dispensaries prevents market domination by any particular one. That explanation would seem to contradict permitting just four large-scale grows where the city is essentially picking a winner — a fact that has some local dispensaries grumbling.

The City of Oakland's four dispensaries made $28 million in gross sales in 2009 and dispensary sales are up 40 percent from 2008. Locally, they dispensed 6,000 pounds of cannabis last year, which required 45,000 square-feet of growing space. The state as a whole consumes an estimated 175 tons of medical cannabis per year, which requires 1.75 million square-feet of growing space. Oakland assumes it can grow 20 percent of the state's supply on a combined 350,000 square-feet, netting the city almost $38 million annually.

Rand Study Predicts Price Drop

The cost of high-grade cannabis could drop to around $70 per ounce from $350 if California legalizes over-21 possession and consumption of the plant, a leading think tank disclosed last week. "Altered State? Assessing How Marijuana Legalization in California Could Influence Marijuana Consumption and Public Budgets" by the Rand Corporation finds that most of today's pot costs are actually risks to growers, distributors, and sellers who face arrest and jail time. Lifting that risk, along with automation, and economies of scale would cause about an 80-percent drop in the price of sensimilla and put billions of dollars back in the pockets of California consumers. The study could not say what would happen to rates of consumption with certainty, but use could double from 7 to 14 percent of the adult population.

"The pretax price will go down, we're very clear about that," said Beau Kilmer, the study's lead author and a policy researcher at RAND. "Where we're less certain is about what happens with consumption."

Rand also found that California could make dramatically more or less than an estimated $1.4 billion per year taxing cannabis at $50 an ounce, depending not only on taxes collected but also tourism and possible exports. Enforcing the state's pot laws costs Californians about $300 million a year, the study found. The emergency room costs of increased usage represent a tiny fraction of projected revenue, Rand found.

Seeds & Stems

Support for Prop 19 slipped to 44 percent versus 48 percent against, a Field Poll concluded Friday, just as three US Congresspeople from California said they endorsed the initiative. ... The White House disclosed last week that pills are drawing more new users than pot. Seven of the top ten drugs abused by 12th graders are prescription drugs like OxyContin. The Centers for Disease Control and Prevention recently reported that prescription and over-the-counter drugs were responsible for the 25-percent increase in drug-related emergency department visits between 2004 and 2008. Since 1999, deaths from drug use have more than doubled, surpassing homicides, suicides, and gunshot wounds as causes of death. This increase in drug overdose death rates is largely because of prescription opinoid painkillers, the White House said.

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