Oakland’s Medical Marijuana Dispensaries Move To Block An Open Market

Harborside Health Center founder and executive director Steve DeAngelo during a panel at the Beverly Hilton Hotel on July 29, 2011 in Beverly Hills, California.

Frederick M. Brown / Via Getty Images

The eight licensed medical marijuana dispensaries in Oakland, California have banded together to limit the number of dispensaries in the city in a bid to consolidate their grip on the legal marijuana market.

A document obtained by BuzzFeed News shows that those eight dispensaries hired a lobbyist in July and last month announced that they would be forming the Oakland Dispensary Council to advocate on their behalf, raising questions about the extent of the cannabis industry’s growing spending power and political influence.

As legalization becomes more common, pot consumers are starting to pay more attention to the details of proposed regulatory schemes and who will profit from them. Last week, Ohioans voted overwhelmingly against a legalization initiative that would have given control of all commercial cultivation of cannabis to the same group of wealthy investors that bankrolled the campaign. Polls showed that a majority of voters in the Buckeye state support both recreational and medical marijuana, but 53% of voters felt this specific initiative was a “bad idea” because it created a “monopoly on growing marijuana.”

In Oakland, the existing dispensaries say offering an unlimited number of cannabis retail licenses could overwhelm city staff, oversaturate the market, and make it more difficult for the city to keep a careful eye on all of the shops. But some activists and industry observers say the existing dispensaries are only looking out for themselves.

“From an economic perspective, this has the same impact as if they did engage in unlawful collusion, because they’re coordinating their behavior in a way that makes consumers worse off,” Joseph Harrington, a professor of business economics and public policy at Wharton, told BuzzFeed News. “There’s always concern when competitors start talking that their discussions will spill over into something that is anti-competitive.”

The Mayor of Oakland and the city’s Cannabis Regulatory Commission support allowing anyone who qualifies to open a dispensary, and a plan like that could result in dozens of new dispensaries opening in the city.

But last month assistant city administrator Greg Minor presented a comprehensive cannabis licensing plan that would take a very different approach, capping the number of permitted cannabis retail operators at just 16, including delivery services.

At the moment, in addition to the eight brick-and-mortar dispensaries in the city, there are at least another 21 cannabis delivery services operating in a legal grey area.

The city council is expected to vote by early next year on the new cannabis plan, which also includes new licenses for cultivating marijuana plants and manufacturing end products, such as pot brownies or cannabis concentrates such as butane hash oil. None of those other types of licenses will have caps.

At recent meetings of the Cannabis Regulatory Commission, Minor repeatedly made reference to what the existing dispensary operators want when discussing what city policy should and will look like. When BuzzFeed News asked Minor how much influence the lobbyist hired by the dispensary owners had over his policy recommendations, he laughed and said, “None.”

But the dispensary owners themselves were a different story .“I think [the existing dispensary owners] have wisdom to share,” Minor said. “The reason for not having an unlimited number is because it’s worked. We have these successful operators that are highly compliant with operating standards.”

Both potheads and activists tend to loathe anything that resembles what they see as “Big Pot”—that is, a marijuana market dominated by corporations wielding influence over those in power to shape the new cannabis landscape to benefit themselves, not the consumer. But the line between which cannabis businesses can truly be considered small and which are “corporate” is quickly blurring. Even marijuana businesses backed by wealthy investors and operating in several states seek to dispel the “Big Pot” label, lest they alienate their customers.

The lobby of Oakland’s Harborside dispensary, which has more than 200,000 patients.

courtesy Harborside

Oakland has long been a leader on cannabis policy in California, offering licenses as early as 2008 and suing the federal government in 2012 to protect Harborside Health Center, its biggest dispensary, from prosecution.

Perhaps as a result of the early legitimacy conferred by being licensed in Oakland, the owners of Harborside and another big dispensary in Oakland, Blüm, have both expanded well beyond the East Bay, setting up dispensaries, cultivation centers, and testing labs in other counties and states, as well as companies with national reach. Now, just as taxi drivers, barbers, or any number of other more traditional business owners have in the past, dispensary operators may be trying to use licensing to keep competitors out, according to Harrington. Additional documents show that Blüm and Harborside have been paying $30,000 a quarter to the same lobbying firm used by AirBnB to represent their interests in conversations with city administrators, including Greg Minor.

And as the Oakland cannabis industry has grown in profit and political know-how, concerns about corruption and influence have increased.

In August, the FBI indicted a key member of the Oakland cannabis scene — coordinator for the medical cannabis division of the United Food and Commercial Workers union, Dan Rush — for taking bribes, laundering money, attempted extortion, and manipulating union agreements to benefit dispensary owners at the expense of their workers.

Now, as the city discusses whether to cap the number of permitted dispensaries, local advocates say they worry about how backroom conversations and industry lobbying are affecting city policy.

“The cannabis movement came out of Oakland’s progressive and diverse roots in political and social protest, which has been going on since the Civil Rights movement. But as the industry’s legitimacy rose, they went into the more traditional insider game and not merely outsider protest politics,” said David McCuan, a political science professor at Sonoma State University.

The political consultant hired by the eight existing dispensaries, Lupe Schoenberger, said that she disliked the word “lobbying.” She acknowledged to BuzzFeed News that she had initially been asked to prevent the city from opening up licenses to an unlimited number of dispensaries, but said that her clients no longer agreed on how many additional dispensaries should be allowed.

City Councilmember Rebecca Kaplan supports keeping the number of brick and mortar dispensaries fixed for now.

“There is literally a question of how many applications our staff can process,” Kaplan said. “The people who don’t have a permit and want a permit want there to be more permits, and people who have a permit might equally much have an incentive to want there to be less permits. The profit motive is equally on both sides.”

However, Harrington, the business economics and public policy professor, said the two sides could not quite be weighed equally, as the eight existing dispensaries working together to reduce competition would be bad not only for aspiring dispensary owners but for the pot smokers of Oakland, because studies have consistently shown that fewer competing businesses in a market leads to higher prices and lower quality.

At the October meeting of the Cannabis Regulatory Commission, a series of uniformed dispensary employees approached to say they felt the city does not need any additional dispensaries. Commission member Sean Donahoe said he found their arguments unpersuasive.

Donahoe noted that most of the commenters touted “the benefits of medical cannabis and the benefits of good, well-paying, regulated jobs and the good nature of their relationships with their neighbors. And then they said they don’t want the city to allow any more [dispensaries],” Donahoe recalled. “It was a nonsensical and illogical conclusion, because every talking point pointed to opening more and there was no policy argument for why there should be no more. You have the impression there’s action happening behind closed doors.”

Donahoe and several other advocates and industry observers in Oakland mentioned to BuzzFeed News that the August FBI indictment of UFCW organizer Dan Rush had led them to be more suspicious of how private dealings are influencing the conversation about new regulations. Rush’s lawyer Marc Terbeek, who according to an FBI complaint allegedly received $110,000 in kickbacks from Rush over the past few years, was one of the more outspoken voices arguing against lifting the cap on the number of dispensaries at a Cannabis Regulatory Commission meeting back in July.

“We don’t want to hamstring our local businesses, particularly the businesses that have been here for years that have established Oakland as the local leader,” Terbeek said at the meeting. “Letting the market decide can be a religion sometimes that doesn’t bear fruit … There are businesses that have invested and staked their resources on the concept of limitations.”

Terbeek began cooperating with the FBI on the Rush investigation in January of this year but, according to the agency, has agreed to plead guilty to charges stemming from the kickbacks.

Harborside executive director DeAngelo told BuzzFeed News that he supports Minor’s plan to increase the dispensary count to 16, but denied that there has been any inappropriate behavior among the existing dispensary operators.

“I can absolutely guarantee there’s been no collusion whatsoever. The fact that we get together and meet from time to time? That’s not collusion,” he said. “When new regulations are being considered, we have a set of common interests, and we typically get together and talk about those interests.”

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The Dark Side Of Medical Marijuana’s Miracle Drug

Annette Maughan was hoping for a miracle when her package of Real Scientific Hemp Oil finally arrived in the mail.

It was May 2014, and it had been almost a year since she’d first heard about cannabis as a potential treatment for epilepsy, from the mother of another boy in her son’s class at a special-needs school just south of Salt Lake City, Utah. Maughan’s 12-year-old son, Glenn, whom everyone calls Bug, is blue-eyed, strawberry blonde, and autistic. During the day, Bug was silent, unable to talk. At night, when he was asleep, his body and his voice would betray him.

“It always starts the same way: a scream, guttural and unmistakable,” Maughan said. “He locks up, every limb on his little body. His arms and legs start convulsing so hard, and his eyes roll back.”

Courtesy Annette Maughan

Even on a cocktail of pharmaceuticals, Bug was averaging six seizures a night, and occasionally some during the day. Squeezing a half-inch of the worm-like Real Scientific Hemp Oil onto a spoonful of coconut oil to make it go down easier, Maughan wanted badly for this $550 cannabis paste to change her son’s life and justify the months she had spent lobbying for permission to give it to him.

In the 24 hours after he took his first dose of Real Scientific Hemp Oil, Bug had 14 seizures. The next day, he had almost 30. On the morning of the third day, he bounded down the stairs to his parents’ bedroom, and just as he opened the door, his smile turned into a scream. Maughan jumped out of bed, and Bug’s body fell toward the bathroom, his shoulder hitting the sink and his head landing on the brown bath mat.

“I was holding him, crying, when I realized it might not ever get any better for him,” she said. “I might be forever spending my days cuddling him while he’s turning blue, wondering how long it will take before I can check him for injuries. I told my husband, ‘Cannabis is never going to work for him.’

Her husband, who is also named Glenn, did his best to stay positive. “You don’t know that,” he said. “This is just one product.”

Now that 38 states have legalized some form of cannabis, many people assume the plant’s therapeutic uses are being carefully regulated, dosed, and studied. This is not the case. Marijuana is still illegal everywhere under federal law, which prevents the agencies that would traditionally provide oversight from getting involved. Consumers have no way to know for sure what they are actually buying.

Real Scientific Hemp Oil is just one of a whole array of salves, tinctures, and capsules that have emerged recently to cater to the growing demand for a compound found in cannabis called cannabidiol, or CBD. Unlike THC, the more famous active ingredient in pot, CBD does not provide a euphoric high: It is entirely nonpsychoactive. Many doctors believe CBD has enormous potential when it comes to ailments that involve involuntary movements like seizures and spasms, though there is no peer-reviewed research to support that claim yet. However, marijuana dispensaries and companies like Medical Marijuana Inc. will direct people to studies about cannabis, mostly done abroad. This research implies CBD is a kind of cure-all, useful for ailments ranging from AIDS to acne, from cancer to carsickness.

Medical Marijuana Inc.’s Real Scientific Hemp Oil.

Laura Buckman for BuzzFeed News

All those studies involve CBD found in marijuana; Medical Marijuana Inc. sells CBD products made out of industrial hemp. Although hemp grown abroad is legal to use in products that don’t get you high, not everyone believes the fibrous plant best known for rope and bohemian jewelry can provide the same medicinal benefits as weed. In recent years, some marijuana activists and financial analysts have accused Medical Marijuana Inc. and other publicly traded hemp CBD companies of selling snake oil to the sick and hype to naive investors. And yet some parents have said that CBD products made from industrial hemp have done immeasurable good for their kids’ seizures, and some patients with other illnesses have said they get relief from taking things like Real Scientific Hemp Oil. The problem is there’s no way for someone like Annette Maughan to know whether CBD itself can’t help her son, or whether there was hardly any CBD in a product to begin with.

The medical potential of CBD wasn’t widely known until CNN aired Sanjay Gupta’s August 2013 documentary Weed. The documentary featured a little girl in Colorado whose debilitating 300 weekly seizures stopped almost entirely after she began taking a tincture made from a marijuana strain high in CBD and low in THC. It was an incredible thing for people to see: a patient convulsing, and then, after consuming some marijuana, suddenly not.

In a country that has long been skeptical of the concept of medical marijuana, CBD seems like the holy grail: pot that doesn’t get you stoned and is purely therapeutic. In the past two years, parents of children with intractable seizures have become tenacious advocates for medical marijuana in conservative states that never would have considered legalizing the drug five years ago. The political appeal of sick children and a nonpsychoactive compound has led to new laws in 15 states, countless starry-eyed media stories, and vocal support from the most unlikely of places. After Senator Rand Paul expressed his support for children with seizures using medical marijuana at the most recent Republican presidential debate, even Governor Chris Christie — who has vowed to eliminate the recreational marijuana market in Colorado if elected — said he agreed.

BuzzFeed News spoke with over a dozen parents of children with intractable seizures from states all across the country. They’ve quit their jobs, spent months waiting for doctor’s appointments, moved across the country for better treatment, signed documents affirming that they understood their child might die from taking a certain medication, had despondent, late-night conversations about giving up custody, and sat at a hospital bedside while their child was deliberately put into a coma, in the hopes that it might end a state of constant seizures, called status epilepticus.

After seeing the CNN documentary, many of these parents began wondering if cannabis could help their kids. Within days of its airing, thousands of parents of children with seizures and adults who suffer from muscle spasms or epilepsy were scouring the internet, looking for more information and places to buy CBD. They were met by ads for Real Scientific Hemp Oil and other Medical Marijuana Inc. products. Further clicks revealed the oil featured in Gupta’s documentary, made from a marijuana strain called Charlotte’s Web, could only be obtained by residents of Colorado, and that the waiting list was well on its way to what would eventually become over 8,000 patients. On the other hand, Real Scientific Hemp Oil, which Maughan got for Bug, could reach any mailbox in the country in four to six weeks.

Using industrial hemp grown abroad instead of pot to make their CBD products allows companies like Medical Marijuana Inc. to exist at the intersection of a few legal loopholes. While marijuana companies cannot legally move their products across state lines, keep their money in a bank account, or sell stock, hemp companies can. Shares of Medical Marijuana Inc., as well as a few other hemp CBD companies, are traded on the penny stock market, a high-risk place where companies are not vetted by regulators as thoroughly as they would be on a bigger market like the Nasdaq or the New York Stock Exchange.

But just like marijuana products, hemp CBD products are not subject to Food and Drug Administration approval or testing, so parents are left to figure out on their own which products are worthless and which could change their child’s life. And the only firms shipping what they need to all 50 states are unregulated companies like Medical Marijuana Inc.

Medical Marijuana Inc. was started seven years ago by Bruce Perlowin, who spent the ’70s and early ’80s smuggling millions of dollars of marijuana from Colombia to San Francisco. After prison, he turned legit, landing his first marketing gig by generating some publicity for writing “Ex-Marijuana Kingpin Needs Job” at the top of his résumé.

Then, in 2008, CNBC asked him to talk about his druglord days for a documentary. Perlowin realized attitudes toward pot were changing and that his expertise could help launch a new phase of his career, so he looked for a way to make money off of what speculators were already calling the Green Rush.

However, he didn’t want to work with the plant itself, and not just so he could avoid going back to prison. People who grow, sell, or process weed in states that have legalized some form of marijuana can’t keep their cash in bank accounts, because the agency that insures even local community banks is under the jurisdiction of federal law, which still bars marijuana use. So instead of buying a dispensary or planting some pot, Perlowin changed the name of an existing publicly traded company he was involved in to Medical Marijuana Inc.

At first, in order to drum up interest on the stock market, the company claimed to be interested in every possible pot-adjacent business: educational seminars, consulting, point-of-sale systems for dispensaries, compliance advising, accounting services, electronic security systems. It even proposed starting a marijuana-themed business journal.

Except for a few seminars, none of these plans actually panned out. Some observers began to suspect that the company was making exaggerated claims about its potential profitability.

“As an investment banker, I wouldn’t get past the filings or just the network of companies they’re associated with — none of it — because none of it passes the sniff test, from day one,” said Adam Selkin, director of corporate client services at Chardan Capital Markets, a boutique investment bank that is now doing research on the marijuana space.

Then, in the middle of 2010, Medical Marijuana Inc. began exploring the possibility of selling hemp products. For the average person, the main difference between hemp and marijuana is that one gets you high and one doesn’t. But the two cannabis plants are not different species: A recent study from biologists and botanists in Canada found the degree of difference between hemp DNA and marijuana DNA is “similar to the degree of genetic differentiation in humans between Europeans and East Asians.”

Source: Steep Hill Labs and SC Labs

This means that hemp, too, contains cannabinoids like CBD and THC — albeit in much smaller amounts than in marijuana.

Federal case law allows for “naturally occurring” THC in “nonpsychoactive” hemp products, such as protein-rich oils made from cold-pressed hemp seeds. Exactly how much THC is allowed varies by state, but most laws say it must be less than 1% or 0.3%, a percentage too low to be psychoactive. Nothing in federal law specifically addresses CBD, or any cannabinoid other than THC.

Since CBD is “nonpsychoactive,” Perlowin and the Medical Marijuana Inc. lawyers decided they could reasonably argue that there was no legal limit to the percentage of CBD you could have in a product if it originally came from hemp. This turned out to be a somewhat brilliant gamble. The company was perfectly poised to take advantage of a vague legal situation on a side of the drug trade where the dealers wear suits and the users are sick people. Lots of people were eager to get in early on the cannabis industry without leaving the comfort of their couch. It was all too easy to sell shares into what Perlowin likes to call “the first ever publicly traded marijuana company.”

Perlowin left in 2011, selling most of his remaining shares for around $5 million, and he and his associates now run another hemp CBD corporation called Hemp Inc. — one offshoot of which, Cannabis Sativa Inc., is run by former New Mexico governor and 2012 Libertarian presidential candidate Gary Johnson. Another offshoot of Medical Marijuana Inc. is run by Dean Petkanas, former VP of corporate finance at Stratton Oakmont, the investment firm that inspired The Wolf of Wall Street and is famous for corporate malfeasance.

Many of the people who work with and advocate for actual medical marijuana have questioned Medical Marijuana Inc’s grand ambitions for industrial hemp, because they don’t believe hemp seeds and stalks could include any useful CBD.

Medical Marijuana Inc. itself admits extracting a viable amount of CBD out of hemp is difficult. “We refine entire fields to make something like Real Scientific Hemp Oil,” the company’s public relations representative, Andrew Hard, told BuzzFeed News. “Each individual plant isn’t high in CBD, but together they are. In the end, you get a product that’s potent.”

Hemp CBD companies like Medical Marijuana Inc. sell their products as nutritional supplements, which means the only real rule they need to follow is they can’t make claims about the product’s ability to cure specific diseases. Real Scientific Hemp Oil and other Medical Marijuana Inc. products come onto the marketplace without FDA approval or testing.

Representative samples of industrial hemp, high-CBD marijuana, and recreational marijuana, chosen by Steep Hill Labs Chief Research Officer Kymron deCesare.

Westend61 GmbH / Alamy; Getty

“There’s no oversight. There’s no mechanism that gives the consumer some assurance that what they think they’re getting is what they’re getting,” said Amanda Reiman, the manager of marijuana law and policy at the Drug Policy Alliance. “If someone sells you 30% THC cannabis, and you don’t feel high, you have an idea it’s not quite what was advertised. Because CBD is nonpsychoactive, if someone gives you a tincture that’s says 25% and it’s actually 3%, you’re not going to be able to tell that just from ingesting it.”

It also means that no one is testing hemp CBD products for whether its traces of THC exceed the legal limit. A truck driver is suing Medical Marijuana Inc. over a product he used to alleviate hip and shoulder pain. The product was advertised as containing 0% THC, but the driver claims it was the reason he failed a drug test, lost his job, and has been unable to find a new one.

In the weeks and months after the Gupta documentary aired, parents turned to Facebook to compare notes on which CBD products were worth trying and how to access them, and Real Scientific Hemp Oil was often the target of heated debates. Some people complained it had given their children diarrhea, or caused them to vomit. Others thought it simply looked dirty, or felt it was not credible because it came from overseas.

Many parents felt it was difficult to trust anyone who said positive things about Real Scientific Hemp Oil, because no one could tell who on Facebook was a like-minded parent and who was a salesperson that had bought the product wholesale and was reselling it.

Some of the parents who did speak directly with salespeople became even more suspicious of the company. Meghan Gatens Wilson told BuzzFeed News about an early interaction with a reseller that permanently turned her off of Medical Marijuana Inc. products. “Just looking at [Real Scientific Hemp Oil], you can tell it’s an undesirable product: the color and the thickness and all that,” Wilson said. “So I basically told the guy, ‘I don’t believe in industrial hemp oil,’ and he said, ‘So you’d rather let your child die?’”

Eventually, the biggest Facebook group for this community of desperate parents, Pediatric Cannabis Therapy, banned conversations about hemp CBD oil entirely. There was no way to know how many people had tried hemp CBD products and how each had fared. But public opinion was starting to turn against hemp CBD companies like Medical Marijuana Inc.

“The history of Medical Marijuana Inc. is rife with promises that have never come even close to being fulfilled,” said Alan Brochstein, who worked in finance for a few decades before starting the 420 Investor news service in early 2013.

Source: Medical Marijuana Inc.

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Canada’s Pot Dispensaries Don’t Know WTF Health Canada Wants From Them

Commercial growers can’t keep up with patients’ needs, they say.

Health Canada last week warned more than a dozen medical marijuana dispensaries that they were breaking the law.

Health Canada last week warned more than a dozen medical marijuana dispensaries that they were breaking the law.

At least 13 identical letters were sent to dispensaries and compassion clubs, located primarily in the Vancouver area. Health Canada demanded they shut down immediately or face the wrath of the RCMP.

The letter says dispensaries must “immediately suspend all activities with controlled substances,” including the sale or advertising of medical marijuana. Advertising is broadly defined as including “any representation by any means whatever for the purpose of promoting directly or indirectly the sale or disposal” of drugs.

The notices were so unexpected that dispensaries didn’t even know whether they were real at first.

Rich Pedroncelli / AP

Mark Hauk, who runs the Saskatchewan Compassion Club in Saskatoon, says his organization also received a letter but that he doubted the authenticity when he first got it.

Mark Hauk, who runs the Saskatchewan Compassion Club in Saskatoon, says his organization also received a letter but that he doubted the authenticity when he first got it.

He said the notice was unsigned and came by email.

“There were some pretty heavy threats, so it was curious how we received it,” Hauk told BuzzFeed Canada.

The letter warns dispensaries they face possible fines of up to $5 million and up to two years in prison.

Saskatchewan Compassion Club / Via submitted

Medical marijuana has been legal in Canada since 2000, but new regulations introduced by the Conservative government have made access more difficult.

Medical marijuana has been legal in Canada since 2000, but new regulations introduced by the Conservative government have made access more difficult.

Under the old system, patients could grow their own plants, buy from licensed home growers, or get their medicine directly from the government. But as of 2014, only large-scale licensed producers can grow and sell marijuana, a move that has made it much harder to obtain, patient advocates say.

There are 26 licensed producers in Canada, most of them in B.C. and Ontario. Prices can be more than double what they would be through local dispensaries and patients can be on waiting lists for months while they wait to get access, Hauk said.

Jeff Chiu / AP

Pot dispensaries and compassion clubs have tried to fill the void but are operating in a legal grey area.

Pot dispensaries and compassion clubs have tried to fill the void but are operating in a legal grey area.

Dispensaries are not exactly legal, but restrictions on Health Canada’s commercial growers mean that local dispensaries are often the only place patients prescribed medical marijuana can get quick, in-person service, find strains that suit them best, and buy non-smokable forms of the drug like oils, extracts, and edibles.

Jamie Shaw, spokesperson for the B.C. Compassion Club Society in Vancouver, says her non-profit group “has often communicated to Health Canada on how to develop a regulatory system that works for patients in the past, but there has been zero communication under Harper.”

The Supreme Court of Canada ruled earlier this year that patients have a right to access medical marijuana in all forms, striking down the government’s ban on ingestible products, and the city of Vancouver introduced a bylaw regulating dispensaries.

B.C. Compassion Club Society / Via Facebook: thecompassionclub

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