Law of the Land
In a split vote, Reed and his City Council majority enacted a two-pronged ordinance this past summer that limits pot clubs to 1 percent of the city. It also requires all medicine to be grown on site, per state law, and a buffer between clubs and “sensitive uses” like homes, schools, parks and churches.
Fifty of the city’s 78 pot clubs applied for the new regulatory program. To date, 26 were deniedóseven of them, including MediMarts, for refusing to pay the city’s marijuana business tax. The rest await approval for the zoning requirement. Collectives that don’t comply will be given until next summer to find a new spot, but locations are scarce and the resulting land rush drove up the cost of certain commercial lots virtually overnight. Once regulations shake out, San Jose could be left with fewer than 10 collectives. Reed said recently that the number may dwindle to just a few. Panzer expects it to decimate the local industry. Others are cautiously hopeful that it could scrape by.
“Medical marijuana in San Jose has changed forever,” says John Lee, a semiconductor industry consultant who, in the past few years, has positioned himself as one of Silicon Valley’s leading advocates of marijuana legalization. “We’re still trying to figure out how to move forward from here.”
An initiative on the horizon threatens to undo Mayor Reed’s work, though it’s considered a long shot. The proposal by Sensible San Jose, a coalition of lobbyists and collectives that poured hundreds of thousands of dollars into a signature drive, would dial back much of the city’s ordinance. The effort gathered enough signatures to make it to the June 2016 ballot. Cannabis lobbyist James Anthony, its lead author, says he’s willing to back down if the city compromises.
Reed, who terms out at the end of this year, has vowed to fight it. Come January, he says, he’ll form a political action committee alarmistly titled, “Keeping Marijuana out of Our Neighborhoods and Away from Our Kids Committee,” or something to that effect.
“It’s certainly a threat to the ordinance,” Reed says, while dismissing Anthony’s draft legislation as “loosey goosey.” “I don’t think it will be successful… What they want would be bad for the people in San Jose.”
Councilman Don Rocha says the city finds itself in this mess, facing a lax industry-authored initiative, because of Reed’s unwillingness to back down on the issue. Now, the city is on the hook for a pricey election ($3 million), and what he calls the “opportunity cost” of having to devote time to defeat a measure when it could use those resources to focus on public safety and other priorities. “It was a dangerously risky for us not to at least try for a compromise position, which could have been much less extreme and entailed less potential harm to our residents,” the District 9 councilman scolded Reed in a memo.
San Jose has given clubs a deadline of next July to come into compliance with the new rules. There’s a chance the city could modify the ordinance as issues arise, Reed says. This is, after all, the first time it’s actually enforced any rules on the industry. Three years ago, a successful referendum effort forced the city to scrap the last ordinance before it ever went into effect.
“I think the basic rules will remain in place,” Reed says. “We may have some tweaks or modifications to it. We’ll have to get it into operation and see.”
Meanwhile, clubs are closing at a fast clip. The city is serving lawsuits, warnings and fines to rein in the number of collectives. Dispensary operators are nervous to talk to the press, trying to stay in the city’s good graces. “It’s just too delicate a situation right now,” Andrew D’Angelo, of Harborside, tells Metro.
The political fight against the city has left the cannabis community divided, broke and exhausted. With help from out-of-town investors, some have been able to scout out new locations to stay in business, shelling out non-refundable, six-figure deposits for the few parcels that are available in industrial neighborhoods. But most will have to close, unable to comply with the city’s new ordinance. Of course, that was the plan, to shrink the industry so the city could get a handle on it.
Dave Hodges, whose All-American Cannabis Club was ordered closed for being in the wrong location, holds a dim view of the future.
“San Jose has done this before,” says Hodges, who, like Armstrong, has fought a years-long battle with the city over its marijuana tax. Hodges says he plans to defect back to the tech industry. “They’ll take out what they can first, leaving a few operators. Then, they’ll find loopholes, or whatever they have to, to shut the rest down. Just like in 1997.”
A Watched Pot
Peter Baez wanted to play by the rules. The 33-year-old cancer patient who relied on cannabis to relieve the pain of chemotherapy opened San Jose’s first pot club, the Santa Clara County Medical Cannabis Center. It was 1997 and Baez’s club became the first municipally licensed medi-pot dispensary in the nation.
Authorities declared it a model collective. Former prosecutor Karyn Sinunu-Towery, now retired, called its meticulous proprietor, Baez, “the Eagle Scout of the medical marijuana movement.” Born in Paris, France, raised in a Spanish orphanage and adopted by an American family on the East Coast, Baez moved to the Bay Area in his 20s to pursue a career in banking. Years earlier, he was commended by Mayor Susan Hammer for working with AIDS patients. At one point, he served on Gilroy’s anti-graffiti task force. Baez, who died in 2007, kept in close communication with local authorities and maintained detailed records.
Prop. 215 finally legalized marijuana for medical use, butógiven that ballot initiatives are notoriously impreciseónever specified how to get the plant from field to patient without flouting other state and federal laws. Instead of issuing local guidelines to enact state law, the City Council tasked a lone narcotics officer to figure out how to govern Baez’s operation. Unlike club operators in San Francisco, Berkeley and Oakland, Baez presided over a professional, office-like environment. No reggae tunes from the speakers, no smoky lounges, no watery-eyed clerks. It appeared at first that law enforcement would carry out the will of voters to “implement a plan to provide for the safe and affordable distribution of marijuana to all patients in medical need,” as called for under Prop. 215. But political pressure began mounting. The U.S. Drug Enforcement Agency and federal prosecutors began closing in, raiding clubs in other cities. Undercover DEA agents repeatedly tried to sting the Baez clinic, to no avail.
Less than a year after opening the doors of San Jose’s first legal pot club, police picked up one of its clients and charged him with possession. Baez couldn’t say which doctor had referred him, resulting in a raid. Cops arrested Baez, seized his patient records, $30,000 in cash and some marijuana as evidence. For the next several years, San Jose was pot club-free.
Collective Conscious
Hunched over a worn wood table in a bright, high-ceilinged room in the back of MediMart, two men trim buds. Shake, or loose scraps of bud, is processed into infused baking oil, hash and concentrates. Buds get tossed into glass jars with a humidifier pack until they’re sold. Stems can be used in tea, but they don’t have time to prepare it. “We’ll get to that someday,” Armstrong says, with a wave of his hand. “There’s just so much to do right now.”
MediMart processes up to seven pounds a day at the 8,000-square-foot facility. He estimates that as many as 200 members come through on a given day. Because he grows and processes the medicine himselfóand, controversially, opts out of the city’s 10-percent business taxóhis prices fall far below those of other dispensaries. Earlier this year, he stopped advertising because he got more foot traffic than he knew what to do with.
“We had to stop taking new patients at one point,” says Armstrong, who’s been called the Rob Ryan of Reefer, for his uncanny resemblance to the wild-maned New Orleans Saints football coach. He’s wearing cargo shorts and a black-and-purple outer space-print tee with shake dusted over his shoulders and back. He spends good chunks of time at his desk trimming buds, too, generally keeping 9-to-5 banker’s hours. The MacBook propped up to one side of it is covered in green dust.
“We all chip in,” he explains, turning to his laptop for a few minutes to update his inventory log. “Whatever needs to be done around here.”
Indoor crops, he explains, exist in perpetual harvest. Baby plants sprout over a hydroponic system near taller weeks-old seedlings. Across the hall, teenage plants, up to eight weeks old and four feet high, enjoy the balmy 75-degree indoor climate. Reflectors on the wall spread light to every angle of the plastic-potted plants. The mama plants extend much taller, eight to 12 feet, in a warehouse behind the bakery, where it’s warm and smells like weed and sugar cookies. Armstrong’s looking to install LED lights back here to save on electricity.
“Just seeing how we could make the most of this space,” he says. “Got to put every last dime back.”
At the front desk, he weighs out supplies of medicine, minutes before opening. “Green Crack” is a favorite among the old ladies, he says. Nearby is a rotating display of baked goods, cooked up next-door. Eventually, he wants to re-open a separate storefront for the bakery, where a flour-dusted chef is busy preparing chocolate chip and peanut butter cookies, “ganja-bread” gingerbread men, nut-sprinkled caramel apples, “whoop-your-ass pie,” Cracker Jack cups and dollar mini muffins. No wax. No paraphernalia.
“Got to be all natural,” says Armstrong, a former football player who medicates to ease the the pain of old injuries.
In 2004, SB 420, authored by the late Sen. John Vasconcellos, became law. Piggybacking off of Prop. 215, it specified how much marijuana patients could grow without risking arrest. It also included a voluntary patient identity verification card program. The pioneering legislation emboldened more patient groups to form collectives.
Four years later, California’s then-Attorney General Jerry Brown handed down guidelines to follow state law, but left a lot open to interpretation. Still, the landmark document signified the first time an official agency defined how to follow the spirit of the law. It made clear that collectives are nonprofits, must keep detailed records to prove clients are legitimate patients and that the medicine must come from a legal source.
That reassurance from on high kicked off the green rush that lured Armstrong out to San Jose. In the absence of a local regulatory environment, pot clubs flourished in the capital of Silicon Valley, reaching, at their height, more than 120 collectives. But very few were what Panzer calls “a true collective,” according to the letter of a vague law. In a collective, it’s impossible to make a profit because the money goes back to the operation, back to the patients.
“You can’t have something coming in the back door and going out the front,” says Panzer, who says he has a soft spot for patient-run collectives, where all members are co-owners. “After SB 420, everybody was jumping to make money, [not realizing that] the law didn’t allow that the way they thought.”
When Panzer heard about Armstrong’s effort to run a nonprofit collective and the city’s attempts to collect a sales tax, he gladly accepted the case. He had already written a letter to the state Board of Equalization challenging the concept of requiring patient-run collectives to pay sales tax if there was never a change of ownership. Receipts from MediMarts end with a disclaimer: “No transfer of ownership occurs in this transaction.”
“I was looking for something like this to push this theory,” says Panzer, who wrote a letter to the city explaining that their ordinance failed to account for collectives that ran a closed-loop operation where money and medicine stayed within the group of 10,000 active co-owners (18,000, counting all the patients who’ve walked through since the place opened). “Under [San Jose’s] rules, they’re requiring groups to engage in sales. There’s no allowance for a true collective.”
Armstrong holds high hopes for the case. If anything, it could buy him time. His next court hearing isn’t until February. In filling out forms for city compliance, he left parts of it blank. In place of the section calling for tax compliance, he included a letter from Panzer explaining his objection to paying it. And he refused to sign the part that allows the city to “inspect records and site at any time and without notice.”
“I’m not going to sign away my protections against illegal search and seizure so they can stormtrooper on in here,” he says. “My application went in half-filled out and half-signed. I told them, my door’s always open, but you have to respect that I have rights and my patients have rights.”
