The city of Sacramento, unnerved by a federal crackdown on marijuana dispensaries, has abruptly suspended its process for issuing permits to medical pot stores.

The city's order of a "temporary freeze" on dispensary applications comes as other jurisdictions around the state are also reviewing their approach to medical marijuana outlets in light of recent federal actions.

Sacramento's move doesn't mean that the 38 medical marijuana stores operating in the city will have to close. But halting the application process could put in limbo their long-term prospects. Closing the dispensaries would cut off an annual infusion of $1 million the city had counted on in voter-approved taxes on the receipts of marijuana stores.

In an Oct. 18 memo obtained by The Bee, City Manager John Shirey cited the specter of federal action against dispensaries as a reason for suspending the permitting process. Shirey also noted a recent state appellate court ruling that found a Long Beach ordinance regulating dispensaries runs afoul of federal law, which regards marijuana as an illegal drug, medical or otherwise.

"As a result of the uncertain climate on medical marijuana, I have directed staff to freeze or halt the processing of applications for medical marijuana," Shirey said in the memo to the City Council. "As of this time, we will not accept any new applications or set future hearing dates until we receive further direction … on the legal viability of the city's medical marijuana ordinance."

Declaring that the state's medical marijuana law "has been hijacked by profiteers," California's four U.S. prosecutors last week announced investigations and prosecutions of dispensaries, growers and investors throughout the state's medical marijuana market.

Drug Enforcement Administration Special Agent Casey McEnry said U.S. agents served search warrants Monday on the MediZen Collective dispensary on Northgate Boulevard in Sacramento but made no arrests.

Federal authorities recently indicted six men connected with the R & R Wellness Collective in south Sacramento and seized the bank accounts of another city marijuana store, the One Love Wellness Center, in North Sacramento.

Last year, the City Council voted to allow as many as 38 registered marijuana shops to apply for special permits to stay in business. The city has since collected nearly $1.2 million in dispensary licensing and permit fees.

So far, Sacramento has also taken in $280,000 from a 4 percent medical marijuana tax, which went into effect July 1 and was expected to generate $1 million a year.

Max Fernandez, director of the city Community Development Department, said all permit hearings on dispensaries are now on hold, but that the city will consider extending a Jan. 9, 2012, deadline for dispensaries to either be permitted or go out of business.

"Nobody is going south or north on this," said Fernandez. "What we're doing is waiting until the dust settles between the feds and the state. If we're able to continue, nobody is going to lose any ground."

The city will continue collecting taxes from the dispensaries as long as they remain open.

To date, 33 dispensaries are in various stages of the city permit process. So far, four have been issued operating permits. They are the midtown All About Wellness dispensary, the Fruitridge Health and Wellness Collective in south Sacramento, the El Camino Wellness Center off El Camino Avenue and Unity Non-Profit Collective on Tribute Road near the Capital City Freeway.

One of the city's best known establishments, Canna Care off Interstate 80 and Norwood Avenue, was due for a hearing on its permit application next month. Now that is off.

Canna Care co-operator Lanette Davies said she had just taken money from her 401(k) account to pay more than $40,000 in permit fees.

"And now they've frozen it," Davies said of the process. "That damned U.S. attorney. He just scares the heck out of these people."

Besides uncertainty over federal actions, including threats to seize properties of landlords who lease to dispensaries or medical marijuana cultivators, cities are concerned about an Oct. 4 ruling by the state's 2nd District Court of Appeal.

The court ruled that Long Beach's dispensary plan – with permitting rules similar to Sacramento's – was an "obstacle" to federal drug law. The ruling departed from an earlier decision, by the state's 4th District Court of Appeal, that the city of Anaheim couldn't simply use federal law as grounds for banning dispensaries.

"Given the possible implications … many city attorneys are now examining their ordinances" for marijuana dispensaries, said Eva Spiegel, a spokeswoman for the California League of Cities.

George Mull, a Sacramento medical marijuana lawyer, said federal authorities are likely targeting "bad actors" already violating state laws. But he said uncertainty is causing some dispensaries, including two recently in Sacramento County, to close.

"Dispensaries are making calculated decisions right now," Mull said, "to see if it's worth the risk to stay open to fight the fight."

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