Crackdowns force some California medical marijuana stores out of business | The Sacramento Bee

It's the twilight hour for medical marijuana dispensaries in Sacramento County.

Eight marijuana stores – from as many as 99 dispensaries that opened – are left. Dozens have closed in recent weeks amid fears of federal prosecution and aggressive actions by the county that include litigation and fines for building code violations.

The city of Sacramento has frozen permit applications for existing dispensaries, but has allowed most to stay. Sacramento County's crackdown in the unincorporated areas, by contrast, is having a dramatic effect on California's quickly shrinking medical marijuana industry.

The United Food and Commercials Workers Union, which launched a drive to unionize pot workers during the California dispensary boom, estimates 20 percent of marijuana stores statewide have gone out of business in less than a month.

Dan Rush, who directs the union's medical cannabis division, said letters from California's four U.S. attorneys threatening dispensary landlords with loss of their buildings put a chill on the trade.

"There is a high rate of people closing voluntarily," Rush said. "They didn't want to cause trouble for their landlords or they're closing to get a chance to figure out how to come back in compliance."

In San Diego, nearly two-thirds of some 220 dispensaries have shut down amid threatened federal property seizures and city lawsuits.

Three well-known San Francisco dispensaries closed after receiving warning letters from U.S. Attorney Melinda Haag. California's oldest dispensary, the Marin Alliance for Medical Marijuana, is fighting to stay in business and preparing to pull its cannabis products after a federal suit to seize the property. The dispensary offers other services, including magnetic massage therapy, physician evaluations and counseling.

"We need to move the marijuana very shortly. I don't want to get the landlord in any more trouble," said operator Lynette Shaw.

In Sacramento County, Chris Dean said he decided it was too risky to continue in the medical marijuana trade.

A former real estate agent and mortgage broker driven out by the market by the housing collapse, Dean opened the Paradise Wellness dispensary in Carmichael with two partners in May.

In October, they abruptly closed, days after the state's U.S. attorneys held a Sacramento news conference to announce federal actions against California medical marijuana entrepreneurs.

"It didn't look good. I was concerned about the safety of my employees," Dean said. "I didn't want to get anybody in trouble. I'm a lawful person."

In Sacramento County, many marijuana stores had stayed open even as the county collected $91,000 in fines against businesses operating in violation of zoning codes. Two months ago, the county began threatening $1,000 daily fines against property owners for building code violations for unpermitted work that converted rental space to dispensaries.

Faced with monthly penalties of $30,000, "the property owners all of a sudden got interested in evicting their tenants," said Steve Pedretti, the county's director of building and code enforcement.

Dean said Paradise Wellness had stayed open despite orders to close in hopes that a political accord would be reached to allow dispensaries in Sacramento County.

"I was thinking this was a cat and mouse game with the county in waiting to get a permit," Dean said. Ultimately, "with the code enforcement people after us every day, I just felt there was too much opposition."

The county also filed lawsuits against 11 dispensaries for zoning violations, winning court orders to close some and persuading others to voluntarily cease operating. Three suits are pending against open dispensaries, including the Arcade Wellness Collective on El Camino Avenue, the Herbal Connoisseur on Kitty Lane and Magnolia Wellness in Orangevale.

Rush said crackdowns on medical marijuana businesses statewide have cost as many as 5,000 jobs, including positions in dispensaries, construction, security and other support businesses.

Cannabis magazines and alternative weekly newspapers that got a surge in revenue from dispensary ads are feeling the downturn.

Jeff vonKaenel, publisher of the Sacramento News & Review, saw his circulation leap from from 74,000 to 89,000 as the weekly used medical marijuana advertising dollars to buy up hundreds of news racks it remade with original art and filled with papers.

On Aug. 25, the SN&R's medical marijuana section – "The 420" – featured 36 pages and 65 dispensary ads, plus listings for cannabis physicians, hydroponic supply stores and other services. On Nov. 23, the section totaled eight pages, with 11 ads for marijuana stores.

"We never thought medical marijuana (advertising) would be this strong and I never thought it would last this long, frankly, " vonKaenel said. "We prepared ourselves for that. But I'm not kidding, it's a blow for us. We're going to have to prepare for a new reality."

The Sacramento Bee, which began running medical cannabis business ads on Aug. 26 as a small advertising niche, peaked with four dispensary listings Sept. 16 and last had a marijuana store ad on Oct. 14.

About 25 of 38 dispensaries remain open in the city of Sacramento. The city, which collects a 4 percent tax on medical marijuana sales, froze applications for dispensary business permits but is allowing operators to stay open until Aug. 13.

Dispensaries in the city "are absolutely in a better place" than those in the county, said Caleb Counts, president of the Sacramento Alliance of Collectives.

But Counts said as many as 16 may have to move or close under city discussions to impose a 1,000-foot distance requirement from schools or parks. The new policy is being considered as federal prosecutors threaten to enforce U.S. laws that carry penalties of up to 40 years in prison for drug sales near such sites.

"I think everyone in Sacramento doesn't know what to think right now," said Counts, who runs the Fruitridge Health and Wellness Collective in south Sacramento.

Federal authorities in October filed marijuana distribution charges against operators of the R & R Wellness Collective in south Sacramento and raided another location, the MediZen Collective, on Northgate Boulevard. No charges have been filed in the second case. Several other Sacramento dispensaries received letters threatening federal seizures of the properties.

Medical marijuana advocates who challenged the federal actions in court were dealt a setback last week. U.S. District Judge Saundra Brown Armstrong declared she couldn't stop federal sanctions against dispensaries because "marijuana remains illegal under federal law, and in Congress' view, it has no medicinal value."