Editorial

California's inaction leads L.A. to send mixed messages on pot shops

Issuing tax certificates to L.A.'s unauthorized pot shops creates a moral hazard

Despite 2013's Measure D, under which only about 135 existing medical marijuana dispensaries have permission to stay open in Los Angeles, the city has continued to issue tax registration certificates to new pot shops and keeps collecting business taxes from some 450 dispensaries. Talk about mixed messages. While the city attorney and Police Department are attempting to close rogue pot shops, the Office of Finance keeps cranking out new tax certificates for those same dispensaries.

Even though the certificate is not a permit — and it says so right on the document — it sure feels like one; often, for instance, it can convince a landlord that the dispensary is OK with City Hall. The city collected $3.6 million in business taxes this year from dispensaries, whether they were allowed to operate or not. What's more, the finance department has only recently begun sharing the list of tax-paying pot shops with the Police Department and the city attorney, after City Council members questioned why nobody was using the tax rolls to crack down on illicit shops.

Last week, council members Nury Martinez and Jose Huizar called on the city to stop issuing tax certificates to dispensaries that are not allowed under Measure D. Martinez said the city was engaging in "hypocrisy" by blindly collecting tax revenue from illicit business. She's right. Furthermore, the practice creates a moral hazard in which the city has a disincentive to shut the businesses down.

The city's conflicting policies should end. The only question is how. Medical marijuana regulation in Los Angeles has been a mine field. In recent years the city has adopted various schemes, including an outright ban, to regulate dispensaries, only to be confronted with a referendum, lawsuits and conflicting court rulings.

Measure D was an imperfect attempt to cap the number of pot shops by granting limited immunity from prosecution to 135 dispensaries that had been previously approved and were not near schools and parks. It did not actually permit those dispensaries to operate — which legal experts have said the city cannot do as long as marijuana remains illegal under federal law; it merely said the city would not prosecute those 135 shops. So there is some concern now that the city could invite legal challenges if it actively determines which shops should or should not qualify to pay business taxes.

This is yet another conundrum caused by California's failure to adopt a comprehensive system for regulating medical marijuana. Earlier this year the Legislature shelved the best proposal yet to license individuals who grow, process, transport and sell medicinal pot. While the state dawdles over common-sense rules for the industry, cities such as Los Angeles are left to maneuver the mine field as best they can with the tools they have.

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