Judge Mulls Challenge to Oakland Pot Permits

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     SAN FRANCISCO (CN) – The city of Oakland on Thursday asked a federal judge to dismiss a lawsuit claiming its medical marijuana dispensary program violates federal law.
     Joe Hemp’s First Hemp Bank and Distribution Network, a members-only cannabis club in Oakland, sued the city in November, claiming it was being forced out of business for refusing to take part in an “unlawful” dispensary permit program.
     On Nov. 20, U.S. District Judge William Alsup denied the cannabis club’s motion for a restraining order, finding its lawsuit was based on a “false premise.” The club has appealed the judge’s ruling in the Ninth Circuit.
     During a Thursday hearing on the motion to dismiss, First Hemp Bank attorney Quynh Chen argued the city’s permit program preempts federal law by authorizing the distribution of a prohibited, schedule 1 substance.
     “If we’re getting into preemption then the entire medical marijuana thing should be thrown out, it’s against federal law,” Alsup said. “What your client is doing and the City of Oakland is doing is illegal all day long according to federal law.”
     Chen replied that because her client operates as a members-only warehouse, it qualifies for an exemption under the Controlled Substances Act allowing it to legally handle and store marijuana.
     Members with valid medical marijuana prescriptions grow their own cannabis and share it with other members of the club, Chen told the judge. The members only pay administrative fees and member dues, and her client pays federal taxes as a warehouse business, she said.
     “It doesn’t sound like a warehouse to me,” Alsup said. “It sounds like a sham to get around the [Controlled] Substances Act.”
     Chen acknowledged the U.S. government has no formal process for individuals or businesses to apply to operate as a warehouse exempt under the Act.
     “My personal opinion is that marijuana laws should be changed, but I took an oath to uphold the law,” Alsup said. “You’re asking me to use the power of the Federal Court to benefit a sham operation that’s illegal under federal law.”
     Chen responded that the federal government has chosen not to prosecute her client because the club follows U.S. laws and guidelines. She urged the judge to focus on the issue at hand – whether the city’s ordinance violates federal law and forces her client to say in writing that it is a “medical marijuana dispensary,” rather than a members-only warehouse operating within the law.
     “They don’t prosecute you because it’s small potatoes compared to terrorists and big-deal heroin dealers,” Alsup said. “You skate by.”
     Chen disagreed with the judge, saying he should not assume the feds haven’t raided her client’s business because it “skates by” rather than because it operates legally under federal guidelines.
     Chen pointed to a letter the U.S. Department of Justice sent Oakland in February 2011, noting its concern about the city’s creation of a licensing scheme sanctioning “large-scale marijuana cultivation.”
     The letter stated the DOJ was considering “criminal and civil legal remedies regarding those who seek to set up industrial marijuana growing facilities in Oakland pursuant to licensing in the city of Oakland.”
     The cannabis club’s lawyer also noted how the federal government has in the past raided some of the city’s legally permitted pot growers and dispensaries, including Harborside Health Clinic and Oaksterdam University.
     The city’s requirement that licensed dispensaries send cannabis samples to independent labs for testing also violates federal law by mandating the transfer of a controlled substance to an outside party, Chen argued.
     Jamilah Jefferson of the Oakland City Attorney’s Office said the ordinance does not require dispensaries to deliver samples to outside parties.
     “An independent person can come on the premises,” Jefferson said. “There does not have to be an exchange between the independent person and the dispensary.”
     Chen insisted that the DOJ letter and city lab testing requirement both serve as evidence that the regulatory scheme mandates illegal conduct and makes it impossible to obey the law.
     A disclaimer in the city’s dispensary application that says growing and selling marijuana is illegal under federal law and that an Oakland permit provides no immunity against federal prosecution also serves as an acknowledgement of wrongdoing, Chen argued.
     “Why is it you’re admitting anything by applying?” Alsup asked. “That’s the city talking, not you talking.”
     Applying for a permit to take part in the city’s “illegal” program would force her client to incriminate itself, which constitutes a violation of the cannabis club’s Fifth Amendment rights, Chen said.
     After about an hour of debate, Alsup ended the hearing and asked Chen to submit a five-page brief on the Fifth Amendment issue by noon on Monday. He gave Oakland until noon on Tuesday to reply in writing.
     The judge said he still has a problem granting relief to an operation that appears to violate federal law, adding he thinks a state court judge might be more sympathetic to some of First Hemp Bank’s claims.