Thursday, December 13, 2007

DEA Robs California of Millions in Tax Revenues

Contact: Dale Gieringer, California NORML



DEA Robs California of Millions in Tax Revenues

Seizes Tax Payments from State Board of Equalization


DEA raids on California's medical marijuana dispensaries are 

costing the state's taxpayers millions of dollars in lost revenues, 

according to records collected by California NORML.

The DEA has not only closed facilities that were paying 

millions of dollars yearly in sales taxes, but also seized as much as 

$450,000 in sales tax payments that were in transit to the state 

Board of Equalization. Among them was a $350,000 electronic payment 

to the BOE from the Compassion Center of Alameda County, which the 

DEA seized from the bank on October 30th.

"In effect, the DEA is robbing the state of tax revenues to 

fight their war on medical marijuana," said California NORML director 

Dale Gieringer.

Although the DEA has tried to portray dispensaries as illegal 

drug dealers, records show they have operated as legal businesses, 

paying income, payroll, business, and sales taxes, and offering 

workmen's compensation, unemployment, and health insurance benefits 

to their employees. Several dispensaries closed by the DEA had 

licenses to operate from local governments, including facilities in 

Alameda County, Morro Bay, and Kern County.

Recent DEA raids have cost the state millions of dollars in 

sales tax revenues plus scores of paying jobs, as shown by the 

following examples.


*  The Compassion Center for Alameda County paid $3 million 

in sales taxes before it was closed by the DEA on October 30th. In 

the process of seizing CCAC's bank account, the DEA stopped a 

$348,078.49 bank transfer to the Board of Equalization, which the 

CCAC had transmitted just before the raid. CCAC had been legally 

licensed by Alameda county and had employed some 50 workers, paying 

them health and unemployment insurance benefits.


*  Nature's Medicinal in Bakersfield paid almost $1 million 

in taxes from 2005 until its closure in 2007, including $203,000 in 

state and federal income taxes, $365,000 in payroll taxes and 

$427,000 in sales taxes. Included was a $51,935 check to the state 

Board of Equalization issued on April 27, which bounced when the DEA 

seized Nature's Medicinal's bank account on May 1. Nature's Medicinal 

reopened and tried to repay their taxes in monthly installments of 

$9,000. They made two payments before the DEA raided them again and 

seized all of their money. Nature's Medicinal had been licensed by 

Kern county and had 25 employees, 8 of whom were indicted and the 

rest left unemployed and without health insurance due to the raid.


*  The California Healthcare Collective, Inc. in Modesto paid 

some $500,000 in sales taxes from its opening in December 2004 until 

its closure by a DEA raid on September 27th, 2006. Just before the 

raid, the CHC sent a check to the Board of Equalization which was 

voided by the DEA's seizure of their bank account, leaving the Board 

holding the bag for unpaid taxes totaling $39,416.70. CHC had 22 

employees who were left unemployed by the raid.


*  The DEA seized another two more BOE checks totaling some 

$15,000 from the Oakdale Natural Choice Collective, according to 

owner Addison DeMoura. The checks had been lying on DeMoura's desk 

when the collective was raided on July 31st, 2007.  DeMoura was 

arrested and forced to close his facility after two months of 



The DEA has tried to portray dispensaries as profiteers by 

citing gross sales revenues in the millions of dollars. However, 

their net income is modest when their costs are taken into account. 

For example, US Attorney McGregor Scott charged that Nature's 

Medicinal in Bakersfield made $16 millions in marijuana sales. 

However, he failed to mention that their indictment shows they spent 

$13 million on the purchase of product - not to mention payroll, 

rent, overhead, and nearly $1 million in taxes. Likewise, the DEA 

accused the CHC in Modesto of making $4.5 million in sales, but CHC's 

records show that 70% of this was spent on the purchase of marijuana 

and another 25% on operating expenses, leaving just a 5% profit 

margin on sales - modest by the standards of the pharmaceutical 


Altogether, DEA enforcement actions have deprived the state's 

economy of tens of millions in tax revenues plus hundreds of paying 

jobs. The retail value of California's medical marijuana market is 

estimated at $870 million - $2 billion per year 

This is enough to generate some $100 million in sales taxes alone 

plus thousands of paying jobs. However, recent DEA enforcement 

actions have forced scores of dispensaries to close or move 


Most recently, the DEA has taken to sending letters to 

dispensary landlords warning them that their property is subject to 

federal forfeiture. Although no landlords have actually been hit with 

forfeiture suits, many have felt obliged to notify their tenants to 

cease operations. Last week, the Chairman of the House Judiciary 

Committee, Rep. John Conyers, criticized the DEA's forfeiture threats 

and said he would investigate them in oversight hearings 


Meanwhile, the DEA's raids have cost U.S. taxpayers millions 

more in enforcement costs. This year has seen 53 DEA raids, up from 

20 last year and 19 the year before, according to a summary by 

Americans for Safe Access. Each raid requires dozens of agents. 

Witnesses say that they saw 20 - 30 DEA agents at each of five sites 

during the raid on CCAC. Over 100 defendants have faced federal 

charges for medical marijuana in California, according to a 

compilation by Cal NORML 

( Prosecution, court 

and imprisonment costs for these cases run into the tens of thousands 

of dollars each.

"At this time of budget deficits, we can ill afford the DEA's 

war on medical marijuana,"  said Gieringer. "Californians are better 

off having medical marijuana distributed by tax-paying businesses, 

than being taxed in order to to arrest, prosecute, and imprison 

medical marijuana providers." 


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