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Marijuanomy: the overlooked side of LA's marijuana economy
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Content
MARIJUANOMY: THE OVERLOOKED SIDE OF L.A.’S MARIJUANA ECONOMY
by
Jason Ma
________________________________________________________________________
A Thesis Presented to the
FACULTY OF THE USC GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
MASTER OF ARTS
(SPECIALIZED JOURNALISM)
May 2010
Copyright 2010 Jason Ma
Table of Contents
Abstract iii
The Microeconomy 1
Supply and Demand 4
Cannabinology 7
The Chef 12
‘This is America’ 17
The Consumer 21
The Bubble Economy 25
‘The Market Will Dictate’ 28
Bibliography 29
Appendix/Sidebar 31
ii
Abstract
California voters approved the medical use of marijuana in 1996. Some cities took
a proactive approach in regulating the number of dispensaries and how they do business.
But Los Angeles delayed in passing regulations, and by 2010 there was an estimated 600
to 1000, up from four in 2005. But while medical marijuana dispensaries have received
the most attention from the public, the media and elected officials, a microeconomy of
related businesses, both visible and underground, have sprung up to cater to the industry.
Professionals -- from chefs, to doctors to consultants -- are transferring their skills to the
other green economy. The marijuana industry isn’t just dispensaries. It could include a
gardening supply store or a neighbor using a guest room to grow marijuana. Interviews
with business owners indicate they are expanding operations or have near-term plans to
expand, even as competition intensifies. If voters approve a statewide ballot initiative in
November to fully legalize marijuana, more businesses are sure to enter the market.
iii
The Microeconomy
Levi Strauss arrived in California from Bavaria in 1850 knowing the best way to
make money during the Gold Rush was to “mine the miners” rather than look for gold.
So he sold dry goods to the 49ers, who were arriving from all over the country and the
world. Then he heard they needed more durable pants. In what is now almost as much
California lore as the discovery of gold at Sutter’s Mill, Strauss made pants out of tent
canvas, which he later substituted with denim. Sturdier pockets were secured with copper
rivets. Levi’s jeans were born.
Few people actually got rich prospecting for gold, but just enough did to keep the
dream alive for everyone else toiling in mines. While an estimated $2 billion in gold was
extracted during the Gold Rush, California schoolchildren don’t learn the names of 49ers.
But, clad in jeans today, they learn about Strauss.
Robert Symer knows his state history too. When asked about the marijuana
industry, the Atwater Hydroponics vice president immediately drew the Gold Rush
analogy and noted merchants did better than prospectors. The wounded Vietnam vet and
former handyman said business has been so good at his hydroponics store he had to
obtain warehouse space recently to house extra inventory. More than three-quarters of his
customers grow marijuana and need the water pumps and plant nutrients he sells. Sales
are on the rise (Symer 2009).
“It’s going up maybe 5% a month,” Symer said.
While medical marijuana dispensaries have received the most attention from the
public, the media and elected officials, a microeconomy of related businesses, both
1
visible and underground, have sprung up to cater to the industry. Professionals -- from
chefs, to doctors to consultants -- are transferring their skills to the other green economy.
The marijuana industry isn’t just dispensaries. It could include a gardening supply store
or a neighbor using a guest room to grow marijuana.
There are no statistics on the growth of marijuana-related firms, but interviews
with business owners indicate they are expanding operations or have near-term plans to
expand, even as competition intensifies. If voters approve a statewide ballot initiative in
November to fully legalize marijuana, more businesses are sure to enter the market.
California voters approved the medical use of marijuana by passing an earlier
ballot initiative, Proposition 215, in 1996. Cities like San Francisco, Oakland and West
Hollywood were proactive about regulating the number of marijuana dispensaries and
how they operate. But the Los Angeles City Council dragged its feet for years before
passing its own ordinance in January (see related story). As lawmakers took their time,
the number of dispensaries here exploded to an estimated 600 to 1,000, and supporting
businesses took off as well.
The new ordinance seeks to slash the number of dispensaries to about 150. But
the actual effect on the marijuana microeconomy is uncertain. For one thing, dispensaries
have sued the city to block the ordinance’s enforcement. And given the city’s perennial
budget deficits, its ability to enforce the restrictions is questionable at best. Meantime,
new dispensaries continue to appear in anonymous storefronts with their green crosses
and three-letter neon signs. A depressed commercial real estate market will no doubt
provide a steady supply of office space for dispensaries and related businesses.
2
The city’s experience with medical marijuana has shown, among other things, that
market forces have their own way of starting a bonanza and enforcing discipline, in spite
of regulations. The market has little patience and shows even less mercy. Entrepreneurs
have to adapt quickly to stay alive. While hustling to find new customers, some
eventually found themselves serving the marijuana industry. But it’s different from other
industries in that its partial legality imposes hidden costs on some firms and produces
opportunities for others.
3
Supply and Demand
Flipping through a publication devoted to the local medical marijuana scene gives
a sense of its entrepreneurial energy. The proliferation of magazines like the Los Angeles
Journal for Education on Medical Marijuana is itself a sign of this energy. Almost every
page in the free monthly publication is a dispensary ad.
But it also includes ads for marijuana delivery services (Serenity Leaf will even
deliver to offices), a web site and an iPhone application that provide dispensary locations,
a web design firm catering to marijuana businesses, and HempCon, annual marijuana
conventions held in Los Angeles and the Bay Area.
Atwater Hydroponics doen’t even have to advertise. Business is good without it.
But like any smart firm, it had to adapt to the changing market. When Symer’s son started
the business, he primarily sold water pumps for garden fountains and solar panels to
power the pumps. Then customers started asking for high-powered lights and ballast tubs
that hold plants. That’s when the store shifted from serving a clientele that grows
vegetables recreationally to one that grows marijuana, either for personal use or for
dispensaries (Symer 2009).
“It’s supply and demand,” Symer said in an interview last fall. “If you see the
market going one way, you have to be fluid enough to move in that direction.”
Newer marijuana growers buy reflectors, ballast tubs, lights, transformers and
nutrients -- the necessities to start growing. The more experienced growers mostly buy
nutrients, often in high volumes. He’s seen more of both kinds of customers. When U.S.
Attorney General Eric Holder announced early last year that the federal government
4
wouldn’t pursue medical marijuana providers and users complying with state laws,
business really picked up, Symer recalled.
“It was good before,” he said. “It’s better now.”
With his new 4,000-square-foot warehouse, Symer doesn’t have to spend as much
time placing orders to restock his inventory. Now he can order in larger quantities, at a
discount, and store it in the warehouse. He had been cramming inventory in the aisles of
his 1,160-square-foot store, but he was running out of room. Now he may have to hire
someone to watch over the warehouse.
An investor who saw hydroponics as a lucrative business once offered to buy the
store, Symer said. But he turned down the offer before even getting into a discussion
about price. Why not sell? “It’s too much fun,” he replied.
It appeared that way too. On a late weekday afternoon, Symer looked relaxed,
wearing a baseball cap, T-shirt and shorts. A pet dog loitered around the store, sniffing
curiously around the aisles. Symer exchanged banter when a regular came in and offered
growing advice to customers who just bought a starter set. Being helpful and friendly is
good for business too. Most of his customers come in through word of mouth, and he
hopes Atwater Hydroponics stands out from the competition for its good service.
When asked if he was worried about the city closing down dispensaries, Symer
wasn’t concerned, saying people will still grow tomatoes. But he’s not completely
carefree. He worries about robberies and installed a surveillance system in the store,
though it hasn’t been robbed. While crime overall has been going down in Los Angeles
5
for several years, he noted that some dispensaries have been robbed and fears thieves
could target his business too.
Worrying about crime is an indirect price he pays for medical marijuana’s murky
legal status. Because no one wants to leave a trail, the marijuana economy largely runs on
cash -- and cash tends to draw attention from criminals. Liquor store clerks could attest to
that, if surveillance video featured on crime shows is any indication.
But apparently, crime isn’t so much of a threat that it discourages people from
entering the market. As Symer’s business has been expanding, he’s also noticed more
competition. He noted the bus stop advertisement up the street for a hydroponics store in
another part of town.
“They’re sprouting up all over the place,” he said.
6
Cannabinology
Medical marijuana has gained more legitimacy recently. In November, delegates
at an American Medical Association meeting adopted a resolution urging the federal
government to reconsider the classification of marijuana as a dangerous drug with no
medical value. The nation’s largest physician’s organization previously had supported
marijuana’s classification as a Schedule I drug -- a category that includes heroin, Ecstasy
and LSD (Hoeffel 2009c).
The AMA said it isn’t endorsing legalization, state medical marijuana programs,
or saying there is enough evidence for marijuana to be a prescription drug. But the group
supports clinical research as well as the development of marijuana-based medicine and
alternative ways to deliver the drug.
In February, UC San Diego’s Center for Medical Cannabis Research reported that
there’s “reasonable evidence that cannabis is a promising treatment” for some
pain-related conditions. Marijuana was also shown to reduce spasticity associated with
multiple sclerosis. The center reported its findings to the state Legislature, which
commissioned the research 11 years ago (Hoeffel 2010c).
For the scores of medical marijuana doctors in Southern California, the findings
probably weren’t much of a surprise. Doctors technically can’t write prescriptions for
marijuana, but they can write recommendations that a patient uses as proof of a medical
condition. Dispensaries ask to see them before letting a customer inside. Many doctors
provide wallet-sized recommendations that patients flash like an ID card.
7
The L.A. Cannabis Club’s web site lists more than 80 doctors in Los Angeles and
Orange counties. Some doctors have gimmicky names like Dr. Ganja and AAA
Hollywood Doctor (Los Angeles Cannabis Club). Dr. Sona Patel’s site has glamour shots
of her with her autograph and a note at the bottom that says “actual doctor.” Her head
shot also appears on billboard ads, which say she is “trusted and experienced for over 3
years (Patel).”
By contrast, Dr. Allan Frankel wouldn’t be mistaken for an aspiring movie star.
He looks and acts more like a favorite high school history teacher. Instead of wearing a
white coat, he prefers jeans, sneakers and an oxford shirt. He answers questions without
pretension and spends as much time with someone as necessary, leaving him in a slightly
harried state. A secretary diligently takes calls and schedules appointments at his office in
Marina del Rey. On a rainy December afternoon, a middle-aged couple was sitting in the
waiting room, looking at recent issues of National Geographic.
By the time Frankel opened his medical marijuana practice in 2005, he had more
than 20 years experience in internal medicine at UCLA and at a private practice in Santa
Monica. His marijuana practice, Green Bridge Medical, is across the street from a
dispensary and one block down Washington Blvd. from another one (Frankel 2009).
He first became interested in medical marijuana when he was at his old practice.
After voters passed Prop 215 in 1996, some cancer patients started asking for marijuana
recommendations. Eventually, he said he “fell in love” with medical marijuana for its
efficacy and safety compared with prescription drugs. He left his old internal medicine
practice in 2002.
8
Frankel said he didn’t get into medical marijuana for the money. He makes about
half of what he did when he practiced internal medicine. If he wanted to make more
money, he said, he could fly through dozens of patients a day like other marijuana
doctors do, rather than the 10-11 a day he sees.
He charges $200 for a medical marijuana consultation and recommendation and
$125 for a renewal. Dr. Patel charges $95 for a recommendation and $75 for a renewal
(Patel). Other medical offices, like Going Green, list “special offer economy prices” of
$60 for new patients and $50 for primary caregivers, war veterans, and people on
Medi-Cal or disability. Renewals are $40 (Going Green).
If these prices are any indication, doctors are competing for marijuana patients
and offering progressively lower prices. The lower the prices go, the more patients those
doctors would have to see to make the same amount of money. For doctors who can’t
afford to keep lowering prices, they would have to distinguish themselves from the rest,
perhaps by claiming to be trusted and experienced for over three years.
A video clip of Frankel being interviewed by Al Roker on MSNBC helps his
Green Bridge web site stand out from the rest. Frankel also distinguishes himself by
focusing his consultations on tinctures, a solution of marijuana extract. On his office wall,
he has pictures posted of tincture bottles that predate marijuana’s prohibition. The labels
on some bottles indicate they were made by forerunners of today’s pharmaceutical giants,
such as Eli Lilly.
Tinctures can be designed to have more predictable effects than brownies and
joints, which can get patients higher than they had intended, Frankel said. They are also
9
well suited to patients too sick to smoke marijuana. On his desk is a tincture bottle filled
with water that he uses for instructional purposes. Treating patients this way has a
familiar feeling for him.
“It’s become to feel like I’m practicing internal medicine again,” he said.
On an opposing wall in his office is a white board explaining what properties the
two main types of marijuana -- sativa and indica -- have. According to the board, sativas
can treat anxiety, depression and chronic pain. They increase a patient’s focus, creativity,
and serotonin levels, which are linked to mood. Indicas are a sedating strain that relax
muscles and can treat active pain. They decrease nausea while increase appetite and the
brain’s production of dopamine, which is associated with feelings of pleasure.
Frankel sees his job as helping people feel better through medical marijuana
without suffering the harsh side effects that pharmaceutical drugs produce. The average
age of his patients is 50 and getting older. They’re not trying to get high but want to
improve the quality of their lives, he said. Anyone can get high from smoking weed, but
“my goal is to show people how to use cannabis without getting high.”
Like Symer, Frankel must pay an indirect cost for the legal grey area marijuana
occupies. But instead of worrying about robbery, he worries about the federal
government and the state agency that licenses and regulates doctors. Marijuana has a way
of drawing scrutiny and levying a special kind of tax.
He finds his practice to be “90% pure joy, 10% pure terror.” He recalled when the
state medical board once sent someone to his office posing as a curious patient,
presumably to see how legitimate his practice was. The patient came back later to reveal
10
his true identity. And soon after he opened his medical marijuana practice, a DEA agent
stopped by to check on him. “I almost shat in my pants,” he said. But nothing happened.
In April 2009 the state medical board filed a complaint against Frankel, alleging
he was negligent and inappropriately prescribed pain killers (Medical Board of
California). He said the charges, which don’t mention his medical marijuana practice,
originated from an ex-girlfriend during a bad breakup. He said he is in talks with the
board to settle the complaint (Frankel 2010b). According to the medical board, there’s no
ruling on the charges and his practice is still permitted.
Meantime, Frankel plans to expand his medical marijuana practice by adding
internal medicine and another doctor. Both he and the new doctor would practice internal
medicine, with medical marijuana consultations as an option. Frankel sees
“cannabinology” as a subspecialty under internal medicine and expects to combine
marijuana recommendations with prescription drugs in his treatments (Frankel 2009).
Asked in February if the city’s new ordinance would force him to put his
expansion plans on hold, Frankel replied that he doesn’t expect much of an effect. If
anything, the closing down of dispensaries might increase the number of patients he gets.
If the city starts shutting down dispensaries, the more upscale ones would be left
standing, and they tend to refer people to him (Frankel 2010a).
“The patients will be fine,” he predicted.
11
The Chef
Looking at fliers from marijuana bakeries, someone might think Willy Wonka
sells marijuana edibles. One bakery set its wholesale price for Chocolate Espresso
Munchie Truffles with Grand Marnier at $2.50 each. Another sells caramel popcorn for
$4.75 a bag, Magic Lollipops for $2 each, and Ultra XX Ooey Gooey Fudge Brownies
for $9. They may have a medical purpose, but they sound like the kind of tasty desserts
that satisfy the munchies.
Marijuana edibles aren’t just brownies. The plant is becoming an ingredient in
almost every food people like to eat. Cannabis Planet, a news and features show on
cable-access TV, has a cooking segment like the ones on network morning shows. On
one episode, the resident chef showed viewers how to make marijuana-infused butter. He
melted the butter, let it simmer with marijuana, strained it, then cooled off the remaining
green liquid (Cannabis Planet).
People making marijuana edibles do it with the same verve and gusto as gourmet
chefs. “Timmy” used to make French pastries before he switched to marijuana edibles.
While some of his products come in flavors like root beer, tutti frutti, guava, mango and
coconut, he calls them lozenges and suckers (Timmy 2010).
“Candy is for kids,” he said. “It’s all about language.”
Timmy, who agreed to talk on the condition his real name and his company’s
name aren’t published, graduated from Le Cordon Bleu cooking school in Los Angeles
about five years ago, trained as a confectionist, baker and pastry chef.
“I loved feeding people,” he said.
12
After graduation, he worked at a mass-production bakery in Burbank that supplied
grocery stores. He then got a job as head pastry chef at a sushi restaurant in West
Hollywood, making green tea cheese cakes and crepes. He got laid off, but later found
work at a French bakery near Beverly Hills that was considered one of the top patisseries
in Southern California at the time. He made croissants, caramels, ice cream, tarts and
cookies.
Then his father was diagnosed with lung cancer. Timmy left the patisserie job and
did private catering work to keep a more flexible schedule so he could care for him.
Timmy already had been smoking marijuana to treat his own pain from past car
accidents. He thought it would help his father too. But the lung cancer prevented him
from smoking it, so Timmy put his chef training to use to make marijuana caramels. By
making them himself, he could ensure his father was getting clean, quality medicine.
When Timmy’s father died, a year and a half after the diagnosis, he was eating
five to six marijuana caramels a day. Timmy went to dispensaries to buy marijuana for
himself and for the caramels. In casual conversations, he would tell the owners he was
making edibles for his father. They asked for samples, eager to diversify the marijuana
products they sold. That was about two years ago, when the dispensary boom was just
taking off in Los Angeles. A week after he provided the samples, he got his first order.
Like Symer and Frankel, Timmy didn’t find the marijuana industry. It found him.
When he started cooking school, he didn’t plan to supply marijuana dispensaries with
edibles. But he adjusted his plans to the market. Plus, his private catering jobs were
13
becoming too much of a hassle. His fastidious Beverly Hills clients were calling in the
middle of the night to tell him about a new idea they just had.
Since he started making edibles full time, production has doubled to about 1,000
to 1,500 a week. To handle the volume, he rents kitchen space from a friend who has a
restaurant in Valencia. Timmy does all his cooking at night after the restaurant closes. On
top of that, he still does private catering occasionally.
He does most of the cooking by hand. A few friends help, but he spends about 60
hours a week working. There’s the added pressure of making edibles for people with
severe illnesses, so Timmy has “insane” hygiene standards. He’s thrown out entire
batches because he wasn’t sure about the quality.
“It’s a fledgling company,” he said. “Until I get everything right, I’ve got to do
this.”
Most of his edibles are lozenges and caramels. Sometimes he makes cookies and
granola bars, but usually only by special request because they are more labor intensive.
Baked goods also have a shorter shelf life, and he doesn’t want to risk getting someone
sick. Nutritional reasons also make Timmy reluctant to produce baked goods.
“America has a problem with obesity,” he said. “Why should I contribute to it?”
Besides, more marijuana bakeries have appeared in the past few years, and
competition is heating up, he said. Timmy doesn’t compete directly with all those other
bakeries and thinks he has established a dominant position in his own niche of caramels
and lozenges. His sales are up, though costs for ingredients and labor are up too. He
14
won’t say how much he makes, but business has been good enough that he’s thinking
about buying his own kitchen.
Even though the marijuana industry is complicated by the whims of voters and
lawmakers, Timmy has hitched his future to it. His near-term goal is to establish a system
for making edibles that doesn’t require much supervision from him. Then the business
could more or less run itself, leaving him to focus on creating flavors. He has created
eight lozenge flavors so far and eventually wants to invent more than 40. Once he reaches
that point, he plans to publish a recipe book and make enough money to retire early.
A non-monetary cost of doing business in a legal grey area is extra caution. While
Symer pays for a security system and Frankel looks over his shoulder, Timmy basically
has to hide. He recalled being harassed by the police for smoking marijuana at home,
even though he showed them his doctor’s recommendation. He thought if the police were
suspicious of someone smoking at home, then he definitely has to conceal his business.
He pointed out marijuana is still illegal under federal law, and there are family members
depending on his help.
So Timmy dresses conservatively to not attract attention, wearing a button-up,
long sleeved shirt and jeans when he showed up for the interview. He ensures his edibles
aren’t sold at dispensaries that operate illegally. By not calling his edibles candy or
lollipops, he tries to avoid the appearance that he is making them for kids.
He covers his tracks too. He only takes orders over the phone and never over
email. The wrappers his edibles are sold in carry the dispensary’s name but not his
15
company’s name. He does’t run any ads. He even feels compelled to be nicer to people to
avoid creating enemies.
“Until [law enforcement agencies] are all in uniform consent, I’m going to be in
the shadows,” Timmy said.
16
‘This is America.’
When the Los Angeles City Council was in middle of grinding out a medical
marijuana ordinance, Councilman Dennis Zine called profit-seeking dispensary owners
“greedy bastards” during a radio interview last fall (Hoeffel 2009a).
But Michael Bailey doesn’t see anything wrong with medical marijuana
entrepreneurs, because that’s the American way. He’s a tax consultant who helps
dispensaries file paperwork to set up a corporation, file tax returns, keep track of books,
set up payrolls, and the usual requirements of complying with business and tax
regulations (Bailey 2009).
“A lot of people saw it as a good business opportunity,” Bailey said in his
Northridge office. “This is America. People get ideas. They put it into play because they
want to retire at 40. There’s nothing wrong with that.”
He’s a true believer and gave a 200-year history of marijuana in the United States
unsolicited. He said he leans libertarian and decried the government’s efforts over the
decades to prohibit marijuana. During an interview, he reiterated several times that this is
America and that Americans should be free to open up dispensaries.
Before serving the medical marijuana market, he provided accounting and
consulting services to non-marijuana businesses and still does today. But about two years
ago, a client referred to him someone who needed help setting up a dispensary. One
referral led to another. Now the business card he hands out is green and dominated by a
picture of a cannabis leaf.
“We observed a market need,” he said.
17
Interest in opening up dispensaries exploded after Barack Obama was elected
president, and particularly after Eric Holder’s statement about taking a more hands-off
approach to medical marijuana, Bailey recalled. Many people inquiring about opening a
dispensary said they got the idea from friends who were opening up dispensaries too.
Established dispensaries contacted him as well seeking guidance on how to comply with
state laws.
Bailey said his clients are aboveboard and are trying to comply with the law. They
don’t fit the image of potheads, hippies or Rastafarians. Most are middle aged, have
families, are homeowners, and previously owned businesses. Many also have friends or
relatives who use marijuana to treat a medical condition.
In the marijuana industry, legality is a moving target, and compliance can be more
subjective than objective. It’s precisely this legal uncertainty -- while a source of
frustration for residents, lawmakers and entrepreneurs -- that has created demand for
legal and consulting services. Depending on the interpretation, a law can close the door
on an opportunity or open one.
At a hearing last September, the City Council’s planning and land use committee
considered the case of dispensary owner Kedrin Rhodes, who began operating before the
committee approved her exemption from a moratorium on new dispensaries (Hoeffel
2009a).
“Did someone tell you you had the right to open?” Councilman Jose Huizar
asked.
“Yes, my attorney,” she replied, saying she was told the city’s claim that simply
18
filing an exemption request didn’t grant permission to open was merely an “opinion.”
“Anytime there’s ambiguity, doubt or confusion, it’s hard for consumers, but it
creates business for lawyers,” attorney Stewart Richlin acknowledged (Richlin 2009).
He provides one-stop shopping for marijuana businesses that need legal services.
Like Bailey, he prepares paperwork to form businesses and set up nonprofits. For doctors,
he helps them open medical marijuana consultation offices. He also defends business
owners and doctors from getting evicted.
On his web site, he says he can initiate a nonprofit corporation and get a collective
started in less than 5 minutes and have it operating in 14-20 days or even two days. He
charges $3,777 for the 14-20 day service and $6,000 for the two-day rush service.
Because marijuana is still illegal under federal law, there’s more scrutiny and
greater risk of an audit for marijuana businesses, Bailey said. But again, the law can open
or close doors and create additional demand for legal services in the process.
Under the tax code there are several models to operate as a nonprofit, such as an
agrarian cooperative model, which Bailey is pitching to clients. The model could include
an unlimited number of people, and sales can be classified as an equity contribution to the
cooperative. Equity stakeholders (patients) could then receive dividends from the
dispensary that it might otherwise book as a profit, he explained.
The city’s new ordinance has put dispensary owners in a wait-and-see mode,
Bailey said in a follow-up interview in February. He has received fewer inquiries about
opening up dispensaries, but his clients aren’t rushing to exit the market either. Some
19
callers are interested in setting up shop in unincorporated parts of Los Angeles County,
beyond the city ordinance’s reach (Bailey 2010).
Noting the city’s perennial budget problems, he doubted it could enforce the
ordinance effectively. It also could get tied up in court. For now, he plans to continue
serving the marijuana market, saying demand for his services persists.
“There’s opportunities in it still,” he said.
20
The Consumer
The dispensary is the hub of the marijuana microeconomy. It’s the final
destination for edibles and ready-to-smoke buds. It’s the consumer of legal and tax
consulting services. It’s where doctors send their patients.
From his vantage point at the Natural Way of LA, owner Matthew Cohen has a
feel for trends in the local marijuana industry. In the last two years, he has seen a
“staggering” increase in the number of people trying to sell their products to him. Two
years ago, one or two vendors a week would come into his dispensary to pitch their
goods. Now he sees eight to 15 a day (Cohen 2010).
The vendors aren’t all growers. Some are middlemen who make their rounds
throughout the city trying to put together deals for growers, many of whom are in rural
Northern California. Cohen also sees people looking for a retail outlet to sell their pipes
and bongs. Bakers regularly drop off their price lists for marijuana edibles, and about
twice a month, a security company offers its wares.
His dispensary is near the Fairfax District and down the street from major
Hollywood studios, where some of his 2,000 patients work. Once past the security doors,
the interior looks like an upscale boutique. Edibles, T-shirts and bags are on sale, along
with various strains of marijuana under a glass display case.
A jar filled with marijuana was sitting on his office desk next to his computer.
Also in the office was a man who said he was with a TV production company interested
in developing a reality show around Cohen.
21
Cohen described himself as a “marijuana enthusiast” and a recreational user since
his teen years. He was injured in 1994 and suffered a ruptured abdominal cavity. To treat
his constant pain, he was prescribed OxyContin and Vicotin but stopped taking them
because he got sick of being knocked out all day. He also worried that addiction was
starting to set in. Now marijuana is the only thing he takes to treat his pain.
He opened his dispensary about four years ago. It’s one of the 186 that officially
registered with the city before it imposed a moratorium on new dispensaries. So under the
new ordinance, he will still be allowed to operate. Before opening the Natural Way,
Cohen worked in pro sports marketing, where he said he made much more money.
“I’ve always been a salesman,” he said in an interview in January.
Now he listens to salesmen do their spiel. They drop off business cards, menus (in
the case of bakers), or even a scrap of paper with only a first name and phone number
scribbled on it. Cohen keeps a binder in his desk with about 10 pages, each one with two
dozen cards in little pockets.
He doesn’t buy all their services, but he has spent $70,000 on security. Waving
his hand around the office, he said all corners of the dispensary are wired with audio and
video surveillance equipment, some of it visible and some hidden. He even has facial
recognition software to identify anyone caught on tape committing a crime. But he
refuses to keep any guns on the premises. Though he is Jewish by heritage, he was raised
as a Quaker and therefore a pacifist.
Unlike most dispensaries, about 70% of the Natural Way’s transactions are done
with credit cards or debit cards, he said. That cuts down on the amount of cash sitting in
22
the dispensary and allows Cohen to be more transparent in his bookkeeping. But the lack
of cash doesn’t mean he can worry less about robberies. Marijuana buds are also a major
target for thieves, and securing them is part of his cost of doing business.
The marijuana industry’s early years appear to have been a free for all, with new
dispensaries and growers jockeying for any market share they could snatch in an
increasingly crowded field. But now the market might be sorting itself out, or
rationalizing, as businesses move from fighting to stay afloat to increasing efficiency.
Cohen has noticed growers scrambling recently to establish long-term business
relationships with dispensaries. Growers don’t want to pound the pavement all day
making sales calls and pitching their product. They would rather spend more time
growing than being a salesman, he said.
The recent explosion in the number of dispensaries, and the associated increase in
shady operators, has contributed to the trend, Cohen added. Growers are looking to form
partnerships with legal dispensaries -- those that registered with the city in 2007. The
situation is more urgent now that the city’s new ordinance seeks to slash the number of
dispensaries. Growers don’t want to be left standing alone in the game of musical
marijuana chairs.
But people are still entering the grower market, with more of them operating
locally. It makes sense considering a Southern California grower would have a
competitive advantage over an upstate grower who faces the risk and perhaps cost of
transporting a harvest 400 to 500 miles.
23
In August, Cohen started providing consulting services to people who want to
convert a guest room in their house into a marijuana growing operation. Most of those
customers are professionals who own their homes and are 30 to 40 years old. A few have
kids. They were already using marijuana for medical reasons and became curious about
the business side with hopes of selling to him. Some are afraid of losing their jobs and
wanted to have some back-up income.
“It’s the economic recession,” Cohen said.
He gets half his marijuana supply from five growers who sell exclusively to him,
he said. He calls them “marijuana professionals” who don’t want to be mere drug dealers.
One of those five used to be an accountant at Deloitte & Touche before deciding to be a
full-time grower. When his suppliers make deliveries from Northern California, he
requires them to rent a car, dress professionally, and keep a low profile. While the
regulation of medical marijuana sales is murky, dispensary owners and growers are even
less certain about their legal standing when transporting thousands of dollars of marijuana
from one end of the state to the other.
24
The Bubble Economy
On the afternoon Cohen was interviewed, one of his growers happened to be
around after making his delivery. “Gio” spoke on the condition his real name not be used.
His appearance fit Cohen’s requirements: clean and anonymous. He could have been
anyone at a mall or grocery store in any part of America. He had unremarkable short hair.
He wore a button-up short-sleeved shirt, jeans and sneakers, just like any guy checking
his email at a coffee house.
After graduating from UC Berkeley with a degree in political economy of
industrialized societies, Gio worked in technology consulting in the Bay Area for more
than eight years, specializing in training people on new database systems. He thought he
wanted to work for a big corporation but got tired of office dysfunction and wanted to be
his own boss, set his own hours and get more fulfillment. As a grower, he works about 50
hours a week, similar to when he worked in consulting, but he enjoys his job more (Gio
2010).
Gio grows organically indoors and focuses on making high-end marijuana,
comparing his business to a fine steakhouse rather than McDonald’s. While he declined
to say exactly how much he makes, he said it was similar to his pay in technology
consulting, comparing it to what a veteran cop or teacher makes. (Considering how
unions negotiate their contracts, a veteran public servant can easily make six figures.)
He sees growing as a long-term career, not a hobby, and takes his profession
seriously. He uses scientific techniques to develop different marijuana strains and
diversify his product line. When he makes his deliveries from the Bay Area once a month
25
or once every month and a half, Gio sometimes drops off samples of a new strain to see
how they sell. He collects data and customer feedback and measures his costs down to the
penny -- putting his experience in databases to use.
“We do follow market signals just like any other industry,” he said.
There are other market signals Gio has noticed. He thinks marijuana bubbles exist
in the southern and northern halves of the state. Up north, there is a bubble in growing,
with entire counties relying on the cultivation industry, he said. He’s noticed people from
around the country moving to the area to make money as cultivators.
In Hayfork, Calif., a rural community about 100 miles east of Eureka, growers
have bid up real estate prices and put up razor wire and electric fences to guard their
crops. In one remote subdivision, lots sell for as much as $50,000, up from about $3,500
five years ago. Located in Trinity County, it forms part of Northern California’s
“Emerald Triangle” that also includes Mendocino and Humboldt counties (Semuels
2009).
In Los Angeles, there’s a dispensary bubble with people moving in from out of
state to open up shop, Gio said. Speaking as though he was describing the Gold Rush
instead of the marijuana economy, he said a small group has made tons of money,
inspiring a rush of new entrants who have no experience and don’t know what they’re
doing.
“It just can’t continue going like this forever,” he warned.
Cohen agreed that both halves of California are experiencing bubbles, adding that
the dispensary as get-rich-quick scheme is a myth. As more of them opened up, the
26
increasing competition shrank profit margins to unsustainable levels, he said, using
back-of-the-envelope calculations (Cohen 2010).
The market also has started to segment itself. He pursued the higher-end segment
and charges $50 to $70 per eighth of an ounce of high-quality, high-price marijuana. The
lower-end dispensaries, which increased in number the most and face the stiffest
competition, charge $30 to $50 per eighth.
Cohen suspects many people who opened dispensaries were misled and didn’t
do enough research on the industry before opening up shop. He makes periodic visits to
other dispensaries and has noticed some of them selling other items to boost their
margins. He was even asked if he wanted to buy a motorcycle at one dispensary. He
declined.
27
‘The Market Will Dictate’
To regulate the marijuana industry according to its own rules, the city would have
to cite and, if necessary, charge hundreds of dispensaries and related businesses. Courts
would hear hundreds of cases. Police officers and city officials would have to survey
thousands of miles of streets from San Pedro to Sylmar, looking for violators. That would
be a monumental, budget-busting project. Given the fiscal situation the city is in, it’s
impossible.
The reality is that many marijuana business will never hear from the city, just like
many homeowners violating lawn-watering restrictions will never hear from the city. But
people will continue reacting to new costs and new opportunities. Businesses will
respond to competition, and consumers will respond to prices and quality.
Entrepreneurs like Cohen know this. The laws of supply and demand are at work
in the medical marijuana industry like in any other industry, he said. That will be the
ultimate check on its size, despite what the city does.
“The market will dictate,” he said. “It’ll take care of itself.”
28
Bibliography
Bailey, Michael. Interview with author at subject’s office in Northridge, CA. October 14,
2009.
_____. Follow-up phone interview February 2, 2010.
Barboza, Tony. “Medical Marijuana Advocates Sue Los Angeles.” Los Angeles Times,
March 3, 2010.
Cannabis Planet. Season 1, Show 6. Cannabis Planet Productions Inc. KJLA-TV,
December 11, 2009.
Cohen, Matthew. All references from interview with author at subject’s marijuana
dispensary the Natural Way of LA in Los Angeles, CA. January 6, 2010.
Frankel, Allan. References from interview with author at the subject’s office in Marina
del Rey, CA. December 30, 2009.
_____. 2010a. Email message to author. February 3.
_____. 2010b. Email message to author. March 3.
Green Bridge Medical. Web site for Dr. Allan Frankel’s medical marijuana practice.
http://www.greenbridgemed.com. Accessed March 23, 2010.
“Gio.” All references from interview with author, granted on condition of anonymity, at
the Natural Way of LA marijuana dispensary, Los Angeles, CA. January 6, 2010.
Going Green LLC. Web site for the medical marijuana doctors office.
http://www.goinggreenllc.org. Accessed March 23, 2010.
Hoeffel, John. 2009a. “Some Officials Challenge Legality of Over-the-Counter Medical
Marijuana Sales.” Los Angeles Times, October 1.
_____. 2009b. “Judge Grants Injunction Against City’s Medical Marijuana Dispensary
Ban.” Los Angeles Times, October 19.
_____. 2009c. “Medical Marijuana Gets a Boost from a Major Doctors Group.” Los
Angeles Times, November 11.
_____. 2009d. “L.A. City Council Is Poised to Debate How Many Pot Dispensaries to
Allow.” Los Angeles Times, November 23.
29
_____. 2010a. “Los Angeles City Council Passes Medical Marijuana Dispensary
ordinance.” Los Angeles Times, January 19.
_____. 2010b. “Marijuana Legalization Backers Hand In Initiative Petitions.” Los
Angeles Times, January 28.
_____. 2010c. “UC Studies Find Promise in Medical Marijuana.” Los Angeles Times,
February 18.
Los Angeles Cannabis Club. Directory of medical marijuana doctors.
http://www.losangelescannabisclubs.com/medical-marijuana/doctors. Accessed March
23, 2010.
Medical Board of California. Database of licensed physicians. http://www.medbd.ca.gov.
Accessed March 23, 2010.
Richlin, Stewart. All references from interview with author at subject’s office in
Hollywood, CA. September 16, 2009.
_____. Web site for Richlin. http://420lawoffice.com. Accessed March 23, 2010.
Semuels, Alana. “Marijuana Growers Upend Hard-Luck California Town.” Los Angeles
Times, November 1, 2009.
Sona Patel, M.D. Homepage for the medical marijuana doctor. http://doc420.com.
Accessed March 23, 2010.
Symer, Robert. All references from interview with author at the subject’s store, Atwater
Hydrponics, in Los Angeles, CA. November 4, 2009.
“Timmy.” All references from interview with author at a park in Beverly Hills, CA,
granted on condition of anonymity. January 11, 2010.
30
Appendix/Sidebar
The History of Medical Marijuana Regulation in California and Los Angeles
Medical marijuana’s regulatory history in California begins with a vague ballot
initiative and continues today with subsequent attempts to fill in the gaps that the
initiative left behind.
In 1996, voters passed Proposition 215 allowing authorized patients to possess or
cultivate marijuana. It also allowed a grower to cultivate marijuana for a patient, as long
as the grower was a “primary caregiver.”
In 2003, the state Legislature passed Senate Bill 420 to clear up some confusion
caused by Proposition 215. SB 420 tried to address how patients who couldn’t grow their
own plants could obtain marijuana and how much could be cultivated.
The law permitted someone with a doctor’s recommendation to own up to six
mature marijuana plants, or to possess up to half a pound of processed marijuana, which
could be obtained from a collective or cooperative. It also allowed a primary caregiver to
receive “reasonable compensation.”
Local governments could amend the state guidelines, and some cities passed their
own ordinances. Some placed caps on the number of dispensaries: Berkeley allows three;
Palm Springs, two; West Hollywood, four; and Oakland, four (Hoeffel 2009d). Oakland
voters also passed an initiative last year to collect taxes on marijuana sales, adding to the
state sales taxes consumers already pay.
31
In Los Angeles, the issue of regulating dispensaries was first raised in May 2005,
when Councilman Dennis Zine, a former L.A. police officer, introduced a motion that
asked the police department to investigate dispensaries. Two months later, the department
reported that there were just four but recommended that the council adopt tight controls
on where they could locate (Hoeffel 2010a).
In August 2007, the city passed the first of two moratoriums meant to cap the
number of dispensaries in the city. Before the moratorium took effect, 186 dispensaries
registered with the city to continue operating.
But the city left open a loophole in the moratorium: people could file a “hardship
exemption” to remain open after it went into effect. Others took advantage of the
loophole and opened up new dispensaries. Today, the estimates of the number of
dispensaries range from 600 to 1,000.
In October, a Superior Court judge ruled that the moratorium on new dispensaries
was invalid and granted an injunction against its enforcement to a dispensary that sued
the city. Judge James Chalfant determined that the city failed to follow state law when it
extended its initial moratorium (Hoeffel 2009b).
In January, the city finally passed an ordinance regulating dispensaries, more than
four years after the issue was first raised and two and a half years after the city tried to
cap the number of them.
The ordinance prohibits dispensaries from operating for profit, requires them to
pay employees “reasonable wages and benefits” and rules out bonuses. It requires them to
maintain extensive records and to submit an annual accountant-verified audit.
32
It bans operators from running more than one dispensary. It restricts people
buying marijuana to only one collective. Dispensaries also must be located at least 1,000
feet from so-called sensitive areas, such as schools, parks, libraries and other
dispensaries.
The ordinance also limits the number of dispensaries to 70, though the ones that
registered with the city in 2007 can remain open. Because some of the 186 that registered
have gone out of business since then, the ordinance is expected to result in about 150
remaining in the city.
In March, medical marijuana advocates and dispensary owners sued the city to
block the new ordinance alleging it was so onerous that even law-abiding businesses
would have to shut down. Claiming the ordinance violates state law, the lawsuit seeks an
injunction and restraining order to stop enforcement of the ordinance (Barboza 2010).
Another ballot initiative appears to be headed for voters in November. In January,
supporters of the Regulate, Control and Tax Cannabis Act turned in about 700,000
petition signatures to place it on the state ballot. About 434,000 qualified signatures were
needed. The measure would allow anyone 21 and older to have an ounce of marijuana
and grow for personal use. Cities and counties could levy taxes on marijuana production
and sales (Hoeffel 2010b).
33
Abstract (if available)
Abstract
California voters approved the medical use of marijuana in 1996. Some cities took a proactive approach in regulating the number of dispensaries and how they do business. But Los Angeles delayed in passing regulations, and by 2010 there was an estimated 600 to 1000, up from four in 2005. But while medical marijuana dispensaries have received the most attention from the public, the media and elected officials, a microeconomy of related businesses, both visible and underground, have sprung up to cater to the industry. Professionals -- from chefs, to doctors to consultants -- are transferring their skills to the other green economy. The marijuana industry isn’t just dispensaries. It could include a gardening supply store or a neighbor using a guest room to grow marijuana. Interviews with business owners indicate they are expanding operations, even as competition intensifies. If voters approve a statewide ballot initiative in November to fully legalize marijuana, more businesses are sure to enter the market.
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Asset Metadata
Creator
Ma, Jason
(author)
Core Title
Marijuanomy: the overlooked side of LA's marijuana economy
School
Annenberg School for Communication
Degree
Master of Arts
Degree Program
Journalism (Print Journalism)
Publication Date
04/20/2010
Defense Date
03/23/2010
Publisher
University of Southern California
(original),
University of Southern California. Libraries
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Tag
Dispensaries,Los Angeles,Marijuana,OAI-PMH Harvest
Place Name
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Los Angeles
(city or populated place)
Language
English
Contributor
Electronically uploaded by the author
(provenance)
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Winston, Diane (
committee chair
), Gordon, Peter (
committee member
), Parks, Michael (
committee member
)
Creator Email
jasonchoima@yahoo.com,jasoncma@usc.edu
Permanent Link (DOI)
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UC1281767
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Ma, Jason
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