The following is the text of a press release by Americans for Safe Access on October 5, 2012.

For the first time in nearly 20 years, a United States Court of Appeals is set to hear oral arguments in a lawsuit challenging the federal government’s classification of marijuana as a dangerous drug with no medicinal value: Americans for Safe Access v. Drug Enforcement Administration. This historic case will force a federal court to finally review the scientific evidence regarding the therapeutic efficacy of marijuana.

During a press briefing Thursday, plaintiffs in the case, along with leading medical researchers and clinicians, spoke about the necessity of the federal government recognizing current scientific data supporting marijuana rescheduling. Marijuana is currently classified in the same category as heroin despite calls from scientists, medical professionals, and policy makers to reschedule marijuana for medical use.

The U.S. Court of Appeals for the D.C. Circuit will hear opening arguments on the case the morning of October 16, 2012. “Medical marijuana patients are finally getting their day in court,” said Joe Elford, Chief Counsel with Americans for Safe Access (ASA), who will be arguing the case before the D.C. Circuit. “What’s at stake in this case is nothing less than our country’s scientific integrity and the imminent needs of millions of patients.”

On the call, Dr. Donald Abrams, Director of Clinical Programs at San Francisco General Hospital, described the effectiveness of medical marijuana in the treatment regimens of cancer and HIV/AIDS patients. “In my practice every day as a cancer specialist I see patients who have loss of appetite, nausea and vomiting from their chemotherapy, pain on and off of opiates, anxiety, depression, and insomnia,” conditions which Dr. Abrams said can be alleviated by medical marijuana.

Dr. Igor Grant, Executive Vice-Chair, Department of Psychiatry, University of California-San Diego School of Medicine, and director of the Center for Medicinal Cannabis Research, stated that multiple California state-supported studies have resulted in “very good evidence” that medical marijuana “is effective in treating muscle spasticity,” which is often experienced by patients with Multiple sclerosis and other painful disorders. He added that it is critical to separate out patients’ legitimate medical needs from other issues surrounding marijuana’s distribution and usage. Dr. Grant recently published a study in Open Neurology Journal concluding that marijuana’s current classification is “untenable.”

Plaintiff Michael Krawitz, a Gulf War veteran and medical marijuana patient, conveyed his struggle in managing his combat-related pain without relinquishing federally-mandated VA benefits under marijuana’s current classification. Without access to medical marijuana, he stated he is in danger of destabilizing his overall health condition, a situation Krawitz has faced multiple times due to federal policy.

“The time has come to address medical marijuana as a public health issue and for the federal government to prioritize science over politics,” Sherer said.

Listen to the audiotape of a teleconference briefing with researchers, legal counsel and lawsuit plaintiff.

Las Vegas Sun:  “A ruling that Nevada’s medical marijuana law is unconstitutional has put the issue before the state Supreme Court and has lawmakers again pushing to clarify how patients can legally obtain the drug.  After several medical marijuana dispensaries set up shop around Las Vegas in recent years, a task force from the Metro Police Department and the District Attorney’s Office began working with federal authorities on a series of high-profile raids. . . . Most of the medical marijuana dispensaries in Las Vegas have been shut down, he said. They were acting as for-profit entities and required a donation to belong”

The two Nevada cases involve the Jolly Green Meds dispensary and the Sin City Co-op dispensary.

Arizona Republic:  “Maricopa County Attorney Bill Montgomery, like county attorneys across Arizona, is no fan of the state’s medical-marijuana program. . . . But that doesn’t excuse the saber rattling he engaged in last week.”

For more on Montgomery’s threats read “Maricopa County Attorney Warns Everybody in Maricopa County Not to Grow, Sell or Distribute Marijuana Because He Will Prosecute Violators for Felonies.”

Arizona Republic columnist E. J. Montini wrote a column in which he rips Arizona Attorney General Tom Horne and Maricopa County Attorney Bill Montgomery because they are ” two men doing everything they can to keep the state from fully implementing the medical-marijuana law that — for a third time — was approved by voters.”  Montini also said that the two “must think of Ryan Hurley as the boogeyman.”

Ryan Hurley is an Arizona attorney who is the media’s go-to-guy when they need a quote about Arizona’s medical marijuana law because he and his law firm represent a lot of applicants for medical marijuana dispensary licenses.  Montini wrote that Ryan Hurley told Montini that “His (Montgomery’s) press conference amounted to fear and intimidation rather than anything new. The county attorney enforces and prosecutes state law, not federal law. … So this sort of notion that he’s going to be out there arresting people under state law is just silly.”  Montini claims Hurley also said “even in California, where there is a lot of uncertainty, these notions that the sky is going to fall just don’t hold up.”

Even the most ardent supporters of Arizona’s medical marijuana law should acknowledge the prosecutors’ war on medical marijuana dispensaries that has been taking place in the last year.  For more on this war that the prosecutors are winning read:

• Court rulings bode ill for medicinal pot:  “the U.S. Justice Department said that federal courts in all four California judicial districts have rejected appeals by dispensaries threatened with shutdown.  The most recent rejection came this month, when a federal court in Oakland rejected appeals filed by the Marin Alliance for Medical Marijuana in Fairfax, the Medthrive Cooperative and the Divinity Tree Patients’ Wellness Cooperative in San Francisco, and Medthrive’s landlords. Similar appeals by dispensaries in Sacramento, Butte County and Los Angeles County were rejected earlier this year. . . . All told, approximately 400 dispensaries in California have closed since the four U.S. Attorneys began their coordinated crackdown in September”

• Federal Dispensary Attacks

• L.A. City Council Bans Medical Marijuana Dispensaries – “Under the ban, all of the 762 dispensaries registered in the city will be sent letters ordering them to shut down immediately.”

• California News

Looking at the facts some people would say that the sky has actually fallen on the California medical marijuana industry.  Hopefully Mr. Hurley and other attorneys who represent people involved in the soon-to-be operating Arizona medical marijuana dispensary have had their clients sign a good CYA letter that notifies the clients that their activities could cause them to be prosecuted and convicted of violations of federal criminal laws and that they could be imprisoned.

The Bugle: “Gov. Jan Brewer has signed a waiver that will allow Attorney General Tom Horne to try to close down the marijuana dispensaries that her state health department is in the process of licensing.  The move comes in the wake of Horne’s formal legal opinion that the state cannot legally permit anyone to sell marijuana, even only to those who have a doctor’s recommendation to use the drug. Horne said as long as the drug remains illegal under federal law, the state is powerless to authorize anything to the contrary. . . . Horne said he intends to legally intervene in a legal fight between Maricopa County and the owner of a clinic that wants to open a marijuana dispensary in Sun City.”

Phoenix New Times:  “Arizona should not authorize medical-marijuana dispensaries as voters intended because they would violate federal law, says state Attorney General Tom Horne. . . . Now, the question of whether Arizona gets dispensaries like Colorado is apparently in the hands of state judge who just doesn’t know it yet.”

Arizona Republic:  “Thirteen Arizona county attorneys are urging Gov. Jan Brewer to halt the state’s medical-marijuana program, saying state employees will be facilitating federal crimes when they issue licenses to pot dispensaries.  The lawyers signed onto a three-page July 24 letter authored by Yavapai County Attorney Sheila Polk, who requests that the governor prevent the state’s issuance of licenses for medical-marijuana dispensaries because the state program is pre-empted by the federal Controlled Substances Act. . . . Polk wrote that she has been told Arizona’s newly appointed U.S. Attorney John Leonardo ‘fully intends to prevent any dispensaries from operating in Arizona by seizing each and every one as it opens and commits violations’ of the federal act.”

Read Yavapai County Attorney Polk’s letter to Brewer and Governor Brewer’s response in which she makes this incredible statement:

“though the Department of Justice has prosecuted a select number of large medical-marijuana operations in California and other states, the federal government’s position remains unclear with regard to the AMMA and participation in this law by Arizona State employees.”

“compliance with the AMMA and Arizona regulations will not provide a safe harbor or immunity from federal prosecution for anyone involved in the cultivation and distribution of marijuana. . . . state employees who conduct activities authorized by the AMMA are not immune from liability under the CSA.”

Since Arizona voters approved Proposition 203 in November of 2010 I have talked to many people who were interested in obtaining a license to grow marijuana and sell it in an Arizona medical marijuana dispensary.  In general these people fall into two categories: (1) people whose primary goal is to provide medicine to patients, and (2) people who want to make a lot of money.  When I mention to the people in category 2 that all Arizona medical marijuana dispensaries must be operated on a not-for-profit basis they usually say I know, but I’m going to form one or more companies to provide services to the dispensary to move money from the dispensary to the for profit companies.

In theory this seems like a reasonable plan that could work, but I suspect that in practice most category 2 people will be “over paying” for services rendered by a for profit company to the category 2 person’s not-for-profit dispensary.  Let’s consider two scenarios and compare the results.

Scenario 1:  AZ Medical Marijuana Dispensary, LLC (“AMMD”), has a license to operate an Arizona medical marijuana dispensary.  It is owned equally by Homer Simpson and Ned Flanders.  The total cost for salaries, bonuses, employee benefits, payroll taxes and expenses for all of AMMD’s personnel for the first year of its business is $X, which amount can be deducted from AMMD’s gross income for the purposes of determining if AMMD is a not-for-profit dispensary as required by Arizona’s medical marijuana laws.  Whether any portion of this amount is deductible from AMMD’s federal income tax return depends on Internal Revenue Code Section 280E.

Scenario 2:  Same facts as Scenario 1 except Homer and Ned form Suck Off the Profits, LLC (“SOTP”), an employee leasing company that employs and leases to AMMD all personnel needed by AMMD to operate AMMD’s dispensary business.  SOTH bills AMMD $X times 3.  In computing its not-for-profit bottom line for Arizona medical marijuana dispensary requirements AMMD now can reduce its gross income by the cost of its leased personnel = $3X instead of $X.

In both scenarios AMMD must submit audited financial statements to the Arizona Department of Health Services.  These financial statements will disclose in the case of Scenario 1 that AMMD paid $3X to SOTP.  I suspect that ADHS will inquire into the ownership of SOTP and when it finds that Homer and Ned own both companies ADHS may claim that AMMD was not operated on a not-for-profit basis.  How will Homer and Ned explain why AMMD paid 3 times the actual cost of the employees to SOTP?  Homer and Ned may think ADHS is stupid, but if so, that would be a big mistake that could lead to the loss of AMMD’s license to operate an Arizona medical marijuana dispensary.

However, AMMD’s loss of its license to operate an Arizona medical marijuana dispensary might be the least of its worries.  Don’t you think that the federal law enforcement agencies will get copies of the audited financial statements of every Arizona medical marijuana dispensary and do their own investigations as to whether Arizona medical marijuana dispensaries are operated on a not-for-profit basis?  Evidence that a dispensary is a money making machine is a good way to entice the feds to bust your medical marijuana dispensary.

Read the post called “Feds Indict 6 California Medical Marijuana Dispensary Owners & Sue to Take Landlord’s Land” about a California dispensary called G3 Holistic that was very good at making money.  The story linked to in the preceding sentence said:

“In a civil forfeiture complaint, the government claimed that a forensic investigation by the IRS identified 19 bank accounts linked with G3 Holistic Inc. or individuals connected with it. The accounts had received $3.3 million in deposits during an eight-month period in 2011, with withdrawals nearly equaling that amount. The IRS concluded it was to make G3 appear to be a nonprofit organization.”

The Los Angeles Times has a detailed story about California medical marijuana dispensaries making big bucks called “Some Southern California ‘Nonprofit’ Pot Shops Make Big Money.”  This story says:

“Tax may be the biggest cudgel the feds have against medical pot. Increasingly, the IRS is applying an obscure provision of the tax code, 280E, which prohibits drug traffickers from claiming routine business deductions, for costs like wages and rent, when federal agents are trying to get back-taxes from them. Already dispensaries were in a quandary: Pay the IRS and literally document your federal crime to the federal government, or don’t report it and risk going down for tax evasion. Now they face 280E, and potentially crippling tax bills.”

If you are a category 2 person you should read about the G3 Holistic case, note in your mind that your dispensary will be giving ADHS a road map of how your dispensary spends its money (the audited financial statements) and then answer the question San Francisco Detective Harry Callahan asks a crook in the movie “Dirty Harry” after Callahan points his gun at the crook who must decide whether to go for his gun or give up.  Dirty Harry says:

I know what you’re thinking. Did he fire six shots or only five? Well, to tell you the truth, in all this excitement, I’ve kinda lost track myself. But being as this is a .44 Magnum, the most powerful handgun in the world, and would blow your head clean off, you’ve got to ask yourself one question: ‘Do I feel lucky?’ Well, do ya punk?”

If you are a category 2 person who is involved with an Arizona medical marijuana dispensary and you plan on siphoning profits from the dispensary, you must ask yourself “Do I feel lucky.”

For those category 2ers who are not familiar with the not-for-profit requirement of Arizona’s medical marijuana law applicable to all Arizona medical marijuana dispensaries I suggest you read the following text taken from my article called “Warning to Everybody Considering Becoming Involved with an Arizona Medical Marijuana Dispensary.”

Arizona Medical Marijuana Dispensaries Must be Operated on a Not-for-Profit Basis

A lot of people believe that owning an Arizona medical marijuana dispensary is a way to get rich despite the fact that all Arizona medical marijuana dispensaries must be operated on a not-for-profit basis.  Unfortunately neither Arizona’s medical marijuana laws nor the ADHS rules explain what that term means.  The only guidance with respect to the meaning of this term is found in Arizona Department of Health Services rule R9-17-304(D).8 that states that the Bylaws of a dispensary must contain “Provisions for the disposition of revenues and receipts to ensure that the dispensary operates on a not-for-profit basis.”  That’s it.  Nobody has a clue what the phrase means.

We do know, however, that all Arizona medical marijuana dispensaries must provide annual audited financial statements to ADHS.  Most businesses do not get audited financial statements, which are very expensive.  The fact every dispensary will be giving ADHS audited financial statements means that ADHS will be able to examine in detail how dispensaries are spending money, i.e., who the dispensaries pay and how much they pay.  I believe that all expenditures of money by a dispensary must be commercially reasonable or the dispensary is opening itself up to a claim that the dispensary is being operated on a for profit basis.

For example, if a member of the board of directors attends one two hour meeting of the board every quarter and provides no other services the board member may be paid for the reasonable value of the services rendered.  What is the value of 8 hours of time spent at a meeting of the board of directors?  Surely payments of $25, $100 or $250 hour may be justified since many professionals, plumbers and Xerox printer technicians charge those hourly rates.  However, if that board member is paid $100,000 for eight hours of time I submit that ADHS will have a problem with that and ADHS could refuse to renew the dispensary’s license.

Money dispensaries pay to employees and insiders will be scrutinized closely.  The dispensary must be able to justify the reasonableness of all payments to employees, insiders and affiliates.  Dispensaries should not agree to pay for any services provided by employees, insiders and affiliates without tangible evidence that the payments are commercially reasonable.  One way to do this is to follow the same rules used by bona fide tax exempt charities.  To learn more about this important topic a good start is to read “Nonprofit Payments to Insiders and Outsiders: Is the Sky the Limit?“  This article contains footnotes that refer to sources of information that can be used to justify payments to insiders of tax exempt charitable organizations.

Dispensary people must also understand that law enforcement and prosecutors will be able to access dispensaries’ audited financial statements given to ADHS for the purpose of determining if any dispensaries are not operating on a not-for-profit basis.  I am sure law enforcement and prosecutors will pay special attention to payments of large amounts of money to “management” companies or service provider companies owned by the owners, officers or board members of a dispensary.  It is a mistake to think you can make a dispensary operate on a not-for-profit basis by siphoning money from the dispensary to affiliated entities.

The bottom line with respect to the not-for-profit requirement is that Arizona medical marijuana dispensaries must actually operate a not-for-profit business so why would anybody want to invest the large amounts of money and time into a business that cannot pay profits that justify that risk?

June 23, 2012 Update:  Will Humble’s June 23, 2012, blog post confirms what I suspected, i.e., ADHS will investigate large payments by a dispensary to third parties.  Read “Will Humble Warns Arizona Medical Marijuana Dispensaries Not to Pretend to be a Not-for-Profit Business.”

Denver Post:  “In what appears to be a first-of-its-kind event nationwide, a Denver lawyer has lost her liability insurance because part of her practice involves representing medical-marijuana businesses.  Ann Toney’s insurance company told her last month that it will not renew her malpractice coverage. In its terse notice, the Hanover Insurance Group explained that Toney’s practice “does not meet current underwriting guidelines because of the following risk factors: Area of practice involving medical marijuana.”

The last day to file an application for a Dispensary Registration Certificate for an Arizona medical marijuana dispensary is May 25, 2012, at 5:00 p.m.  Today is what I am calling “Bank Day,” the last day on which the entity applying for the dispensary registration certificate or a principal officer of the entity may deposit $150,000 in a bank or financial institution.  The Rules and the Arizona Department of Health Services say:

“The documentation must be dated within 30 days before submitting the application and demonstrate that the entity applying for the dispensary registration certificate or a principal officer of the entity has at least $150,000 under their control and has had control of the monies for at least 30 days before submitting the application.”

Today, April 25, 2012, is 30 days before May 25, 2012.