Los Angeles Destroys Functioning Businesses in a Recession

But that's OK with the city-those businesses are selling medical marijuana

Los Angeles has lost over 150,000 jobs in the past year, is on the brink of bankruptcy, and experienced an unexpected 16 percent decline in sales tax revenue last year. And it's located in a state with its own dire fiscal situation that is also facing unexpected gaps in tax revenue. Yet this week the Los Angeles City Attorney's office made a move that's certain to make things worse for its citizens: forcing over 400 functioning businesses to close shop, under threat of jail time.

Don't worry, though. It's no big deal. Those businesses are only selling medicine.

Medical marijuana, that is. As detailed in my May Reason magazine cover story, Los Angeles struggled for years with regulating medical marijuana storefronts—which thrived in L.A. as in no other city. In January the city finally came down with an ordinance imposing a variety of new restrictions, including how the businesses handled cash, provided security and lighting, and paid their employees, as well as insisting that the shops were not technically allowed to make a profit.

But the ordinance's most important effect will be to reduce the 500-plus functioning storefronts serving the city's medical marijuana community to a mere 70 (with some possible grandfathering that might bring the eventual total higher).

On June 7, the ordinance is finally supposed to go into effect. Under the law's tenets, any functioning medical pot store that did not register with the city prior to a November 2007 moratorium is outlawed—despite the fact that in October 2009 a judge declared the moratorium legally void. Thus, as the L.A. City Attorney's office declared in a  letter issued to 439 stores on Tuesday:

Dear Business/Property Owner:

On June 7, 2010, Article 5.1 of Chapter IV of the Los Angeles Municipal Code (Medical Marijuana Collective) will become operative.…Section 45.19.6.7 of Article 5.1 provides that "any existing medical marijuana collective, dispensary, operator, establishment, or provider that does not comply with the requirements of this article must immediately cease operation…."

The establishment at the above referenced address is operating as a medical marijuana provider and did not register with the City Clerk prior to November 13, 2007. Consequently, this establishment does not, and cannot, comply with the requirements of Article 5.1. Under Section 45.19.6.7, this establishment must therefore immediately cease its operations…..

Violation of any section of the Los Angeles Municipal Code is a misdemeanor, punishable by six months in jail and/or a $1000.00 fine…and a nuisance, subject to a daily civil penalty in the amount of $2500.00. In addition to existing remedies under federal, state, and local law, Section 45.19.6.9 of Article 5.1 authorizes the City to seek injunctive relief, revocation of the certificate of occupancy for the location, disgorgement and payment of any and all monies unlawfully obtained, costs of abatement, costs of investigation and attorney fees.

That's a very official, very stern way of saying that a business which is paying taxes, paying salaries to employees, providing support for companies and families, and providing medicine to satisfied patients/customers, has to stop doing all those positive things—some of which directly benefit the government—simply because the city says so.

The reasons are stated, lamely and without support, in the preamble to the ordinance, with some jabber about crime, health hazards, and public safety and welfare. That jabber, as my Reason feature shows, is unsupported by any rigorous evidence beyond the petty complaints of a small number of very vocal citizens.

L.A. attorney Eric Shevin, an experienced medical marijuana litigator, told me this week he's working on a legal challenge to these shutdown letters, one that might be based on the notion that order takes away a vested property right without due process. (He's also working on a larger challenge to the ordinance itself, as is the group Americans for Safe Access.)

Shevin takes heart from an April decision from Superior Court Judge Robert S. Boyd in California's Sonoma County. Boyd's decision came in a case involving the attempt to shut down a medical marijuana storefront in Sonoma County. He concluded that under a doctrine derived from the Supreme Court's 1985 City of Cleburne decision, any California law that prejudicially disadvantages medical marijuana stores fails legal muster if it is based solely on "groundless assumptions, prejudices, and fears" and has no rational basis. Shevin thinks L.A.'s ordinance could be successfully challenged on similar grounds.

And this week's flood of shutdown letters isn't the end of the trouble that the new ordinance will cause L.A. businesses in the coming months. From the time the ordinance goes into effect, those medical marijuana stores that were registered with the city prior to the moratorium in 2007 (around 137 are still thought to be operating) will have to prove to the city they are meeting all the other requirements of the ordinance and apply to operate legally going forward.

But staying legal will be very tricky, thanks to the very tight buffer requirements that force legal pot shops to be 1,000 feet away from a variety of "sensitive uses" (including libraries, schools, youth centers, churches, or other marijuana stores) and bars them from being adjacent to or across an alley from residential property. Most L.A. retail space, of course, is next to or across an alley from residential property.

While neither city officials nor the medical marijuana community has yet fully mapped the city to see what legal areas remain available for pot stores, local marijuana collective operator and activist Don Duncan says that although registered stores will theoretically have six months to get fully legal, they have just one month to locate and inform the city about their new legal locations.

And Duncan points out that the buffers aren't the only difficulty: "It's also finding property that's not occupied with a landlord willing to rent" to medical marijuana facilities, which can be the target of constant legal hassles from localities and federal cops. Duncan, who is probably the most well-connected man on the L.A. medical marijuana scene, says he only knows four stores that have found workable properties, while another two are already OK where they are, "which is a pretty small number considering 90-100 are looking around the city."

Attorney Eric Shevin also adds that the ordinance requires legal marijuana cooperatives to be in compliance with state law. That's a very tricky proposition, since it will be L.A.'s city and county attorneys judging whether those shops are compliant. In the city and county's opinion, backed up by one local judge but in clear contradiction to the state's guidelines about medical marijuana, if you are exchanging cash for pot even to certified medical marijuana patients, you are breaking the law.

Thus, a city facing economic trouble will kill thriving businesses, destroy the entrepreneurial dreams of individuals and families, and cause great inconvenience to qualified patients. And that's all in the name of making it harder for those patients to obtain a plant that the state of California legally permits them to obtain, while solving no social or civic problem larger than quieting a small handful of noisy citizens who convinced the L.A. City Council that pot stores made their neighborhoods feel icky and undesirable. It's all in a day's work for the Los Angeles City Attorney's office.

Senior Editor Brian Doherty is author of This is Burning Man (BenBella), Radicals for Capitalism (PublicAffairs) and Gun Control on Trial (Cato Institute).