Why Can't Oakland Tax Marijuana?

A couple years ago, feeling that I needed a break from politics, I convinced The Atlantic to send me to a new trade school in Oakland that trains people to grow and dispense medical marijuana, legal under California law. I thought it would be fun, and funny, and it was (here's my story). But I should have known better than to think I could escape politics entirely. The students and teachers I spoke with at the time were principally concerned with two issues. The first was electing Barack Obama president, based on the belief that he would push to legalize medical marijuana. The second issue was local. The marijuana dispensaries wanted to be taxed--you read that correctly--because they believed it would help to legitimize their business. They made a good pitch: California had a yawning budget deficit that marijuana taxes could help fill. (I'm pretty sure they were the only group volunteering to do so.) One estimate suggested that marijuana taxes could bring the state $1 billion a year.

Although California's ballot initiative to legalize marijuana failed last November, Oakland officials were planning to go ahead with a tax on marijuana farms.* But per The New York Times that plan has just been blocked by the Obama Justice Department:

OAKLAND, Calif. -- For a brief, smoky moment last fall, this economically challenged city seemed poised to become the nation's most aggressive when it comes to growing and taxing medical marijuana. 

Those hopes have been dimmed considerably in recent weeks, though, since an exchange of letters between the city attorney and federal law enforcement officials has made it exceedingly clear that Washington will not tolerate plans for the large-scale marijuana farms the City Council approved last July. City officials had hoped to use the massive indoor growing facilities to raise some $38 million annually in fees and taxes at a time when the city is struggling with a $31 million deficit and 17 percent unemployment.

Indeed, polls last summer had suggested that voters were likely to pass a November ballot initiative that would have legalized recreational marijuana use in California. They did not. But Oakland decided to proceed with its plans anyway.

Hundreds of well-heeled investors and would-be farmers poured in from across the country to vie for the city's four cultivation permits. Then, in December, just weeks before the city was set to issue permits, the Council voted to stall the plan after the city's attorney, John Russo, and a county district attorney warned the Council that the marijuana cultivation ordinance thwarted state law and that city officials could be held criminally liable.

On Jan. 14, Mr. Russo wrote a letter to the United States Department of Justice seeking guidance on the city's legal standing. In a response, Melinda Haag, United States attorney for the Northern District of California, warned that "individuals who elect to operate 'industrial cannabis cultivation and manufacturing facilities' will be doing so in violation of federal law."

Given the clamor over budget deficits, I'm puzzled why the Tea Party, or some other activist group besides marijuana enthusiasts, doesn't take up this cause. It strikes me as a winning one from both a budgetary and a political standpoint: here you have a willing revenue source that could help balance the budget, and yet is being prevented from doing so. Unlike in Wisconsin, the issue in Oakland is clear cut and simple. No one is trying to snuff out Democratic interest groups. And it has all the hallmarks that conservative activists usually get keyed up about: an obstinate federal government interfering with the states, small businesses being imposed upon, etc.

* This post originally didn't make clear that the tax was on farms.

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