Berkeley Wins Marijuana Tax Case — Maybe

SAN FRANCISCO (CN) — In a tentative victory for Berkeley, the United States has agreed to drop a forfeiture lawsuit over a medical marijuana dispensary that sends hundreds of thousands of tax dollars to city coffers.

Berkeley in exchange agreed to dismiss an appeal to the Ninth Circuit, after a federal judge struck the city from the forfeiture case pending in the Northern District of California.

The United States in 2013 sought to shut down Berkeley Patients Group, one of three permitted medical marijuana dispensaries in the city. The dispensary, its landlord Nahla Droubi and the city challenged the forfeiture.

U.S. District Judge Jon Tigar struck Berkeley from the action in 2014 for lack of standing, but the city appealed to the Ninth Circuit, asserting that its interest in dispensary-generated tax revenue and its ability to regulate dispensaries gave it a stake in the case.

Tigar stayed the forfeiture in February until the Ninth Circuit resolved Berkeley's challenge.

The government's offer to dismiss the forfeiture has not been finalized. While federal prosecutors told the plaintiffs this month they would dismiss with prejudice, and confirmed it in a filing with the Ninth Circuit, the Department of Justice then sent a stipulated dismissal that undermines the offer to dismiss with prejudice, according to Lara DeCaro, an attorney for Berkeley Patients Group.

DeCaro said the plaintiffs are negotiating with federal prosecutors to reinstate that promise, and no final agreement to dismiss has been reached.

"We're trying to hold them to their wording. We're trying to get them to give us the same terms they gave everyone else," DeCaro said, referring to forfeiture suits the government has dropped against other dispensaries in the Bay Area.

DeCaro said she could not speculate why the government decided to drop the case.

Department of Justice spokesman Abraham Simmons declined to comment on the case Friday.

However, in late September, Congress renewed a 2014 law prohibiting the Department of Justice from spending money to prosecute businesses that comply with state medical marijuana laws.

In its appeals brief, Berkeley said it would be harmed by being deprived of the tax revenue the dispensary generates, which goes to city agencies, including the police and fire departments.

Berkeley said no other property within city limits can accommodate the dispensary, making it imperative that it operate out of its present location. And even if the city could find another site, it would be difficult to get a landlord to lease property to Berkeley Patients Group if the government takes the current owner's property away.

"Berkeley would suffer measurable economic injury were the property forfeited, BPG forced to close, and, as a result, BPG no longer able to pay its tax revenue to the city," Berkeley said in its brief. "The tax revenue produced by BPG, upon which the city of Berkeley relies, depends on BPG having property on which to operate."

The dispensary has been paying city taxes since 2000. It paid $500,090 in city taxes in 2011, and $716,914 in 2012. After the federal government threatened forfeiture in 2013, however, the paid just $286,585 in city taxes because it was forced to limit sales to a delivery service. Berkeley Patients Group estimated that had its business not been interrupted, it would have paid the city another $540,775 in taxes that year, a total of $827,360.

In its answering brief to the Ninth Circuit, the government said collecting taxes and regulating dispensaries do not entitle Berkeley to claim an interest in the property to challenge the forfeiture.

"The city of Berkeley has no ownership, possessory, or other valid state law property interest in the property to be forfeited, and it cannot substitute its interest in receiving gross-receipts tax revenue from a business conducted at the property for an interest in the property itself," the government said.

The case resembles an attempted government seizure of another Bay Area, Oakland's Harborside Health Center, which prompted Oakland to sue the federal government in 2012.

Federal prosecutors agreed in May to drop their effort to shut down that dispensary, which is believed to be the largest medical marijuana dispensary in the nation.

Berkeley Patients Group attorney Henry Wykowski, who also represented Harborside, said Friday that the group hopes it can strike a deal with prosecutors on the terms they previously offered.

"The stipulation of dismissal that was proposed by the U.S. Attorneys' Office attempts to impose unfair conditions that might limit the value of the dismissal," Wykowski said in a statement. "These conditions would be contrary to what has already been represented to the Court of Appeals."

Wykowski is with Henry G. Wykowski & Associates; DeCaro with Leland, Parachini, Steinberg, Matzger & Melnick, both of San Francisco.

Berkeley is represented by Lindsay LaSalle with the Drug Policy Alliance in New York, who did not return a request for comment.

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