Harborside's Death Tax



The federal government is attempting to tax Oakland’s Harborside Health Center — perhaps the country’s largest and most prominent medical marijuana dispensary — out of existence.

The Internal Revenue Service delivered a $2.5 million tax bill to Harborside this week, according executive director Steve DeAngelo. The staggering bill, DeAngelo said, is designed to close the dispensary, which serves 94,000 patients annually. “This is not an effort to tax us. We’re happy to pay our taxes,” DeAngelo told the Chron. “This is an effort to shut us down.”

Federal law still designates marijuana as a schedule 1 controlled substance, which puts it in the same category as heroin, methamphetamine and LSD, which are regarded to have no accepted medical uses. And section 280E of the federal tax code disallows any deductions — including standard business expenses like rent and payroll — related to trafficking of controlled substances. Under this law, the IRS began auditing several California dispensaries more than a year ago.

In addition to Harborside, the Marin Alliance for Medical Marijuana, in Fairfax, was also billed for millions, according to executive director Lynnette Shaw. The Alliance is an industry icon because it was among the first dispensaries to open after California voters approved Proposition 215 in 1996, which legalized the use of marijuana for medical purposes. The Alliance also became an early industry model because of its professional management and activist ethos.

Harborside's tax bill is for 2007 and 2008, during which time the dispensary raked in a total of $19 million. The IRS also plans to audit Harborside for subsequent years. In 2010, Harborside declared an income of $22 million.
“We think this assessment is unfair and inaccurate,” DeAngelo said to Chron reporter Carolyn Jones. “We have no choice but to fight this.”

Ironically, Harborside received the devastating tax bill just days after the dispensary announced it had turned over $360,483 in tax revenue to the financially strapped city of Oakland. The payment was for a 5 percent cannabis tax that was approved by an overwhelming 80 percent of Oakland’s voters last year.

If Harborside closes, it would be a blow to Oakland, which has been the most progressive city in the country in supporting the new industry. Oakland was the first city to regulate dispensaries and the first to approve a local tax. It was also the first to attempt regulating warehouse grow operations, and when WeGrow, the country’s first big box cultivation store opened near the Oakland Airport, four city council members showed up for the ribbon-cutting ceremony. Oakland is also home Oaksterdam University, the first medical marijuana trade school.

DeAngelo is a longtime medical marijuana activist, and since he opened Harborside in 2005, the media has been welcomed. That open-door policy - and Harborside's smooth operation, strict quality control and bank-like interior - have made it an internationally known media darling. So much so that DeAngelo, with his jaunty hat and braided ponytails, will be the star of a Discovery Channel reality show called "Weed Wars," which will examine the medical marijuana industry's increasingly professional standards and the controversy that continues to swirl around the first new American industry since the dot com boom of the early 1990s.