IRS seizes California medical marijuana provider’s bank account

By Peter Hecht
The Sacramento Bee

Published: Friday, Jun. 15, 2012

 

SACRAMENTO, Calif. — The Internal Revenue Service has seized bank accounts it says took in more than $870,000 in cumulative deposits in recent months, part of a federal probe into alleged money laundering involving a Sacramento marijuana dispensary.

Agents of the federal Drug Enforcement Administration and the IRS presented search warrants earlier this week on the El Camino Wellness Center, considered the largest medical marijuana provider in Sacramento.

The seizure of bank accounts, detailed in a sealed affidavit obtained by The Bee, underscores an effort by federal authorities to crack down on California medical marijuana dispensaries by employing laws traditionally used to target money transfers by narcotics traffickers.

A June 8 IRS seizure warrant cited federal money-laundering statutes and laws against improper reporting of income to seize bank accounts of the El Camino Wellness Center and its officers, Nicholas Street and Suneet Agarwal. No charges have been filed in the case.

IRS Special Agent SoEun Park said in the affidavit that Street and Agarwal, who goes by the name Sunny Kumar, distributed "illegal drugs" from "their illegal marijuana store" and conspired with "co-schemers" to hide profits from a purportedly nonprofit dispensary.

Park alleges that the men registered their dispensary with the state as a nonprofit corporation – the Sacramento Nonprofit Collective – then "concealed the proceeds from their marijuana store."

"The concealment and deposit of drug proceeds was primarily facilitated by false statements to financial institutions to disguise the true nature of their marijuana business," Park wrote.

He alleged that the dispensary operators were "commingling drug proceeds with legitimate funds, utilizing different entity names and bank accounts and frequently transferring funds between accounts to obfuscate the paper trail."

Former Sacramento federal prosecutor Donald Heller said authorities are sending a message that they will use federal drug money-laundering laws to target dispensaries that handle hundreds of thousands of dollars in medical marijuana transactions.

"I don’t think it matters if they’re nonprofit or not" under California law, Heller said "What the government sees is big commercial enterprises and they’re going after them."

James Anthony, an Oakland attorney specializing in medical marijuana regulation, blasted the account seizures as an assault on a legal California business.

"Did that (IRS) affidavit say a darn thing about these being medical marijuana collectives in compliance with state law? No," Anthony said. "There is a total disconnect."

El Camino Wellness Center opened in 2008 and last year became the first Sacramento dispensary issued a permit under a city regulatory program for medical marijuana outlets. The city is still collecting voter-approved taxes on local dispensaries, amounting to $1.1 million between July 2011 and March of this year.

Mark Reichel, the attorney representing Street and Agarwal, said El Camino Wellness Center was "a flagship for compliance" as a city-regulated medical marijuana provider.

Reichel said federal authorities raided the dispensary and the homes of both men, taking computers, cellphones and business records. In addition to the money-laundering probe, a DEA search warrant affidavit said Street and Agarwal are being investigated for conspiracy to distribute marijuana and maintaining a place for distribution.

"We’re going to try to talk to the government and see if we can work things out and explain that these guys were in compliance with state law," Reichel said.

U.S. Magistrate Dale A. Drozd approved the request to seize up to $827,435 from a Wells Fargo business account for the dispensary. The figure was based on IRS accounting of cumulative deposits made between January 2006 and August 2011.

Max Del Real, a spokesman for the dispensary, said the actual account balance was "a minute fraction" of the deposits it had received over time. Park wrote that any deposits from "sale of controlled substances" are subject to seizure.

The IRS also said it would seize up to $44,271 from a Wells Fargo account for Agarwal and deposits from two Golden One Credit Union accounts in Street’s name.

The affidavit includes allegations that El Camino Wellness misleadingly listed its services as "health" – but not marijuana – when it set up merchant services accounts for credit and debit card transactions. It said one credit card company, JPMorgan Chase, stopped doing business with El Camino Wellness upon learning it was a medical marijuana provider.

Joe Elford, legal counsel for Americans for Safe Access, an advocacy group for medical marijuana patients, said the investigation stirs questions over banking rights for dispensaries. He said just because a dispensary has money in the bank doesn’t signal a crime.

"When you deposit money into a bank, you don’t have to explain to the bank where that money came from, typically," Elford said. "And every nonprofit I know of has a bank account."

Last year, a U.S. Treasury Department criminal task force seized more than $80,000 from accounts of another Sacramento dispensary, One Love Wellness Center. The establishment closed on New Year’s Eve with no charges filed.

The latest raid worries Lanette Davies, co-operator of Sacramento’s Canna Care, one of 20 dispensaries still operating in city limits, down from the original 38.

Davies said that in recent years three different financial institutions, all aware Canna Care was a dispensary, initially agreed to service accounts for Canna Care but closed the accounts after deciding not to service medical marijuana businesses. The dispensary has another banking partner, but Davies worries she could be targeted by the government.

"It’s almost like the federal government sets you up to fail," she said. "We are not Mexican drug cartels."

U.S. prosecutors have said they are targeting marijuana businesses "hijacked by profiteers" that they contend are operating in violation of both federal and state laws – though warrants in the El Camino Wellness case make no mention of California’s medical marijuana law.

So far, federal courts have rejected legal challenges by medical marijuana advocates to the crackdown on California dispensaries.

Last year, El Camino Wellness sued U.S. Attorney General Eric Holder and Sacramento U.S. Attorney Benjamin Wagner, charging that federal property forfeiture notices – including one sent to the dispensary’s landlord – violated rights of medical marijuana users and threatened to shut down the "supply chain of medical cannabis."

A federal judge threw out the complaint.

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Baby soaps cause positive marijuana tests in infants…

A new study out of the University of North Carolina, Chapel Hill reveals some baby soaps may cause infants to test positive for marijuana, reports My Health News Daily.

While researchers aren’t sure why the tests came out positive, they asserted infants were not experiencing a "high" from the soap.

"It’s not marijuana in any way, shape or form," said study researcher Catherine Hammett-Stabler, a professor of pathology and laboratory medicine at the University of North Carolina.

Researchers first became aware of the issue when nurses at a North Carolina hospital noticed a high number of positive urine tests, according to WFMY News.

The study was conducted so families wouldn’t be falsely accused of exposing children to illegal drugs, a form of child abuse that would need to be reported to social services.

A second medical marijuana patient has been denied a transplant at Cedars-Sinai

Patient Toni Trujillo was put on a kidney transplant list earlier this year after her existing kidney transplant began to fail but she was booted off the list because of her "substance abuse," according to Americans for Safe Access.

The group that advocates on behalf of medical marijuana says that Trujillo has been on dialysis for the past five years and has suffered from kidney problems most of her life. She actually moved to California from Pennsylvania two years ago to take advantage of treatment at Cedars. She told her physicians at the time that she was using medical marijuana as an appetite stimulant to increase her protein levels, and they never raised any concerns about it. Then in April she was told over the phone that she was being booted off the list because of her marijuana use. They considered it "substance abuse."

"I don’t know why Cedars would deny me a transplant simply because I use a legal medication that works for me," Trujillo told the ASA. "I hope they listen to reason and change their misguided policy, if not for me then at least for the others who will certainly follow."

Another transplant candidate at Cedars-Sinai was booted off the list for his medical marijuana use last year. Norman Smith, a cancer patient, was diagnosed with inoperable liver cancer in 2009 but was removed from the transplant list because of his marijuana usage.

Using medical marijuana is frowned upon by the doctors who determine who gets on the competitive transplant list and who doesn’t. At the time, Dr. Jeffrey Crippin, former president of the American Society of Transplantation and medical director at Washington University in St. Louis, told the Los Angeles Times, "If you are drunk or high or stoned, you are not going to take your medicine."

Both Trujillo and Smith were told that they have to abstain from marijuana for six months to re-qualify for the wait list and take drug abuse counseling for the same period, according to ASA. Both have given up medical pot, even though they said it was helpful in treating their health problems.

Related:
Cancer Patient Denied Liver Transplant After Using Medical Marijuana

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Late Night: Stephen Colbert says stoners will decide 2012 election

With five months to go until the election, President Obama and Republican opponent Mitt Romney are virtually tied in the latest polls.

As Stephen Colbert observed on Thursday night, it’s a situation very similar to the 2004 election. That year, anti-gay-marriage initiatives on the ballot in 11 states helped drive conservative turnout and clinch victory for George W. Bush.

This time around, Democrats are optimistic that marijuana-legalization initiatives in states such as Colorado, Michigan and Ohio will motivate young voters and tip the election in Obama’s favor.

"Marijuana support is at a record high, just like its supporters," Colbert joked. "This is the ultimate grassroots campaign."

So could the stoners of America decide the 2012 election? It’s an amusing idea, but Colbert was not entirely convinced. "We all know pot smokers are highly motivated, organized and punctual," he said facetiously. "There is nothing they would love more than getting off the couch, putting on pants, and going to gyms packed with judgmental old people."

Romney’s only hope come Nov. 6, according to Colbert: a "Planet Earth" marathon on the Discovery Channel.

Marijuana and the U.S. Attorney

[A] drug which takes away grief and passion and brings a forgetfulness of all ills. ~ Homer, The Iliad

Two events took place in June that suggested a primer on how medical marijuana laws are working in Colorado might be appropriate. The first was an appellate court decision that the state Supreme Court declined to review. The holding was that if an employer has a zero-tolerance drug policy and an employee who uses medical marijuana tests positive and is discharged, the employee is not entitled to unemployment benefits even though the use of medical marijuana is not proscribed by state law.

The second event of note was a newspaper announcement that the Sunday night CBS news program 60 Minutes had interviewed Stan Garnett, Boulder, Colorado’s District Attorney, with respect to medical marijuana dispensaries operating in Colorado. Since the interview will not be broadcast until fall, an update might help those who wonder what is happening in the world of medical marijuana in Colorado. Although only applicable to Colorado, readers elsewhere can see how the Obama administration has lived up to promises made during the 2008 campaign.

During the 2008 campaign Mr. Obama said, with respect to medical marijuana laws, that if elected: "What I’m not going to be doing is using Justice Department resources to try to circumvent state laws on this issue simply because I want folks to be investigating violent crimes and potential terrorism." In February 2009 Attorney General Eric Holder said what the president said during the campaign "is now American policy" and in a subsequent press conference said the policy is to "go after those people who violate both federal and state law…" The administration did not rely on those statements to let people know what official policy was. David Ogden, then the Deputy Attorney General of the United States, put it in writing so everyone would understand.

October 19, 2009, Mr. Ogden, sent a memorandum to the U.S. attorneys in states that authorized the sale and use of medical marijuana. Its stated purpose was to provide "clarification and guidance to federal prosecutors." Mr. Ogden began by saying: "Congress has determined that marijuana is a dangerous drug, and the illegal distribution and sale of marijuana is a serious crime…" However, he went on to say that "selected U.S. attorneys" to whom he sent his memorandum should "not focus federal resources in your states on individuals whose actions are in clear and unambiguous compliance with existing state laws providing for the medical use of marijuana." Mr. Ogden and Colorado’s U.S. Attorney, John Walsh, would have been well served had Mr. Ogden stopped there since it was clear what he meant.

He didn’t. After explaining the meaning of "clear and unambiguous" as used in his memorandum he went on to say that "no State can authorize violations of federal law" which is, of course, exactly what medical marijuana legislation does. If a U.S. attorney decides to prosecute someone, Mr. Ogden continued, it is not necessary to prove that a state law was violated. The memorandum, he said, does not "’legalize’ marijuana or provide a legal defense to a violation of federal law… Nor does clear and unambiguous compliance with state law… provide a legal defense to a violation of the Controlled Substances Act." He repeats that in the penultimate paragraph of his memorandum saying the memorandum is not intended to preclude investigation, "in particular circumstances where investigation or prosecution otherwise serves important federal interests." The foregoing, as all but the dullest reader can immediately see, is a crystal clear roadmap for U.S. Attorneys who wonder whom to prosecute. And that brings the curious to Colorado and to the even curiouser John Walsh.

Colorado citizens amended their state constitution in 2000 to permit the medical use of marijuana effective June 1, 2001. In 2010 a law was enacted that regulates medical marijuana dispensaries. John Walsh, apparently confused by the Ogden memo, has concluded that he can prosecute those who are in "clear and unambiguous compliance" with Colorado law as stated in the Ogden memorandum. In January, March and May, he sent waves of letters to dispensaries within 1,000 feet of schools telling them they must close and describing in great detail the draconian penalties that may be imposed if they do not. Mr. Walsh was not concerned about whether local governments were content to have dispensaries closer than 1,000 feet to schools as Colorado law permits.

Mr. Garnett wrote Mr. Walsh in March expressing his opinion that the U.S. Attorney’s office could, instead of going after dispensaries, better use its efforts dealing with "terrorism, serious economic crime, organized crime and serious drug dealing…" In response, Mr. Walsh said, in effect, that his views about how far dispensaries should be from schools overrode local governments’ views. He did not say how his actions comported with Mr. Ogden’s memorandum.

What the Colorado court ruled does not run afoul of what Mr. Obama promised during the 2008 campaign. What Mr. Walsh has done, does. That is more than a pity. It is a travesty.

Christopher Brauchli can be emailed at brauchli.56@post.harvard.edu. For political commentary see his web page at http://humanraceandothersports.com

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