COURSEY: Doing the wrong thing with pot profits

The state-vs.-federal tug-of-war over marijuana tilted toward the feds' side of the mud pit this week with the announcement that Mendocino County has suspended its practice of issuing permits to growers of legal medical marijuana.

"Legal" in California anyway. The feds don't recognize any pot as being legal, and they are cracking down on growers and dispensaries in the Golden State that have been operating under the shelter of Proposition 215 and Senate Bill 420. Earlier this month, representatives of the U.S. Attorney's Office threatened to sue Mendocino County over its medical marijuana permit program.

The suspension of that program will "have the effect of driving medical marijuana back underground, making it more illegal, profitable and dangerous," predicts Mendocino County Supervisor John McCowen,, who was quoted in today's Page 1 story by Glenda Anderson.

I have no doubt that McCowen is right. Marijuana is a lucrative business, and it is more lucrative as an illegal, black market business than it is as a mainstream, regulated business.

How lucrative is it? This summer, while working on a writing project, I talked to an articulate and thoughtful marijuana grower named Tim. He has grown pot for several years in a small shed on the rental property where he lives on the outskirts of Santa Rosa, and he has spent a lot of time analyzing the economics of the business.

Here's the bottom line: A few years ago, he grossed more than $60,000 from his 96-square-foot indoor garden.

Of course, that was in the days prior to California Attorney General guidelines and local ordinances that made growing and selling medical marijuana less of a risky business. In the past three years, as growers worried less about going to jail and sellers set up retail shops on Main Streets around the state, the price of pot has plummeted. Tim said, "When I got into this five years ago, I could get $3,500 a pound. Today, it's about $1,600."

That's still a lot of money. Consider the results to date of Mendocino County's permitting program, which provided inspection and regulation of medical marijuana growing operations and issued zip ties to hang on plants to identify them as approved by the Sheriff's Department.

According to Anderson's story, 94 growers participated in the program, which generated $663,230 for the department last year.

That translates to more than $7,000 in fees for each grower – a steep price for growing what is supposed to be legal medicine. But the growers are willing to pay it, because it's worth it.

The Mendocino County program allows up to 99 plants for each grower, or "collective." Each plant can produce a pound of pot – a reasonable average with advanced growing techniques, according to Tim. At $1,500 per pound, that's $148,500 worth of pot. So, the $7,000 in fees would represent a little less than 5 percent of the gross on that 99-plant operation.

But that only accounts for one crop. And Tim told me that a good indoor growing operation can produce three or four crops a year.

Growers will argue about these numbers – Internet forums about plant yield and prices are rife with disputes about how to coax more pot from a plant and whether outdoor pot is superior to indoor pot. So don't get too hung up on the math.

Except to understand that there's a lot of money to be made in this business.

We should also understand that it's a business that costs the taxpayers – whether our government considers it legal or illegal. The difference is: If it is regulated and taxed, we can recover some of those costs, but if it is underground and clandestine, we can't.

So, if the feds want Mendocino County to turn its back on state laws related to marijuana in favor of federal laws, will the federal government reimburse the county for that $663,230 in lost revenue?

Don't count on it. But somebody will benefit from this crackdown. And as McCowen predicts, it likely will be those operating on the black-market side of the industry.

One more note about Tim. When he told me that he sold $60,000 worth of pot a few years ago, he emphasized that was his "gross."

"With expenses it was quite a bit less," he said.

It couldn't cost that much to grow pot, I ventured. So he elaborated.

One of his biggest expenses was electricity. An indoor grow room uses large amounts of power, spinning the PG&E meter to the tune of almost $3,000 a year. Tim said some growers take advantage of PG&E's low-income-customer subsidies, but he doesn't profess to be low-income.

In fact, he said, he reported his pot income on his federal and state tax returns.

I know – it's hard to believe. But Tim didn't have any reason to lie to me about it. He brought it up casually. I wondered how he described it on his returns, and he said he claimed the money as income earned as a handyman.

Why would he do that?

"I went to public schools," he said. "I drive on the roads. It's the right thing to do."

Somehow, I don't think most pot growers will do the right thing unless they are compelled to do it. Mendocino County was enjoying some success with that idea, but now the county is contemplating the possibility of returning that $663,230 to the growers.

Does anyone think that would be the right thing to do?

Chris Coursey's blog offers a community commentary and forum, from issues of the day to the ingredients of life in Sonoma County.