Justin Sullivan / Getty Images A bowl of medicinal marijuana is displayed in a booth at The International Cannabis and Hemp Expo April 18, 2010 at the Cow Palace in Daly City, Calif.

For a brief moment in 2009, medical marijuana advocates exhaled. A new President had taken office promising to call off the federal prosecutors in states that had legalized weed for the sick. “What I’m not going to be doing is using Justice Department resources to try to circumvent state laws on this issue,” Barack Obama had said during his presidential campaign. In his first year in office, the Justice Department told prosecutors not to focus on “individuals whose actions are in clear and unambiguous compliance with existing state laws providing for the medical use of marijuana.” Medical marijuana patients and the growing industry that supported them thought they were in the clear.

But they weren’t. Two years later, the Obama Administration is cracking down on medical marijuana dispensaries and growers just as harshly as the Administration of George W. Bush did. In 2011, the Department of Justice revised its guidance to U.S. Attorneys, allowing them to target any medical marijuana activity except for ill patients and their immediate caregivers. The Drug Enforcement Administration has made it clear that “medical marijuana is not medicine,” and even called it a “mortal danger.” The Bureau of Alcohol Tobacco and Firearms has banned the sale of guns to medical marijuana patients. The Department of Housing and Urban Development has told public housing authorities that they can’t rent to medical marijuana patients. And the Internal Revenue Service has reiterated its position that medical pot businesses cannot deduct expenses related to an illegal drug. Fearing federal intervention, many banks are now dropping medical marijuana dispensaries as customers.

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In many states, U.S. Attorneys have advised state and local officials to back away from plans to create rules and regulations that would codify the medical pot industry, in some cases raising the possibility that lawmakers could be prosecuted for promoting drug use that is legal under state law. As a result, dispensary openings in states like Delaware, Arizona and Washington have been delayed. Colorado has abandoned a plan to provide legal financing for medical marijuana operations, and a northern California sheriff has been ordered to stop tagging plants as legitimately grown for medical use. In Oakland, the city council was forced to abandon a plan for creating warehouse-sized medical marijuana growing facilities. At the same time, U.S. Attorneys have been seeking the closure of dispensaries in California and Colorado without any demonstration that there are violations of state law. There are no public government statistics about the scale of these efforts, bu medical marijuana advocates say Obama Administration raids on medical pot are happening at a greater clip than in the second term of George W. Bush.

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This has created a clear disconnect between the policy on the ground, and the public statements of officials in Washington. Back in December, Attorney General Eric Holder reiterated his claim that only medical marijuana operators that are behaving outside state law would be targeted by federal officials. (His statement was brilliantly hard to parse: “If in fact people are not using the policy decision that we have made to use marijuana in a way that’s not consistent with the state statute, we will not use our limited resources in that way,” he testified before Congress.) More recently, Obama told Rolling Stone, “The only tension that’s come up—and this gets hyped up a lot—is a murky area where you have large-scale, commercial operations that may also be supplying medical marijuana users.”

This isn’t the whole story. Over the last few weeks, I have talked with nearly a dozen people in the medical marijuana business, three U.S. Attorneys, White House officials and local officials who oppose the federal crackdown for a story that will appear in this week’s newsstand issue of TIME. The answer on the ground is, predictably, far more complicated than either medical marijuana advocates or the Obama Administration is willing to describe. And it all comes down to this: Despite Obama’s promises during the 2008 campaign, federal prosecutors have lost faith in the ability of state and local officials to control a booming commercial industry for a drug that is still illegal to grow, possess or sell under federal law. As a result, a once broad exemption from prosecution for medical marijuana providers in state where it’s legal has been narrowed to a tiny one.

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Furthermore, the fact that state laws clash with federal law in 16 states and the District of Columbia makes it all but impossible for state and federal law enforcement to work together cooperatively to develop a functional system for what Obama still claims to support: access to medicinal marijuana for the legitimately ill in states that approve of the practice. So the nation is left with an uneasy status quo: The federal government is not trying to eliminate medical marijuana altogether, but it has decided that it cannot stand for the commercialization or large scale production of marijuana for the stated purpose of helping the sick, even when that production is technically within the bounds of state law.

This has resulted in cases like the IRS action against Harborside Health Center, an enormous dispensary in the San Francisco Bay Area, which has more than 100,000 patients and annual sales of $20 million. There is no evidence that any of its activities have violated state or local law, but the IRS has filed a civil suit that could shutter the dispensary within months, claiming that it cannot deduct any expenses related to an illegal operation. The Obama Administration’s stance has also led to the closure of Divinity Tree, a much smaller dispensary in San Francisco, with about 7,000 patients, which received a letter the local U.S. Attorney last year asking its landlord to evict its tenant for operating within 1,000 feet of a playground, even though it was permitted to operate at the location by the city Department of Health. (The playground was also directly across the street from an all-nude dance club with pictures of “Naughty Hotties” on its facade.)

Both Divinity Tree and Harborside are technically non-profit, and their managers have protested that they have done everything they can to stay within the letter of the law. But Justice Department officials speak of such operations with disdain, given their scale, the sheer volume of sales and production they facilitate, and the largely unmonitored local regulations to prevent the resale of their product to recreational users. In San Francisco, for instance, patients with a legitimate doctors note are allowed to purchase up to 1 ounce of marijuana a day, far more than any individual can consume, from any single dispensary. There is no limit on the number of dispensaries they can patronize at any one time. The dispensaries say they are very strict about self-policing, and train their staff to identify patients who may be abusing the system.

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In a different world, prosecutors might try to work with local and state officials to improve the regulation and oversight of such operations, but that does not seem possible at the moment. The U.S. government lacks the resources to investigate such dispensaries or screen its customers, and it is on shaky legal footing if it tries to negotiate circumstances for the permitted use of a substance that is illegal under federal law. So prosecutors are making the de facto assumption that large operations are inherently bad operations. They are also choosing to use other measures—like proximity to schools or playgrounds—to guide their enforcement actions, even in the absence of evidence that the dispensaries are contributing to the delinquency of children.

At the same time, there is broad agreement in the federal law enforcement community that self-described medical marijuana operations have been feeding the illegal recreational marijuana market, which President Obama has always opposed, despite his own admission of having used the drug in his youth. In Colorado, for instance, public school suspensions for drug use, mostly for pot, have been rising since the expansion of dispensaries, and there are some studies that show relatively high percentages of recreational users are getting their product from medical pot patients. At the same time, the Justice Department has seen evidence of a growing interstate trade of recreational marijuana, from Colorado and California in particular, which clearly raises a federal issue, and there is an ongoing problem of violent crime that tends to follow the pot business, given the amount of cash at play and the ease of reselling the product on the black market.

Again, in a different world, the federal government might work with state and local officials to more tightly regulate the growing of marijuana for medical purposes. But since pot is illegal under all circumstances under federal law, the opposite has been happening. Attempts, particularly in California, to more tightly regulate and thereby provide greater legal protection for the drug, have been shut down by the federal government.

The result is the opposite of what Obama promised during his 2008 election. Rather than reduced tensions between federal officials and their state and local counterparts, the tensions have been increasing. This has been complicated further by decisions in states like California, and communities like San Francisco and Denver, to officially reduce law enforcement focus on recreational marijuana use, a position that Barack Obama never claimed to share. In California, for instance, possession of a small amount of pot is no longer a misdemeanor, but an infraction, the legal equivalent of a parking ticket.

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And so, medical marijuana is left in a no man’s land. Individual sick users are safe from prosecution, but they are likely to find it harder in the coming months to get the drug. Growers and dispensers are not protected by state law from federal prosecution, especially if they become large enough to get noticed by federal investigators. And the likely result is that more of the medical marijuana industry will be pushed underground in the coming years, making it more difficult for local officials to track the business. This arguably will only increase some criminal activity, as large amounts of money and a very profitable commodity move through the system by way of small-time dealers working without sophisticated security systems.

“The problem is that we have a drug policy that is broken,” San Francisco’s District Attorney George Garcón told me. “As a country we are being almost bipolar when it comes to drug policy.” A former San Francisco Chief of Police, Garcón is critical of the recent crackdown by the Department of Justice, which he says will make it harder for local officials to do their job. But he also sees no real hope for resolving the conflict until state and federal politicians come together to deal with the conflicting laws. “You can’t resolve this under the current legislative scheme,” he told me. “What this really screams for a cohesive national policy.”

But there is no such policy on the horizon. Obama has shown little interest in elevating the issue. Some in federal law enforcement–and at the Office of National Drug Control Policy–hope that the advent of new pharmaceutical replacements for grown medical marijuana, like the Canadian drug Sativex, will make the entire issue moot in the coming decade. But that looks unlikely in the short term, given the lack of concern among the general public with medical marijuana. A 2010 poll by the Pew Center for the People and the Press found that 73% say they favor “their state allowing the sale and use of marijuana for medical purposes if it is prescribed by a doctor.”

In other words, don’t hold your breath for clarity anytime soon. The haze is here to stay.

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