ARCATA, California (Reuters) – Below the perpetual fog that shrouds the redwood groves, green hills and rocky coastline of remote Humboldt County thrives a lucrative but hush-hush industry — marijuana.

Pot pays the bills in this Northern California enclave, home to hippies and good old boys alike who espouse the weed’s curative and economic benefits. The expensive trucks, bustling restaurants, escalating rents and plentiful wads of cash all point to profitable pot cultivation in Humboldt.

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Now, a state voter initiative on the November ballot that would make California the first U.S. state to legalize and tax this cash crop has locals jittery about losing their dominant market position.

“We’ve always had a cannabis tinge to our culture,” said Kevin Hoover, editor of weekly newspaper The Arcata Eye. “What we have now is a very entrenched industry that’s making a lot of money off the fact that it’s illegal.”

Starting in the 1960’s, free-thinkers wanting to get away from it all moved to the area long dominated by the lumber and fishing industries. Marijuana cultivation supported these new residents and newly unemployed blue-collar workers who watched the demise of Humboldt’s traditional manufacturing base.

Although the underground pot economy makes for poor statistics, Beth Wilson, an associate professor of economics at Humboldt State University, estimates the area’s annual income from marijuana at about $500 million.

The “multiplier effect” of that money circulated to support local businesses — garden centers do a brisk business and the town of Arcata’s sushi restaurant is always packed — could push that figure to $1 billion annually, she said.

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“It’s not negligible,” said Wilson.

PURPLE KUSH PLEASE

Everyone knows someone who grows pot. In the north county, indoor growing that fetches prices of over $3,000 per pound is popular, while in the south, marijuana is planted outdoors.

The industry has also fueled an itinerant labor force of “trimmers” who make $20 per hour or more snipping the leaves from the more potent dried buds of the plant.

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“This vote has become a conflict of interest,” said Deniz Farnell, 31, an Arcata hotel worker, who, like the vast majority of locals, supports decriminalizing pot smoking.

“Do you vote for the good of the state or for the next-door neighbor who’s a mom who’s supplementing her income through trimming? When that law passes, she’ll be on food stamps.”

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That is because legalizing marijuana could turn a cottage industry into Pot Inc. Locals fear big tobacco will swoop in and drive down prices, supplying millions of new, legal pot smokers with “Marlboro Green.”

Rumors abound in Arcata that the tobacco giants have already snatched up land and copyrights to the most popular names of weed strains, whether Purple Kush, Big Bud, Headband, Trainwreck or L.A. Confidential.

But at least one big tobacco company, Reynolds American, says it has no plans to move in. “Everything else would be purely rumors and speculation,” said spokesman David Howard.

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“We better hope it doesn’t become legal because this area is going to become a ghost town,” one reader wrote to the North Coast Journal in a response to a recent article on how to stay afloat in the post-illegal pot era.

The Tax Cannabis campaign has gained traction in the cash-strapped state of California, historically at the forefront of contentious social issues. It led the nation in 1996 by approving the use of cannabis for medical purposes.

An April 2009 Field Poll showed 56 percent of state voters supported legalizing pot for social use and taxing the sales.

On a statewide level, that could bring in $1.4 billion per year, according to the office that regulates sales tax.

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“Think of all the pot smokers out there,” said a mid-30s mom who has grown for six years, plans to enter law school, and favors legalization. “They can bail California out of its deficit. Smoke more pot!”

Under the initiative, possession and cultivation of small amounts of pot for personal use would be legal for those 21 and over. The measure allows municipalities to determine how to tax and regulate the drug — with monies going to local governments — and does not affect medical marijuana laws.

Pot is illegal under U.S. law but the Obama administration halted raids on medical marijuana clinics last year. It is unclear how state legalization would be affected by federal law, and whether the U.S. government would interfere.

APPELLATION FOR HUMBOLDT BUD?

Those who favor legalization predict it could curtail the seamier side of the industry. The profusion of “grow houses,” gutted to accommodate indoor greenhouses, have pushed up rental prices, while robberies of cash and plants are on the rise.

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With no real organized opposition to the measure, local leaders in Humboldt say it’s time to face up to the future and brainstorm creative ideas to offset any impending slump.

“Here we have an industry with whom our county’s name has, quite frankly, become synonymous,” said County Supervisor Mark Lovelace. “We’ve lived with the downside of that name association for the past thirty years. Maybe it’s time to capture some of the upside.”

Ideas include taking a tip from French champagne, branding the Humboldt name as an appellation and focusing on terroir and tasting rooms. Others say that’s a pipe dream.

“We don’t need to panic and create weed Disneyland,” said one grower, who believes the risk to growers has been overblown and foresees a continuing black market even if the law passes.

The 32-year-old illegal grower, who declined to be identified, predicts connoisseurs will eschew the cheaper varieties in a legal market and pay a premium for Humboldt’s best strains.

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Pot growers could also harness their know-how for other horticultural pursuits, he said.

“It’s easy money right now,” said the self-described “average indoor grower” with $40,000 in income every two and a half months. “But these might be the future organic farmers of the area. That skill can be applied to more things than just marijuana.”

(Editing by Mary Milliken and Doina Chiacu)

Mochila insert follows…