Oakland Approves Four Marijuana Factories City gives preliminary approval to license four large marijuana operations.

July 21, 2010 -- Oakland, California, gave preliminary approval Tuesday night to a plan to license four large-scale marijuana factories in a move intended to take its largely underground pot counterculture to new corporate levels.

The controversial plan makes Oakland the first city in the nation to license wholesale pot cultivation, or what one proponent called the "Silicon Valley of Canabis." The 5-2 vote came after two hours of heated debate.

"This is a monumental step forward," Dale Gieringer, an Oakland resident and marijuana activist.

The measure, which pitted small and midsized "gardeners" against larger producers, initially allows the large farms to sell only to medical marijuana dispensaries. The ordinance must still be approved on a second, final vote.

The cash-strapped city stands to benefit later if voters pass a November initiative to legalize recreational use of marijuana. In addition, Oakland's four marijuana factories would pay an annual fee of $211,000, which would support a city staff to ensure they are operated safely and securely.

The ordinance has provoked a backlash from small-time growers who fear exclusion from the booming pot trade.

"This is about big money," Gieringer told ABCNews.com. "These are, by far, the largest facilities ever proposed in the United States. With only four competitors, it's going to be an oligopoly."

Sponsors of the ordinance have vowed to pass regulations to qualify small and midsized growers for city permits.

Oakland would still allow small unregulated cultivation in homes but replaces hundreds of larger operations with the four industrial operations "as the only legal model."

The midsized operations are often set up in gutted homes and warehouses, posing fire hazards because of electrical fires and spawning violent crime.

DEA Remains Thorn on Side of Pot Trade

To proponents, the future of legal cannabis means larger farms and lower prices. The criminal activity, they say, keeps prices artificially inflated.

One firm, AgraMed, hopes to convert empty industrial buildings into pot factories the size of two football fields that will produce about 58 pounds of marijuana per day. And it expects to hire 371 workers and pay at least $1.5 million a year in taxes. Faced with severe budget deficits, Oakland has already eliminated 80 police officer positions.

Another contender is a firm called iGrow, which has a 15,000-foot hydroponics superstore that is billed as the first to cater openly to medical marijuana growers.

The firm also founded the University of Cannabis to teach cultivation classes. They await the reaction of the federal Drug Enforcement Administration.

"We want to see what the federal reception is," said Derek Peterson, a cofounder of iGrow. "Wholesale cultivation has been a don't-ask-don't-tell business."

The federal government remains a thorn in the side of the pot trade. DEA agents continue to crack down on major growers. This month, agents raided a collective in Mendocino, California, that complied with the county's new cultivation ordinance, ripping out all 99 of its plants.

Still, the Obama administration's policy has been to leave medical marijuana operations alone if they comply with state law.

"The DEA came in and said, 'We don't care what the sheriff said,'" said Gieringer, the state director for the National Organization for the Reform of Marijuana Laws. "We have no assurance of good DEA behavior. There a lot of uncertainties and questions and risks."

The Oakland ordinance's loudest opponents have been the medical marijuana activists, dispensary operators and midsized growers in the city. After risking federal prosecution for years to supply the city's dispensaries, they say, they now face extinction.

"I can see a place for large farmers but I also see a place for small gardeners," said Robert Raich, a California attorney in the cannabis industry. "I see a place for Anheuser-Busch, Miller and Coors, but there's also a place for brewpubs. What the city council members want to do is eliminate the brewpubs."

Oakland has long been a pioneer in the marijuana trade: It become the first American city to license medical marijuana dispensaries and to make pot-related crimes the lowest police priority.

Cannabis cultivation is widespread in the city and wholesale marijuana sales totaled an estimated $28 million last year, according to a city staff report.