Feds drop bid to shut down Harborside in big win for pot industry

Marijuana buds display case at Harborside in Oakland, Calif., on monday, May 2, 2016. Marijuana buds display case at Harborside in Oakland, Calif., on monday, May 2, 2016. Photo: Scott Strazzante, The Chronicle Buy photo Photo: Scott Strazzante, The Chronicle Image 1 of / 60 Caption Close Feds drop bid to shut down Harborside in big win for pot industry 1 / 60 Back to Gallery

In a milestone victory for the cannabis industry, the federal government agreed to drop its four-year bid to shut down Oakland’s Harborside Health Center, the biggest medical marijuana dispensary in the country with more than 100,000 patients, city leaders said Tuesday.

The Department of Justice did not immediately comment on the deal, which Harborside said still needed to be finalized, with all of the parties in the legal fight signing off.

But Oakland officials joined the pot dispensary in an exultant news conference at City Hall, heralding a move they saw as symbolic of a federal withdrawal in the battle against an industry that is steadily marching toward acceptance — and is viewed in Oakland not as a scourge but an economic engine.

“We celebrate the release from federal prosecution,” said Mayor Libby Schaaf. “We believe in compassion, we believe in health.”

Legal experts said the reported deal was momentous. It underscores the country’s shift to a “new model” for dealing with marijuana, whether medicinal or recreational, said Robert MacCoun, a law professor and drug policy expert at Stanford University.

“The framework is moving from the war on drugs to tricky issues of regulation, taxation and who is going to be in control of this major new industry,” he said.

New city laws in works

The Harborside announcement came just hours before the Oakland City Council voted unanimously early Wednesday morning to implement broad laws regulating and taxing its multimillion-dollar medical marijuana industry. Debate over the permit application process, potential odor complaints, and other concerns started late Tuesday night and spilled into Wednesday morning, ending shortly before 1 a.m. Council members approved the laws with added clarification on expanding permit access to marginalized groups, including those with past marijuana convictions.

Harborside, on the Oakland Estuary, has faced potential closure since 2012, when the U.S. attorney’s office cracked down on the industry across California and attempted to seize the buildings that housed the businesses. Federal officials called centers like Harborside “marijuana superstores.”

While Harborside, which also operates in San Jose, stood its ground against the federal civil case, hundreds of other dispensaries across California, facing similar federal threats, shut down operations.

In Marin County, former U.S. Attorney Melinda Haag threatened to seize the property of the Marin Alliance dispensary in 2011 and prosecute the landlord for drug dealing and providing medical marijuana within 1,000 feet of a Little League field, a crime punishable by up to 40 years in prison. The dispensary closed.

“As of today, Harborside Health Center is in the clear and will no longer have to worry about a looming raid,” said Oakland Councilwoman Rebecca Kaplan. “Supporters are pleased to hear that the case has been dropped so that patients suffering from chronic pain can have peace of mind that they will be able to get their medicine through safe dispensaries.

“By taking this stance in Oakland,” Kaplan said, “we have shown the rest of the country what’s possible.”

Change of direction

Steve DeAngelo, Harborside’s executive director, said the resolution of the lawsuit “signals the beginning of the end of federal prohibition.”

Marijuana remains a controlled substance, but federal policy now prevents action that interferes with state laws regarding marijuana. California is among two dozen states where voters have authorized medical marijuana use, while four states and the District of Columbia have authorized recreational use as well.

A coalition pushing an initiative to legalize recreational use in California, known as the Adult Use of Marijuana Act, said it will gather Wednesday in San Francisco to celebrate getting enough signatures to qualify the measure for the November ballot. Lt. Gov. Gavin Newsom was expected to join in the kickoff of a campaign that could dramatically reshape the state’s cannabis industry, again.

“In the nearly four years since the federal government filed its forfeiture action, there has been a major evolution in public opinion and a shift in the landscape of national politics on this issue,” said Oakland City Attorney Barbara Parker. “The American people are recognizing that cannabis is not only a legitimate medicine, but that federal laws outlawing marijuana have been wasteful and harmful, especially to communities of color, where people are more likely to be incarcerated for possession of cannabis.”

‘Pretty significant shift’

MacCoun said there were two possible interpretations of the government’s decision to back off Harborside. Either prosecutors can’t make the case or they no longer want to make the case.

“In either interpretation, it’s a pretty significant shift,” MacCoun said. But he cautioned that the move does not mean the weed wars are won, explaining that it reflects the thinking of only President Obama’s administration.

“There is some uncertainty about what the new administration is going to do,” he said.

Oakland backed Harborside during the legal battle, suing the federal government to stop the property seizure. The city argued it would lose millions of dollars in taxes, and that the close of Harborside would increase crime by forcing many of the dispensary’s patients to turn to street dealers.

While the U.S. Supreme Court ruled in March that the city could not intervene, Harborside has been able to remain open during appeals.

Oakland leaders said Tuesday there was still work to do to ensure medical cannabis businesses can thrive. Most banks and credit card companies, citing federal law, refuse to do business with marijuana enterprises, leaving those businesses with mounds of cash and nowhere to deposit the money.

“I am pleased by today’s victory,” said Rep. Barbara Lee, D-Oakland. “But we must keep fighting until the federal government stops erecting barriers between patients and their medicine.”

The Oakland City Council knocked down some barriers with its medical marijuana ordinance.

While Oakland was the first city in California to regulate a handful of dispensaries, just eight now operate as sanctioned businesses, subject to sales tax, public health and safety regulations, environmental and employment rules, and other city laws. Gov. Jerry Brown, though, signed a set of bills in October creating a regulatory structure for medical pot, one that allows cities to set policies related to all aspects of the industry.

The ordinance in Oakland will increase the number of cannabis-related businesses permitted in the city from it’s current eight, possibly growing to about 100. The city has plans to implement a program that assures a portion of permits are issued to Oakland residents, including those with past marijuana convictions.

Councilwoman Desley Brooks spearheaded the debate, arguing those most affected by the war on drugs deserved a fair cut in the town’s emerging cannabis industry.

“There has to be real equity, not just words, and that's what I seek to do doing this,” Brooks said.

Millions in revenue

David McPherson of HdL Companies, which offers guidance on handling the explosion of medical marijuana to cities and counties, said permitting 30 growers in Oakland could bring in about $9 million in annual revenue, while doubling the number of dispensaries could mean $3 million more or so in sales and business taxes.

Oakland’s proposed ordinance would also limit the industry in some ways — with a 600-foot buffer required between dispensaries and schools or youth centers. In addition, the proposed regulations would ensure many of the jobs within the industry go to Oakland residents, including those with a criminal past.

Jill Tucker and Peter Fimrite are San Francisco Chronicle staff writers. Email: jtucker@sfchronicle.com, pfimrite@sfchronicle.com Twitter: @jilltucker @pfimrite