Are Oregon towns and cities allowed to tax medical dispensaries?

Not according to state law. One intrigue of note is a showdown in La Pine, a small town near Bend with 1,700 people and two medical marijuana dispensaries. La Pine is playing fast and loose right now with its pot ordinances, and could get pummeled.

Earlier this year, La Pine began to tax its medical pot dispensaries, Green Knottz and High Desert Botanicals, at a rate of five percent. That tax is almost certainly illegitimate. State law limits cities and counties from enacting any tax on marijuana or related products, other than a three percent impost on OLCC-licensed recreational marijuana shops, which do not yet exist. Nevertheless, La Pine persists.

The Green Knottz dispensary is unhappy about being taxed, and its owner, Randy Huff, is threatening to sue. Huff holds some pretty nice cards, including an opinion from the Office of State Legislative Counsel, declaring that any tax on a medical marijuana dispensary is illegal. In a local TV interview with KTVZ last week, La Pine City Manager Rick Allen lamented, "It's frustrating for the cities when legislation passes and these things are kind of left to interpret." The problem with that, however, is that the law is pretty clear.

In considering La Pine's action, it should be noted that medical marijuana dispensaries don't actually sell marijuana. Instead, they facilitate the transfer of weed between and among cardholders and caregivers. The transferred weed belongs to whichever individual is registered with the Oregon Health Authority to grow it, and the dispensary receives reimbursement from registered cardholders for its "normal and customary costs of doing business." Thus, La Pine is essentially taxing marijuana patients for the transfer of their medicine.

You don't need to be a pot lawyer to discern that the current medical marijuana rules make very little sense from a business perspective. This is probably because the original program architecture was drafted in 1998, and was primarily designed to protect medical program pioneers from criminal liability. In that regard, the rules have mostly succeeded, although Oregon has seen its share of dispensaries and growers raided over the years.

Many of us expect that the medical marijuana program will be rolled into Oregon's new recreational program at some point in the next couple of years, and for that reason, the precedential value of a Green Knottz victory in La Pine would be low. Still, the showdown makes for good theater and represents a proposition that I often relay to clients, especially in rural locations: that part of running a pot business remains advocating for your right to do so.

The next development in La Pine will either be the filing of a lawsuit, or Green Knottz will show up at La Pine's December 9 city council hearing and threaten the town with its lawsuit. Either way, La Pine will probably have to give the money back. Stay tuned.

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