The list of shops that owe money includes several pioneers of the medical marijuana movement, who opened dispensaries not long after California became the first state to legalize weed as medicine in 1996. Pictured: A file photo of a transaction for legal marijuana in Colorado. (Denver Post file)

13 California marijuana dispensaries owe $12 million in taxes, says report

"One of the big problems with this industry is that they don't keep books and records and they only use cash, so no bank accounts," said Diane Harkey, Board of Equalization member representing Southern California

Thirteen medical marijuana dispensaries owe more than $12 million in unpaid state taxes, according to a report recently published by the Board of Equalization.

The list includes several pioneers of the medical marijuana movement, who opened dispensaries not long after California became the first state to legalize weed as medicine in 1996.

Many of the businesses on the list have long been shut down, though a few continue to sell marijuana in some fashion.

The list comes from the Board of Equalization, which is required by law to publish details every quarter on the state’s 500 largest delinquent taxpayers. The idea is to encourage Californians to settle up, since their names are removed from the public list as soon as they make arrangements to start paying their debt.

Among the many tax-dodging car dealers, fast food franchisees, contractors and gas station owners on the list are a baker’s dozen of pot shops.

Together, these canna-businesses owe nearly $12.2 million, with the first three dispensaries alone racking up nearly $5 million in debt.

That’s hardly an exhaustive number, though. Some debts on the top 500 list are tracked only by the individual business owner’s name, or by business names that are meant to be tough to pinpoint. And the state only lists debtors who owe at least $100,000.

“Let’s face it: It’s been an underground industry,” said Diane Harkey, Board of Equalization member representing Southern California.

“One of the big problems with this industry is that they don’t keep books and records and they only use cash, so no bank accounts,” she said, with marijuana’s federally illegal status blocking bank access. “That makes it very difficult to assess what they really owe.”

Many marijuana businesses do pay state (and often local) taxes, Harkey pointed out – though their payments are often based largely on self reporting.

California collected $58 million in sales tax revenue in 2015 from nearly 1,000 registered medical marijuana dispensaries, and it was predicted to nearly double that figure when fourth-quarter figures from 2016 are totaled.

But the Board of Equalization has estimated that only around 40 percent of pot shops have historically complied with state tax laws. And Harkey said she believes it might be closer to 25 percent, with the agency forced to rely on citizen complaints and information posted to sites like the online dispensary guide Weedmaps.com to track down businesses.

With California’s cannabis industry expected to start raking in $7 billion in profits and paying $1 billion in state taxes each year after recreational pot shops open Jan. 1 under Proposition 64, the compliance issue is at the forefront of many legislators’ minds.

There are at least three bills now pending in the California Senate and Assembly that aim to address tax issues in the industry. That includes one that would make it easier for marijuana business owners to pay their bills and another – backed by Board of Equalization member Jerome Horton – that creates stiff penalties and an enforcement team to go after those who don’t.

Once new legislation and comprehensive regulations for the state’s marijuana industry kick in for the first time Jan. 1, Harkey said she’s optimistic that compliance will go up. And that will mean fewer canna-businesses will be listed among these debtors, who are all included on the Board of Equalization’s most recent delinquent taxpayer list.

1. Compassion Center of Santa Barbara owes $2.3 million, earning it the No. 19 spot on the state’s list of 500 worst offenders. Patrick Fourmy – who played a marijuana distributor and served as a consultant for Oliver Stone’s film “Savages” – ran the dispensary and Hydro Wizard grow store for many years, triggering few issues with neighbors or law enforcement. But the city refused to issue him a license and eventually shut the shop down. He couldn’t be reached for comment.

2. The Hemp Center in San Francisco owes $1.2 million. The dispensary shut down a couple years ago, with Yelp reports at the time that there was a sheriff’s notice of eviction on the door. Yelpers later reported that the shop had moved to a new location in the city, but with no physical store. The shop’s website is still active, advertising free delivery of marijuana products and boasting it’s been in operation since 1999. Owner Kathleen Cappetti didn’t respond to voicemail and email messages for comment.

3. Compassionate Patients Coop of California, or CPCC, in the Bay Area city of Hayward owes $1.1 million. The shop was raided by federal agents in 2007, triggering protests by medical marijuana advocates. Owners Winslow and Abraham Norton were indicted for trafficking and money laundering, local media reports, and they pleaded guilty after a five-year legal battle.

4. Platinum Collective in Riverside owes more than $1 million. No owner is listed for the Magnolia Avenue shop, and the phone number has been disconnected.

5. Northbay Wellness Group in Santa Rosa owes $1 million. Court records show the shop claims its attorney told them not to pay taxes. When that caught up to them, they tried to sue their attorney, only for the courts to turn down the case.

6. Hortipharm Caregivers & Consultants in Goleta, near Santa Barbara, owes $920,052. The owners are husband and wife Joshua and Dayli Braun, who local media reported were at the center of the highest profile marijuana case in Santa Barbara history after they faced 43 felony indictments for cultivation, money laundering and more.

7. City of Angels Wellness Center in Los Angeles owes $833,717. The Sunset Boulevard shop – which is a Partnership between Francesco Conte and Shane Digman – is still listed on some pot shop directories. But Yelpers say it closed and the phone number is disconnected.

8. NatureCann in Long Beach owes $782,179. The shop is still listed and has good reviews on dispensary directory site Leafly.com. But its phone number is disconnected and no one responded to an emailed request for comment.

9. Capitol Wellness Collective in Sacramento owes $717,586. The longtime shop’s phone number now belongs to a nightclub. And its address was taken over by another dispensary, which was owned in part by Montel Williams.

10. Oak Tree Alternative Care, or Oak Tree A.C., in Palm Desert owes $675,129. Online reviewers report the shop was shut down as of 2012. A store with the same name in nearby Beaumont has had lengthy battles with the city following a 2011 raid.

11. Creating a Safe Alternative, or CASA, in Riverside owes $600,956. The phone number for this Iowa Avenue shop, which billed itself as a nonprofit, has been disconnected.

12. Granny Purps in Soquel owes $464,432. This shop appears to still be regularly operating. A worker who answered the phone asked that requests for comment be made via email, which no one responded to.

13. Kinder Meds Patient Collective Group in Encino owes $411,938. This shop, also known as the Eagle Rock Patient Collective, was ordered by the city of Los Angeles to shut down in 2011.

This story was first published on TheCannifornian.com