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LOS ANGELES — Daniel Halbert moved here from Phoenix this year toinvest his life savings in what he hoped was a golden opportunity: themedical-marijuana business.But on Tuesday, the Los Angeles City Council told him to shut downhis dispensary, part of a broad crackdown against a growing andunregulated marijuana industry.  More than 600 dispensaries have takenadvantage of a loophole in city regulations to open shop here in thepast two years.

The unchecked growth has alarmed some city leaders.

“They were like a rash,” said City Councilman Ed Reyes, who isleading the effort to shut down many of the dispensaries.  He

said acolleague told him that at one dispensary near a high school, thestudent crowds outside made the pot store look “like an ice cream shopfrom the 1950s.”

The planning committee has begun hearings to close the loophole usedby dispensaries to set up shop with scarcely any paperwork or permits.

At the committee’s first hearings last week, it told 28 dispensariesto close or face a fine.  This week, it was Mr.  Halbert’s turn.

California legalized marijuana consumption for medicinal use in 1996.

In 2003, the state established legal protections formedical-marijuana users who were issued a doctor’s prescription.  Thelaw also created more solid legal footing for the cooperatives thatdistribute marijuana for medical purposes.

Dispensaries, which had numbered just a handful until 2003, began togrow statewide.  By 2007, Los Angeles had 183 dispensaries.

That same year, the city attorney’s office issued a moratoriumintended to block new establishments until the City Council createdregulations, such as a ban on operating near schools.

But the City Council never got around to setting any rules on thedispensaries.  Meantime, word begin to spread that dispensary ownerscould open new outlets, despite the moratorium, by filing paperworkclaiming a so-called hardship exemption.

Some applications cited the raids by federal authorities targetingmarijuana dispensaries as hardships.  In other hardship applications,owners simply claimed they weren’t aware they needed permits.

The hardship applications went unchallenged by the City Council, andthe number of dispensaries soared to its current level of about 800. San Francisco, by comparison, has about 30 dispensaries.

Mr.  Halbert joined the rush in March.  He was running a datingservice in Phoenix when a friend pointed out an ad on Craigslist fromMarc Kent, a former attorney, offering to help people apply for thehardship exemption for a $3,500 fee.  He said he has helped people openup more than 100 dispensaries.

“It was pretty much a turn-key operation,” said Mr.  Kent.

Mr.  Halbert made three trips to Los Angeles and toured severalfacilities that had opened under the hardship clause.  “I did my duediligence,” he said.

He settled on a storefront on Venice Boulevard in West Los Angeles.

He registered the business as Best Buds, but later changed theoutlet’s name to Rainforest Collective.  He placed a clapboard sign outfront and advertised his services with a flashing neon sign in thewindow.

He decorated his shop with rainforest-themed murals.  Clients couldselect from an assortment of marijuana strains for smoking, as well as“edibles” — pretzels and cookies with the marijuana baked inside. Total investment: close to $100,000, he said.

Mr.  Halbert encourages customers to consume their marijuana on thepremises and lures them with such offers as movie nights.  “We don’twant them to just come here and get their medicine,” he said.  “We wantthem to come here and maybe make some friends, have some fellowship.”

He said he now has about 1,000 customers, but declined to discusshow much the shop makes.  Mr.  Halbert said he might try to fight thecity order to close and planned to stay open as long as possible.  Inhis hearing before the planning committee Tuesday, Mr.  Halbertproduced letters of support from residents and local businesses.

Other neighborhood activists, however, have campaigned to shut down the dispensaries.

Cindy Cleghorn, a member of a neighborhood council in a another part of the city, complained her area is overrun.

“It’s out of control,” she said.  Ms.  Cleghorn said the newdispensaries violate neighborhood-improvement guidelines and operate instorefronts that are zoned for other uses.  “It’s not about themarijuana, it’s about the land-use issues,” says Ms.  Cleghorn, whobrought her complaints to the City Council.

But because so many dispensaries had opened up without resistancefrom the city, Mr.  Halbert said, “Any business person would assumethat the city’s fine” with them.

Source: Wall Street Journal (US)

Copyright: 2009 Dow Jones & Company, Inc.

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Author: Sabrina Shankman