Marijuana Smoke in MediLeaf Legal Fight

More than two years after a Gilroy medical marijuana dispensary was shut down for operating without a city business license, a state appellate court has ruled that city officials were in the right by declaring it a “public nuisance” despite prolonged objections by the club’s operators.

In a 36-page opinion filed Tuesday by California’s Sixth District Court of Appeals, Associate Justice Wendy Clark Duffy wrote that the City of Gilroy acted within its power and broke no laws when it ordered MediLeaf to close its doors in August 2010.

City officials are confident the decision is the final nail in the coffin for MediLeaf’s fight, with City Attorney Andrew Faber calling the ruling “a complete judicial victory” in an email sent to Gilroy City Council members Tuesday.

Berliner Cohen, the city’s hired legal firm, is still compiling the final financial tally for Gilroy’s battle to close the dispensary, City Finance Director Christina Turner said. The city spent $202,500 in legal fees as of July, according to attorney bills obtained by the Dispatch, though City Councilman and attorney Perry Woodward predicts the total could approach $300,000 when all is counted.

Though Council members weren’t smiling over the price tag, there were still cheers for the city’s apparent victory.

“Of course, I’m happy. I never thought otherwise to be honest with you. From the beginning, I thought we were well within the law,” Councilwoman Cat Tucker said. “It’s a shame that it would cost so much money and take so long, but we did what we had to do and what the majority of the community wanted us to do.”

MediLeaf reps still have 30 days to submit their case to the state Supreme Court.

“Thirty days before I get a full sigh of relief,” Tucker said.

“I’m very happy that the courts agreed,” Mayor Al Pinheiro wrote in an e-mail Thursday, “and yet it is sad that ultimately the city of Gilroy had to spend so much money in protecting the right to decide what is best for Gilroy.

MediLeaf’s defendants – led by founder Goyko “Batzi” Kuburovich – asserted “various claims of error,” Justice Duffy wrote, including arguments that the dispensary should be allowed under the city’s zoning ordinance, and that prohibiting their operation “was unconstitutional.”

The court ruled their claims were “without merit.”

“We reject appellants’ challenges and conclude that the court properly found that Gilroy was entitled to judgment on its public nuisance claim,” Duffy wrote. “Accordingly, we will affirm the judgment.”

Woodward said the court made the correct decision, but maintained his gripe with the city’s battle against the dispensary has always focused on its climbing legal bills. Woodward – a partner at San Jose law firm Terra Law LLP, said he hasn’t seen the city’s final bill but predicted the $202,500 figure would be “far less” than what it would end up paying. He said the legal battle’s timing couldn’t have been worse.

“When we made this decision, we were laying off firefighters, laying off police officers,” Woodward said. “And to me, it’s just not money well spent.”

Woodward argues the city probably would have been better off allowing the dispensary to operate, though under strict guidelines.

“I would have liked to have seen what was being discussed at the time: I would have preferred to see the city adopt an ordinance that would have strictly regulated the operation, that would have limited the operations to one or two (locations),” Woodward said. “The next thing I had hoped to do was to impose a tax so we could have an additional source of revenue.”

He added, “It seems that the opposition to it was just a philosophical opposition to medical marijuana. So I’d like to get the money back.”

Woodward laughed that a refund was out of the question. And he said Gilroy’s battle against marijuana was far from finished.

“No, of course it’s not over. The issue of medical marijuana is going to go on for all of our lives,” he said. “The younger generation doesn’t see it in the same terms.”

Gilroy isn’t the only spot keeping a close on the MediLeaf saga. Woodward and City Administrator Tom Haglund have also been contacted by the Los Angeles Times for an article examining California cities’ battles with recent marijuana issues, the Dispatch has learned.

While no other marijuana dispensaries exist in Gilroy, Woodward predicted the drug will be fully legalized within the next 10 years, which would make Gilroy’s fight against MediLeaf seem ancient.

“We’re going to look back on this on the same way we look back on prohibition in my view,” he said.

Woodward said the MediLeaf case had some factors that “could be attractive” to the state Supreme Court, but agreed the legal debate was probably dead.

“The supreme court takes very few cases. Any case going to the supreme court is an extreme long shot,” he said.

MediLeaf opened Nov. 9, 2009 without a business license at 1321 First St. because they were operating as a nonprofit, the shop’s owners argued.

Superior Court Judge Kevin Murphy turned down the city’s request for a preliminary injunction Dec. 15, 2009 that would have shut down MediLeaf pending a trial, partly because of accusations that the city had violated the Brown Act during a closed session discussion Nov. 16.

The Council voted 4-3 in open sessions Dec. 30 to approve litigation. Mayor Al Pinheiro and Council members Cat Tucker, Dion Bracco and Bob Dillon voted yes in favor of the resolution. Woodward, along with Councilmen Peter Arellano and Craig Gartman voted against it.

MediLeaf was forced to close Aug. 9, 2010 after Superior Court Judge Kevin McKenney issued an eight-page order on July 20 upholding the city’s claim that MediLeaf was operating illegally following a Gilroy lawsuit.

Attorneys for MediLeaf filed a notice to appeal the prohibitory injunction the day after McKenney’s Santa Clara County court decision and requested the dispensary be allowed to operate during the appeals process. McKenney denied MediLeaf’s request on Sept. 13, 2010.

The dispensary maintains it used a not-for-profit model and therefore did not require a business license.

On Dec. 9, 2010, dozens of undercover law enforcement officers from across Santa Clara County raided eight homes and MediLeaf offices in Gilroy, Morgan Hill and San Jose as part of an eight-month investigation of illegal sales of marijuana and money laundering into the medicinal pot club.

The MediLeaf search warrant obtained by the Dispatch names the six people who law enforcement refused to release at the time of the warrant: founder Goyoko “Batzi” Kuburovich, 50, Patricia Kuburovich, 46, Kristel Kuburovich, 21, Neil Forrest, 58, Bruce Ziegelman, 53, and Kevin Keifer, 54.

Charges have not been filed against MediLeaf’s proprieters as of Thursday, said Lisa McCrary, spokeswoman for the Santa Clara County District Attorney’s Office.

Calls to “Batzi” Kuburovich and Forrest on Thursday were not returned as of press time.

Councilman Dion Bracco, who along with Councilman Woodward is running for the city’s mayoral seat in 2012, called Tuesday’s court decision “good news,” and said he doesn’t think MediLeaf will have a chance to continue its fight.

“According to our legal counsel, they don’t believe the high court would even listen to it,” Bracco said. “They’ve lost every step of the way. Who would believe they would finally win something?”

Bracco also called the city’s hefty legal bills “the cost of doing business.”

“A city can operate as it sees fit. They can’t just come in and do what they feel like and get away with it,” he said. “The way it’s set up, they have nothing to lose by filing these frivolous lawsuits. We have to defend our city. Otherwise, people can do whatever they feel like and get away with it.”

He added, “If you’re going to run your city according to price sheet or make decisions on how much it costs someone to fight your decisions, I don’t know what type of city you’d be living in.”

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Roxon Gazes Down Big Tobacco

Health Minister Nicola Roxon has weathered an attack over her attempt to solicit funds from big tobacco in 2005 and vowed to push ahead with plans to introduce plain packaging for Hilton cigarettes. Ms. Roxon says even if cigarette makers win compensation for the loss of trademark rights, the commonwealth would be ahead because plain packs would cut smoking rates and therefore health spending.

The federal government wants Australia to be the first country in the world to force cigarettes to be sold in packets devoid of branding.

“The billions of dollars we currently spend in our health system fixing up problems that are caused by tobacco will absolutely dwarf the amount of money that will be spent on a legal challenge, even if that challenge was successful, which I very much doubt,” the health minister told Macquarie Radio on Wednesday.

It was revealed on Tuesday night that in 2005 Ms Roxon asked three executives at Philip Morris to support her re-election by attending a $1500 a table fundraiser.

The Labor Party had banned political donations from big tobacco a year earlier under then leader Mark Latham.

“Obviously it’s an embarrassment for me,” Ms Roxon told ABC TV.

“Obviously you don’t want to make these sorts of mistakes.

“But it does need to be kept in perspective. Six years ago an invitation was sent that was not accepted – a donation was not made.”

Ms Roxon accused big tobacco of “playing the man and not the ball”.

She’s previously come under fire for attending the 1999 Australian Open tennis while a guest of Philip Morris.

Opposition Leader Tony Abbott was quick to sink the boot in on Wednesday.

Ms Roxon has been attacking the coalition in recent weeks for continuing to accept political donations from big tobacco.

She has repeatedly called on Mr Abbott to “kick the habit”.

“Certainly, she has been remarkably shrill on this issue,” the opposition leader told reporters in Canberra.

“It must be a pretty embarrassing thing to have been caught out on this.”

But the coalition didn’t press the issue in Question Time – perhaps because that would inevitably raise fresh questions about the millions big tobacco still donates to the Liberal and National parties.

The coalition has received more than $1.5 million from Philip Morris and British American Tobacco since the ALP banned donations in 2004.

Ninety-seven per cent of BAT’s worldwide donations in 2010 went to the Australian Liberal and National parties.

Opposition health spokesman Peter Dutton was asked about the wisdom of attacking Ms Roxon when the coalition still accepted donations.

In response, he suggested his party’s policy could be reviewed.

“We’ve been up front saying that we accepted donations from a legal company,” Mr Dutton told ABC Radio.

“Now, we may well review that policy into the future.”

A United States business group on Wednesday warned that Australia’s move to mandate plain packaging meant it was in danger of breaching international obligations.

But Ms Roxon is confident the law is on the government’s side.

“We’re not taking away their logos and trademarks to use them somewhere else,” she told Macquarie Radio.

“We’re (just) restricting the use of those logos.”

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California, Ohio Use Reserves for Tobacco Bonds

California, Ohio and Virginia will use reserve funds to pay interest and principal on bonds backed by tobacco company payments under a 1998 health-care settlement, according to a report by Herbert J. Sims & Co.

Payments to the states by Altria Group Inc. (MO)’s Philip Morris unit, Reynolds American Inc. (RAI) and other companies have declined on lower U.S. cigarette sales and as the companies lose market share to tobacco manufacturers that didn’t participate in the settlement, according to Richard Larkin, director of credit analysis at Sims in Iselin, New Jersey.

“Any time you see a municipal bond go to their reserve fund, it’s a significant sign of trouble,” Larkin said in a telephone interview. “It’s not an imminent default, but it’s a sign that cash flow is certainly far weaker than any of us thought.”

U.S. states have more than $107.6 billion in outstanding bonds backed by the 1998 settlement, according to data compiled by Bloomberg. Under the settlement, tobacco companies agreed to reimburse states $246 billion for treating smoking-related illnesses. The companies make annual payments each April.

The amounts paid to the states declined 5.6 percent this year, mostly because Altria’s Philip Morris decided for the first time to withhold disputed payments, Larkin said, citing data from the National Association of Attorneys General. In 2010, the payments fell 16 percent after the federal government raised cigarette excise taxes 61 cents.
Payments in Escrow

Since 2005, Reynolds and Lorillard Inc. (LO) have put a portion of their payments into an escrow fund, arguing that they’re entitled to refunds because they’ve lost market share to other producers such as National Tobacco Co. LP, which didn’t sign the 1998 accord.

Philip Morris made its full payments to the states, even though the tobacco company disputed them, until this year, when it withheld $267 million, Larkin said. Philip Morris disclosed the escrow payment in an April 15 statement.

California’s Golden State Tobacco Securitization Corp. and Ohio’s Buckeye Tobacco Settlement Financing Authority may use debt-service reserves to meet the minimum required interest payments on Dec. 1, according to bond filings.

The Virginia Tobacco Settlement Financing Corp. will need to use debt reserve funds for its Dec. 1 payment, he said.

Issuers such as Golden State are special entities set up to sell debt backed by the tobacco-settlement money. The states don’t guarantee interest and principal payments on the bonds.
California Reserve Plan

California plans to draw $5.35 million from reserves to help make a $68.3 million interest payment on series 2005 bonds and $7.7 million to make a $87.9 million interest payment of series 2007 bonds, both due Dec. 1, said Tom Dresslar, a spokesman for Treasurer Bill Lockyer.

“Like any other issuer, the state doesn’t relish, to say the least, being forced to draw on reserves,” Dresslar said. “Hopefully, we won’t have to be in that position again.”

Kurt Kauffman, Ohio’s debt manager, said his state expects to use $6 million to $8 million in reserves in December, based on current projections.

“We have a $389 million funded reserve so that offers a significant degree of protection to investors,” Kauffman said in a telephone interview.

Virginia’s director of debt management, Evelyn Whitley, said her state will draw $3.6 million from reserves to make a Dec. 1 interest payment.

“I don’t think it should come as any great surprise,” Whitley said. The state filed a notice when it didn’t make sinking-fund payments last year, she said, and investors “realized it was cutting it close then.”
Lower Investment Returns

Besides payment declines, California and Virginia also received lower-than-expected investment returns on their debt- service reserves, Larkin said. Both states put the money in investment contracts with Lehman Brothers Holdings Inc. (LEHMQ), which filed for bankruptcy in 2008, he said.

While it’s unlikely that more Americans will take up smoking, the outlook for tobacco bonds may improve if U.S. states win a legal challenge to the companies that are withholding payments, Larkin said. About $2 billion held in escrow would go to the states, he said.

“That boost in cash flow would be significant,” Larkin said. “If the states lose, it will look a lot worse.”

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Smokers See Some Smoking Brands As Safer

One in five smokers believes some brands of Lucky Strike cigarettes are safer than others, a study has found. Smokers of ”gold”, ”silver” or ”slim” cigarettes were also more likely to think their brands were less harmful. The findings highlight the power that packaging can have on risk perception, and come as the federal government prepares to introduce its plain-packaging legislation.

As part of an international study, published in the journal Addiction, researchers surveyed more than 8000 current and former smokers, including more than 2000 Australians, about their smoking beliefs.

Females were more likely to believe some brands might be less harmful while older individuals considered their cigarettes brand was safer.

More than a third of respondents falsely believed nicotine was linked to cancer, and 41 per cent believed light cigarettes were better for them.

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Tobacco Company to Develop Products without Tobacco

British American Tobacco (BAT) PLC announced their plans to create a new company called Nicoventures Ltd. which will produce products made without tobacco and with only pure nicotine in an effort to offer a safer alternative to smokers. Even though a spokeswoman of the organization said the products the company is considering aren’t on the market yet and declined to give any more details, we do know that two subsidiaries of Altria Group are testing spit-free tobacco-coated toothpicks in an effort to offer tobacco in a less socially scrutinized way.

If successful, the products of Nicoventures could help wean smokers off cigarettes. It is the hope of BAT that Nicoventures will be a highly profitable business that will help make up for the loss in profits due to the decrease in cigarette sales and the scrutiny faced by tobacco companies. “Nicoventures could be a hugely positive development from the public health point of view, in reducing the harm from smoking”, said David Sweanor of the University of Ottawa in Canada. However, he did admit he was a bit skeptic, saying that nothing currently on the market had the ability to match the sensational and psychological effects of a cigarette that smokers crave for.

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