By LISA LEFF


OAKLAND, Calif. (AP) - After weathering the fear of federal prosecution and competition from drug cartels, California's medical marijuana growers see a new threat to their tenuous existence: the "Wal-Marting" of weed.
The Oakland City Council on Tuesday will look at licensing four production plants where pot would be grown, packaged and processed into items ranging from baked goods to body oil. Winning applicants would have to pay $211,000 in annual permit fees, carry $2 million worth of liability insurance and be prepared to devote up to 8 percent of gross sales to taxes.
The move, and fledgling efforts in other California cities to sanction cannabis cultivation for the first time, has some marijuana advocates worried that regulations intended to bring order to the outlaw industry and new revenues to cash-strapped local governments could drive small "mom and pop" growers out of business. They complain that industrial-scale gardens would harm the environment, reduce quality and leave consumers with fewer strains from which to choose.
"Nobody wants to see the McDonald's-ization of cannabis," Dan Scully, one of the 400 "patient-growers" who supply Oakland's largest retail medical marijuana dispensary, Harborside Health Center, grumbled after a City Council committee gave the blueprint preliminary approval last week. "I would compare it to how a small business feels about shutting down its business and going to work at Wal-Mart. Who would be attracted to that?"
The proposal's supporters, including entrepreneurs more disposed to neckties than tie-dye, counter that unregulated growers working in covert warehouses or houses are tax scofflaws more likely to wreak environmental havoc, be motivated purely by profit and produce inferior products.
"The large-scale grow facilities that are being proposed with this ordinance will create hundreds of jobs for the city," said Ryan Indigo Warman, who teaches pot-growing techniques at iGrow, a hydroponics store whose owners plan to apply for one of the four permits. "The ordinance is good for Oakland, and anyone who says otherwise is only protecting their own interests."
Council members Rebecca Kaplan and Larry Reid, who introduced the plan, have pitched it largely as a public safety measure.
The Oakland fire department blames a dramatic rise in the number of electrical fires between 2006 and 2009 in part to marijuana being grown indoors with improperly wired fans and lights. The police department says eight robberies, seven burglaries and two murders have been linked to marijuana grows in the last two years.
Reid and Kaplan also are open about their desire to have the city, which last week laid off 80 police officers to save money, cash in on the medical marijuana industry it has allowed to thrive.
Oakland's four retail marijuana stores did $28 million in business last year, and if sales remain constant, the city would get $1.5 million this year from a dispensary business tax that voters adopted last summer. A similar tax on wholesale pot sales from the permitted grow sites to the dispensaries would bring in more than twice that amount, the city administrator's office has estimated.
"Allowing medical cannabis and medical cannabis products to be produced in a responsible, aboveboard and legitimate way will be a benefit to the patients, to the workers and to the people of Oakland," Kaplan said.
Adding to the anxiety of growers - and the impetus Oakland officials have to get the grow tax in place - is a November state ballot measure to legalize marijuana possession for adult recreational use and authorize local governments to license and tax non-medical pot sales.
If it passes, Proposition 19 is expected to feed the state's hearty appetite for marijuana. Backers of creating the four big indoor gardens say the plan is not dependent on legalization, but would benefit from it.
"The reality is, this is an issue that is going to grow. I would like it to grow here. I would like it to be Oakland business and not the tobacco industry," Councilwoman Jean Quan said.
Regulating the supply side of the business would represent another turning point in California's complicated, 14-year-old relationship with medical marijuana. Although Maine, New Mexico and Rhode Island license nonprofit groups to produce and distribute cannabis, California's law is silent on cultivation other than for individual use.
Even as hundreds of storefront pot dispensaries, marijuana delivery services and THC-laced food products have flourished, the question of where they get their stashes remains murky: Inquiring is considered as impolite as asking someone's income or age.
Industry insiders usually say they rely on a variety of sources, including farmers who grow outdoors in the far northern end of the state, contractors who run sophisticated indoor operations, and customers who grow their own and sell the surplus.
Officials in Berkeley and Long Beach also are moving take the mystery out of medical marijuana production.
The Berkeley City Council last week approved a measure for the November ballot that would authorize the city to license and tax six pot cultivation sites. Companies running the facilities must agree to give away some pot to low-income users, employ organic gardening methods to the extent possible and offset in some way the large amount of electricity needed to grow weed.
Long Beach officials want to reduce the amount of medical marijuana being sold in the city that isn't grown there.
The city is in the process of trying to whittle its more than 90 dispensaries down to no more than 35 marijuana collectives through a lottery. License winners will be required to grow either at their retail sites or elsewhere in Long Beach and to open their books to prove they aren't growing more than enough to supply their members, said Lori Ann Farrell, Long Beach's director of financial management.
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