The dispensary would not meet state restrictions because it would not be members-only and it could reap a sizable profit, Turner said in her written rejection. However, the owners of the proposed business, Batzi Kuburovich and Neil Forrest, said the letter amounted to a

misunderstanding of state law and seemed politically motivated.

"We're going to let the lawyers work it out," Forrest said Thursday evening, referencing his team's Oakland-based marijuana lawyer James Anthony. Forrest said the lawyer told him that Chief Turner either had "prejudice" or "marching orders" from someone else given the fact that medical marijuana is allowed - tacitly or overtly - at the state and local level, but prohibited at the federal level and not addressed at all on the county or local level.

In her letter, Turner said the state Attorney General has interpreted California law as to allow only medical marijuana to be sold by cooperatives or collectives that provide medicinal care - not businesses that sell marijuana to prescribed residents, as dozens of dispensaries throughout California already do.

"Like a cooperative, the collective should not purchase marijuana from, or sell to, non-members; instead, it should only provide means for facilitating or coordinating transactions between members," Turner wrote. "Clearly, you could not be a primary caregiver for all of the proposed members of the enterprise."

"I'm not even sure what she's referring to," Forrest said, adding that he and Kuburovich have since signed a lease downtown at 7581 Monterey St. near Fourth Street - next to Pinnacle Bank - instead of their original location at 1207 First St. near Togo's and First Street Coffee.

"We feel at this point we're in compliance, and when we were designing our application, we actually went back to change things based on statements from the Attorney General."

Kuburovich and Forrest, who are Morgan Hill real estate professionals, submitted their application in May.

Dispensary proponents, including many Gilroy residents, say the business will decrease street-level sales and associated crime while providing a service to people with debilitating ailments. They also point to statistics from cities with medical marijuana businesses that show crime trends have not seen any major increases since those businesses opened. However, opponents argue crime will increase and that residents will feign symptoms to obtain prescriptions so they can sell the drug on the streets.

From small, agrarian-based cities like Tulare to metropolitan areas such as Los Angeles - where more than 200 dispensaries operate in the greater area - law officials, backed by federal statistics, said they have not noticed an uptick in crime associated with the shops since Californians approved medical marijuana in 1996.

California law allows the possession and cultivation of medical marijuana for people with proper prescriptions, but federal law views the drug as illegal no matter what. Neither Santa Clara County nor Gilroy have any legislation on the books, but local council members said they were disinclined to create a Gilroy ordinance in the absence of any residential outcry. Staff also has the option to hinge any approval on operating conditions similar to those liquor stores must abide by.

Currently, residents who have legitimate prescriptions have to drive to Redwood City, Millbrae, Oakland, San Francisco or Santa Cruz to purchase medical marijuana, which dispensaries buy from private, licensed growers who usually sell a pound for $3,500 to $4,000, Kuburovich said. A store-bought ounce, in turn, goes for about $400 - or about $6,400 per pound - excluding the extra $37 per ounce for taxes. Any profit will pay off overhead, said Kuburovich. Legal marijuana comes in all types, similar to tea, and are typically bottled in orange plastic vials.