SEBASTOPOL, Calif. — The medical marijuana dispensary in this California wine country town is in a former auto dealership, and has more registered patients than the town has residents. Los Angeles has more pot shops than Starbucks and almost as many as public schools.

The surge in medical marijuana in California has left many communities scrambling to regulate the free-for-all, while others are trying to ban the drug altogether. The issue took on greater urgency after the Obama administration announced looser federal marijuana guidelines last month.

Some local governments are looking to take an approach similar to Sebastopol, where officials welcome the business as a strong source of tax revenue during the recession.

The Peace in Medicine marijuana dispensary is a clean, modern operation and could easily be mistaken for a doctor's office, if not for the three security guards and overwhelming skunky smell of pot.

"I guess I had my prejudices that it was going to have bars on the windows and be something very obvious and unappealing to the public," said longtime city councilman Larry Robinson.

Now the dispensary is about to open a second location, next to a Starbucks.

"I'm the luckiest guy in the world to be leading this thing," said Peace in Medicine's operator, Robert Jacob.

In Los Angeles — the marijuana dispensary capital of the country — about 800 dispensaries are estimated to have opened despite a 2007 order halting new pot operations.

The explosion is blamed on a loophole in the City Council's moratorium. Final regulations are still not in place.

The struggle is blamed on the vagueness of the ballot initiative that California voters passed in 1996 legalizing medical use of the drug. The measure makes no mention of how or where the drug can be sold.

"I think Los Angeles has made this more difficult by not having acted sooner," said Joe Elford, chief counsel for Americans for Safe Access, a pro-medical marijuana group. "There has been pressure for a long time on the City Council to do something."

Federal crackdowns followed the 1996 vote, and fear of prosecution kept pot storefronts out of many areas. But looser federal guidelines, first signaled by Attorney General Eric Holder in February and further outlined in an October memo, have emboldened would-be dispensary operators. The new guidelines simply instruct federal prosecutors to avoid prosecution when dispensaries comply with state medical marijuana laws.

Sacramento is looking to other pot-tolerant cities such as San Francisco, Oakland and Malibu for insight into keeping medical marijuana available but in check.