California Forum

Boom and bust in California’s medical marijuana industry

Days after California voters rejected an initiative to legalize marijuana for recreational use in 2010, Oakland City Attorney John Russo got an unexpected visit from an old friend, a high-ranking official from the U.S. Department of Justice.

As they chatted warmly about their children, Russo sensed what was coming. Despite the failed pot measure, Proposition 19, Oakland was spiritedly moving forward on an audacious marijuana cultivation plan. This city, long hard-bitten by crime and economic malaise and mostly left behind as other San Francisco Bay Area communities reaped the benefits of California’s technology boom, was determined to become the Silicon Valley of weed.

A wealthy construction contractor, Jeff Wilcox, had proposed converting his warehouse complex to produce 21,000 pounds of “medical grade cannabis” a year to supply the California dispensary market. Wilcox promised $3.5 million a year in marijuana tax revenue for a city that had just laid off 80 cops.

Oakland saw a fiscal elixir from pot, with Wilcox just one of the suitors for four coveted city permits for industrial cannabis production.

But Russo’s friend from the Justice Department let him know the stakes: If Oakland moved forward, a fragile truce forestalling federal actions against California cannabis businesses would be over.

The encounter revealed the government’s exasperation with the Golden State’s untamed marijuana market, which operated without state rules or oversight. The meeting in Russo’s office foreshadowed California’s four U.S. attorneys declaring, a year later, a sweeping crackdown on America’s largest marijuana economy.

Federal raids and forfeiture actions would target icons of California cannabis politics and renowned medical marijuana providers. Agents would raid Oakland’s cannabis trade school, Oaksterdam University, and its president, Richard Lee, the chief funder of Proposition 19. In a continuing case, the government would to seek to seize the Harborside Health Center, an Oakland facility billed as the world’s largest medical marijuana dispensary.

The feds would also aim prosecutions at cash-reaping cultivators and retail-style dispensaries, at pot business speculators, and, in egregious cases, at rogue drug traffickers exploiting the cover of medical marijuana.

The actions unfolded after the Proposition 19 campaign exposed a billion-dollar industry making marijuana widely available in California. Soon after the initiative’s defeat by 53.5 percent to 46.5 percent, Benjamin W. Wagner, the U.S. attorney for the Eastern District of California, convened the state’s four U.S. attorneys and other Justice Department officials at the Drug Enforcement Administration headquarters in Sacramento. They began plotting to rein in the California excess.

To the government, a famous October 2009 pledge not to target medical marijuana patients and caregivers acting in compliance with state law had been wildly misconstrued by opportunistic cannabis entrepreneurs. The memo by Deputy Attorney General David W. Ogden was seen as a green light for accelerating a lucrative marijuana industry in the name of compassionate care for the sick.

Oakland’s industrial pot production plans, and other big cultivation ventures by private speculators, signaled a level of cannabis commercialization the feds weren’t going to tolerate.

Indoor pot farm planned

As Oakland solicited permit applications for industrial pot farms under eco-friendly city mandates of “zero waste,” “efficient energy” and “carbon neutrality,” a mysterious player was already operating a cavernous indoor marijuana farm in the city.

Yan Ebyam, whose first name stood for “yes and no” and last name was “maybe” spelled backward, was the CEO of a company called Marjyn Investments. It shared a business address with a Los Angeles immigration lawyer, Nathan Hoffman, who had taken up working with Southern California medical marijuana dispensaries.

Ebyam and Hoffman contracted with an East Oakland industrial plumbing and metal fabrication company to lease warehouse space for a marijuana-growing operation that soon blazed with 450 indoor lights. They sold the operation to investors, who soon complained they had been wrongly promised a marijuana yield “well in excess of $1 million.” Ebyam moved on to grow marijuana in a barn-shaped warehouse on Oakland’s San Leandro Street – and earn a national splash of fame by signing a labor contract with the Teamsters.

The city of Oakland hadn’t licensed either facility. But Ebyam let Lou Marchetti, business manager for Teamsters Local 70, know that he wanted in on one of Oakland’s licensed commercial cannabis farms. Marchetti began lobbying city officials.

Oakland officials warned

After the meeting with his friend from the Justice Department, Russo told Oakland City Council members they should get out of the marijuana cultivation business before it was too late. He argued that Proposition 19 had lost and there was nothing in state law to support the city’s cultivation dreams.

In a tense closed session, Russo heard incredulous council members telling him they didn’t believe him and directing him to ask the Justice Department what its concerns were. He walked out convinced he had been instructed to write U.S. Attorney General Eric Holder about Oakland’s pot farms idea. The mayor and other council members charged that Russo acted on his own volition.

“The council told me to contact the feds,” Russo would insist. “I am going to assert this until I die.”

On Feb. 1, 2011, Melinda Haag, the U.S. attorney in San Francisco, responded on Holder’s behalf. She declared that federal authorities were “concerned” about Oakland’s “licensing scheme” – and threatened “civil and criminal legal remedies” against those setting up or participating in the marijuana cultivation.

Before resigning to take a job as city manager in Alameda, Russo sent a follow-up memo. He declared he wouldn’t work with Oakland on its continuing marijuana aspiration because he couldn’t represent a client that “seeks to pursue an illegal course of conduct.”

Big dreams in Isleton

Despite Haag’s scathing warning to Oakland, the town of Isleton, a beleaguered municipality beyond the pear orchards and levees of the Sacramento-San Joaquin Delta, sought its salvation through pot.

In 2010, a young businessman, the nephew of legendary jazz pianist Dave Brubeck, strode into town and made an offer to restore Isleton’s economic confidence. He promised that his Delta Allied Growers, supplying dispensaries in Southern California, would employ 50 people and pay Isleton 3 percent of its gross revenue. Isleton leaped at the opportunity.

To Wagner, the U.S. attorney in Sacramento, Isleton was “exhibit A” for local governments looking at taxable marijuana commerce as a fiscal rescue from economic recession. Wagner was one of 15 members of Holder’s advisory committee at the Justice Department. He participated in roundtable discussions in Washington, D.C., with the attorney general and his chief deputy. Over time, Wagner would let his superiors know that “federal law is totally being flouted here in California and we have to respond.” His first action was a declarative statement on the little town grabbing at a moneymaking opportunity.

Wagner sent a letter to Isleton and Delta Allied Growers, warning of federal civil and criminal actions. Isleton’s pot dreams went bust. A Sacramento County grand jury report later said Delta Allied Growers abruptly “buried more than 1,000 marijuana plants” before scurrying out of town. There were no federal or state charges. But in a county grand jury report, foreman Donald Prange Sr. offered a sage warning for Isleton. “They forgot the old saying,” he wrote. “If it sounds too good to be true, it probably is.”

From tomatoes to pot

The proverb would also come to apply to Sutter County tomato growers Thomas and David Jopson after the fourth-generation farmers met Ebyam. The Jopsons, nationally renowned for heirloom tomatoes, were getting out of the business due to falling produce prices. They were sold on leasing their greenhouses for pot.

In June 2011, local and state narcotics officers raided the Jopson ranch, seizing 2,168 plants from their greenhouse and another 3,305 plants from a Sacramento County greenhouse tied to Ebyam.

The raids went down as Wagner and other U.S. attorneys were circulating drafts of a new Justice Department memo seeking to head off industrialization of cannabis in California and elsewhere. In the June 29, 2011, directive, Deputy Attorney General James M. Cole assailed pot speculators for overreaching on the Ogden memo. “The term ‘caregiver’ as used in the (earlier) memorandum meant just that: individuals providing care to individuals with cancer or other serious illness,” Cole wrote, “not commercial operations cultivating, selling or distributing marijuana.”

The next day, Ebyam, Thomas and David Jopson and six others were indicted by a federal grand jury in Sacramento on conspiracy and marijuana charges. Hoffman, the L.A. lawyer, and a Southern California dispensary operator were indicted in the scheme a year later. The Jopsons recently pleaded guilty to reduced charges. Ebyam and Hoffman await trial.

Many medical marijuana dispensaries and medicinal cultivators had maintained an aura of compliant, compassionate, nonprofit providers under California medical marijuana law. The feds saw unscrupulous operators on the fringes stuffing their pockets with cash in an industry without rules.

In Madera County, federal authorities filed charges against purported medical marijuana farmers trafficking marijuana in FedEx and United Parcel Service packages to Connecticut, Texas and Massachusetts. A Fresno County farm with 4,000 plants posted with physicians’ recommendations for medical use was raided for shipping pot to drug dealers in Boston.

Orange County authorities seized $2.9 million in cash at a dispensary and home of John “Pops” Walker, a San Clemente operator who reaped $25 million from nine marijuana stores opened as healing collectives for patients. Federal agents tracked email messages from operators of a North Hollywood dispensary, NoHo Caregivers. While claiming to serve sick people coming in the front door, they were shipping hundreds of pounds of marijuana a month out the back door – and across America.

In 2012, voters in Colorado and Washington would go on to legalize pot for purely recreational use. And in 2013, in a historic concession, the Justice Department would declare that it wouldn’t target lawful marijuana businesses in states that enacted and enforced “robust” state regulations.

There were no such regulations in California. So, in late 2011, Wagner briefed superiors on the state’s four U.S. attorneys’ planned Oct. 7 declaration of far reaching actions against pot businesses operating an “unregulated free-for-all.” The feds’ medical marijuana truce in California was over.