The FBI has lost track of some individuals of interest in its ongoing probe of graft and bribery relating to the frenzy of activity in Adelanto that ensued upon that city’s move to adopt a cannabis-based economy more than two years ago.
Led by Mayor Rich Kerr, who was elected in 2014, and then-Councilman Jermaine Wright, the City of Adelanto undertook to rejuvenate itself financially in 2015 by revamping its city code to allow the cultivation of marijuana within indoor greenhouses located in the city’s industrial park. Subsequently, the council consented to expand liberalizing its policy further by permitting the establishment of clinics and dispensaries where medical marijuana could be retailed, along with pot shops, akin to liquor stores, where the drug could be marketed to adults wishing to smoke the plant for its intoxicative effect, after the passage of 2016’s Proposition 64, which legalized marijuana for recreational use.
The city’s action resulted in a mad crush of would-be marijuana entrepreneurs flooding City Hall in an effort to obtain licensing and permits, many of whom bore briefcases full of cash intended to to be used as permit fees or bribes to city officials intended to facilitate the granting of those permits. To accommodate the overwhelming influx of applicants, the city undertook to expand the area within the city where commercial cannabis activity was permitted. It was at this point that federal authorities interested themselves in the situation in Adelanto, as it appeared inside information with regard to zone changes was being provided to some land speculators or business applicants, such that they were able to purchase property at very low cost and then see its price triple or quadruple overnight and then escalate further to as much as ten times its original cost when the zoning on it made it eligible to host cannabis-involved businesses. A primary target in the early stages of that investigation was Councilman John Woodard, who had also been first elected to the city council in 2014. Woodard as a licensed real estate agent was involved in the sale of property that subsequently was rezoned for commercial cannabis-related use. As the broker on such transactions, Woodard received a commission. Given his profiting by such sale activity and his role in making the concomitant zone changes, both the Securities and Exchange Commission and the FBI were drawn into an examination of the goings-on in Adelanto.
Eventually, federal officials took action as a consequence of those inquiries. Woodard, however, was not the subject of that indictment. Rather, it was Councilman Wright who was arrested by the FBI and charged by the U.S. Attorney’s Office with accepting a $10,000 bribe in exchange for committing to use his position on the council to shield an undercover FBI agent posing as an applicant to operate a marijuana distribution concern in Adelanto from the city’s regulatory efforts.
The FBI has made notation of similar efforts to suspend the city’s regulatory authority when it comes to cannabis operations set up in Adelanto. One of those was Lifestyle Delivery Systems Inc., which had applied with the city for a permit to operate a THC extraction lab at 9501 Commerce Way. THC is the major active ingredient in marijuana. Construction of the building at 9501 Commerce Way was yet ongoing without a final occupation permit having been issued by the city and without the operation permit for the extraction lab having been signed off on when the lab began operations last year. Those operations consisted of the production of CannaStrips, a sublingually-delivered medication, under a joint venture involving Lifestyle Delivery Systems in partnership with CSPA Group. Brad Eckenweiler was the CEO of Lifestyle Deliver System, and Jerry Davis was the president of CSPA Group. Both Eckenweiler and Davis were publicly involved in encouraging the Adelanto City Council to move forward with its permitting of cannabis-related businesses. As was the case with several other marijuana-related operations, including cultivation and manufacturing concerns, city code enforcement personnel had been instructed to stand down and allow Lifestyle Delivery Systems to operate. On November 30, 2017, San Bernardino County Sheriff’s Department narcotics investigators served a search warrant at Lifestyle Delivery Systems Inc.’s 9501 Commerce Way facility. In so doing, the sheriff’s department documented that the two companies – Lifestyle Delivery Systems and CSPA Group – had jumped the gun and were operating an extraction lab without the required permits.
In February of this year, Lifestyle Deliver Systems reassigned its rights to purchase CSPA Group Inc. and another company involved in marijuana product manufacturing in Adelanto, NHMC Inc., to Ms. Kelly Christopherson for $1.25 million and three million shares of Lifestyle Delivery System common stock. The sale was made on the representation that the THC extraction operation was functional.
One week ago, on August 24, former Adelanto City Manager Gabriel Elliott, through his attorney Tristan Pelayes, filed a claim for damages against the City of Adelanto. That claim laid out further detail with regard to the allegations of corruption and graft involving Adelanto officials growing out of the city’s policy of allowing cannabis-related businesses to flourish in the city. According to that claim, “On September 28, 2017, Jessie Flores, Mayor Richard Kerr’s assistant, and Mayor Kerr himself asked Elliott to accompany them to the city’s corporation yard located in the city’s industrial area, to meet with the potential buyers of this city facility that included the city’s public works yard. Upon arriving and meeting all the parties, Flores asked Elliott to sign the agreement to sell the property to Mr. C.B. Nanda, who is a marijuana cultivator. The scheme was for C.B. Nanda to then sell the property to a group of marijuana cultivators. Elliott refused to allow the sale to go forward because, after surveying the property, he realized the property included the city’s emergency operations center, which was part of a federal grant. Elliott also refused to allow the sale to go forward because he learned that Kerr and Flores had orchestrated the sale of the property below market value to benefit C.B. Nanda. As a result, Flores and Kerr were set to receive financial kickbacks from the sale of the property. When Elliott challenged Kerr as to why he wanted to sell the property, Kerr gave conflicting reasons as to why the property was being sold. At first, Kerr stated the sale of the property was to an agent of U.S. Congressman Dana Rohrabacher, who would in exchange for the sale provide protection to Adelanto from any federal raids of the marijuana cultivation and consumption industry within Adelanto.”
Elsewhere in the claim, Pelayes wrote, “Kerr on numerous occasions instructed Elliott to terminate certain employees within the city that were not allied with him, including former City Clerk Cindy Herrera. When Elliott refused to terminate these employees because he perceived such action to be in violation of the city charter, Kerr became enraged and threatened Elliott with termination. Because Kerr stooped to receive bribes from the growing marijuana industry in the city, Kerr directed code enforcement officers to ‘stand down’ and prevent them from enforcing code violations by numerous marijuana businesses in the city.”
Further, according to Pelayes in the claim, “On October 27, 2017, Elliott went to the FBI to report Kerr’s and Flores’ illicit deal regarding the city’s public works yard. After the meeting, he disclosed to employees with the City of Adelanto and members of the city council that he had met with the FBI regarding Kerr’s and Flores’ illegal activities. On November 15, 2017, Elliott again met with the FBI and was accompanied by City Attorney Ruben Duran. At the meeting, Elliott reported that he had learned Mayor Kerr had received a $200,000 bribe for the sale of the city’s corporation yard. Elliott also reported this to the city council. After this meeting and after Elliott disclosed to the city council his meeting with the FBI, Kerr’s attacks [on Elliott] escalated.”
In December, Elliott was placed on administrative leave. In July, he was terminated. Since that time, Flores has been elevated to the city manager’s position. On Monday, August 20, 2018, Flores terminated Cindy Herrera as city clerk. Three days later, Ruben Duran resigned as city attorney. Shortly thereafter, Herrera retained Pelayes, who in the early 2000s served as Adelanto mayor, to represent her in possible litigation against the city.
Previously, the FBI was able to function within Adelanto behind a fig leaf of modesty, as the targets of its investigation had an interest in downplaying the specter of a criminal investigation while they yet had hope that the investigation would stall out and criminal charges in the matter would go no further than those that have already been lodged against Wright.
But with the FBI’s serving of a search warrant on May 8 at City Hall, at Kerr’s home and on the premises of the Jet Room, a marijuana dispensary in Adelanto, as well as at the corporate headquarters for the Jet Room in the City of San Bernardino, it is now widely recognized that the FBI’s investigation has not ended and is intensifying. Taken together with the public disclosures in Elliott’s claim, many of the figures in the cannabis industry who set up operations in Adelanto or those land speculators who reaped a profit by using inside information to purchase land that was then rezoned and converted to cannabis-related commercial use have now come to the sobering realization that the FBI has held off on further indictments beyond that of Wright because it is pursuing a grander plan of accumulating evidence and documentation of a wide sweep of graft in Adelanto, so that it can roll up not just the public officials who have been taking bribes and engaging in graft but those who have been providing the public officials with illicit inducements to allow them and their companies to operate in Adelanto. Some have sold their operations and left town. At least two have simply shuttered their operations and made a speedy exit. Reportedly, one of those suspected of bribing Adelanto officials has moved to the Bay Area, attempting to get lost within the social circles of San Franciso and by functioning under an alias. Another has reportedly departed the country, to Canada.
-Mark Gutglueck