Adelanto Land Sales Flurry Sparks Insider Trading Allegations

The societal and legal shift from the strict prohibition of marijuana to its current state of legalization has and continues to create convulsions, including an unseemly scramble by elements of both the public and private sectors to secure positioning advantage and cash in on the new ethos of toleration. This has created the spectacle of public officials seemingly overnight going from arresting, jailing, prosecuting, convicting, fining and imprisoning individuals found to be using marijuana or possessing it in even relatively minute amounts to aligning themselves with entrepreneurs looking to cultivate it in massive quantities and market it to thousands or tens of thousands of end users.
Moreover, the money to be made has had a corrosive influence on local governments, compromising the integrity of their land use, zoning, and business licensing functions.
A case in point is in Adelanto, where one would-be cannabis mogul’s action in jumping the gun with regard to setting up a marijuana dispensary has created not just the perception and suspicion of illicit profiteering based on insider information and potential kickbacks to city officials but evidence that precisely that occurred.
For more than a decade-and-a half, far along in the aftermath of the 1996 passage of Proposition 64, the Compassionate Care Act which allowed for the medical use of marijuana by patents who were adjudged by their physicians to potentially be assisted by the use of cannabis, Adelanto, like all of the other municipalities in San Bernardino County, refused to officially sanction the open operation of medical marijuana clinics within its city limits.
Even after the Adelanto City Council declared that the city was in a state of fiscal emergency in June 2013, the city council as it was then composed considered any association with marijuana to be anathema, and its members said that aside from their distaste for the untoward impacts of encouraging marijuana use and intoxication generally, they were unwilling to license medical marijuana dispensaries in the city out of concern that doing so would worsen the city’s image and make business interests considering investing in or locating within Adelanto think twice, ultimately reducing tax revenue rather than enhancing it.
In 2012, a full 16 years after the Compassionate Use Act of 1996 passed, Needles, a 4,844-population city located on the eastern shore of California and San Bernardino County at the Colorado River, became the first San Bernardino County City to embrace the liberalism the act implied. On November 26, 2012, Needles voters approved the adoption of a marijuana business tax ordinance and authorized the collection of a marijuana business tax of up to 10 percent of gross receipts. In December 2012, the Needles City Council set the marijuana business tax at the maximum 10 percent. Despite the pathway to revenue Needles’ action offer, Adelanto was in no hurry to follow suit.
In 2014 Adelanto’s voters turned out 60 percent of the city council. In the November 4, 2014 election, mayor Cari Thomas and councilmen Charles Valvo and Steve Baisden were up for reelection. All three failed in those bids, with Baisden and Valvo ousted in favor of Charley Glasper and John Woodard and Thomas being replaced by Rich Kerr.
That changeover had no appreciable immediate impact on the city’s consistent rejection of licensing marijuana operations, however, as Glasper, who had formerly served on the council, was one of the most outspoken opponents of marijuana liberalization in the High Desert. In the summer of 2015, however, a barely perceptible shift was underway. Glasper, while remaining opposed to clinics and dispensaries, where the product would actually be marketed, signaled he might consent to allowing cultivation operations in the city, given that producing the product in huge quantities might generate substantial tax revenue rather than nickels and dimes. That November, an ordinance allowing marijuana cultivation operations was passed. The council’s turnaround was a remarkable one, raising eyebrows and suspicions. Indeed, city attorney Todd Litfin resigned over the matter and the ordinance that emerged – still banning dispensaries and clinics where the product would be dealt to end users but allowing indoor nurseries within the city’s industrial park district, was birthed under the legal tutelage of interim city attorney Julia Sylva, who was hired on a 90-day contract the very day, November 18, 2015 the ordinance was first considered in public by the council.
Since that time, there has been a stampede of would-be millionaires with dollar signs in their eyes into Adelanto City Hall. Even before the game changed once more in November 2016 when what was also known as Proposition 64, the Adult Use of Marijuana Act, was again approved by California voters, liberalizing the marijuana use atmosphere in California even further to allow those of the age of majority to imbibe it recreationally, Adelanto city officials took stock of the fact that they were already at the head of the marijuana sales bandwagon and could parlay that into even more money for the city.
The question now of moment with law enforcement, including the FBI, is: Have some of those officials decided to cash in on the bonanza personally?
Under the microscope is the case of an attorney, David Serrano, and his brother, Manny Serrano, and a long-neglected property on Adelanto Road.
The Jet Room, located at 17535 Adelanto Road just south of Joshua Avenue, was a cocktail lounge that largely catered to airmen at the former George George Air Force Base. There had been hope that the bar would be able to sustain itself after George was shuttered by the Department of Defense in 1992 and the airbase was converted to a civilian aviation facility, now known as Southern California Logistics Airport. That hope never panned out, however, and the Jet Room and the 2.25 acres upon which it sits has lain dormant and dilapidating for close to a decade-and-a-half.
On March 23, 2016, Dmitri Manucharyan purchased the property for $239,000. On October 3, in a seeming rush, David Serrano entered into escrow to take the old Jet Room off of Manucharyan’s hands, paying $450,000 for it. The transaction was completed on October 11. Serrano, who purchased the property in conjunction with his wife, said he intended to convert it into a law office. The broker on the deal was John Woodard, of Woodard Realty in Adelanto, the same Woodard who was elected to the city council in 2014. On October 26, the city council held a discussion about allowing marijuana to be sold to end users from dispensaries within the city. Amid a number of proposals, Woodard indicated his support for a proposed marijuana marketing zone that went no further south than Joshua Avenue, stopping slightly north of David Serrano’s newly acquired property, which at that time, was still being represented as the site of a future law office, or at least it was represented.
Exactly seven weeks after Serrano closed escrow on the Jet Room, the Adelanto City Council held a public workshop, the upshot from which was a tentative proposal to re-zone two areas within the city in a way that would make them eligible to host medical marijuana dispensaries. With the passage of Proposition 64 three-weeks earlier, that meant that the dispensaries would be very likely at some future date be selling marijuana not just to those with medical prescriptions under the 1996 Proposition 64, but marijuana for recreational smoking purposes under the 2016 Proposition 64. Whoever had an inside track on setting up a pot shop in one of the proscribed areas stood a substantial opportunity to get rich. As it would turn out, one of those zones the council decided to designate was the area between Pearmain Street, Air Expressway, just west of Mesa Linda Road and Rancho Road. Contained within that area was the Jet Room.
Involved in the public discussions relating to David Serrano’s recently-acquired Adelanto property was his brother, Manny. The Serrano Brothers’ sudden interest in the Jet Room made some people curious as to what was actually going on. The Serranos had previously bought a three-acre parcel in the city’s industrial park and had applied for a permit to operate it as a marijuana cultivation facility. And Manny Serrano is, or at least was, the official spokesman for the High Desert Cannabis Association.
Meanwhile, David Serrano had submitted to the city plans for the conversion of the Jet Room into a law office. The declared intended use of the property allayed, at least ostensibly, the suspicion that something untoward had occurred. If indeed the interior of the Jet Room were to be transformed into offices for lawyers, paralegals, investigators and secretaries, the likelihood that it would be a storefront selling marijuana diminished.
What has emerged, however, is that the offices Serrano is seeking to establish are highly atypical of the quarters for a law firm. Plans Serrano submitted to the city call for sales counters – two of them, each of which is at least 40 feet long – in addition to what is described as “a dispensing room,” a cashier station and a security room. In addition, the plans call for electrical facilities to accommodate extensive high-luminescence ceiling lighting.
One interpretation is that the Serranos were provided with advance information that the City of Adelanto was not only going to reverse its policy of prohibiting marijuana retail sales within city limits but were told precisely where the zones where those sales were to be permitted would be designated.
And the Serranos may not have been the only ones provided with that inside information. There was a flurry of activity with regard to land acquisition in Adelanto last fall, including six properties in the area being considered for the district in which marijuana sales will be permitted, four of which were finalized. In fact, on November 29, the very day the council held its workshop to discuss creating that retail zone, Industrial Integrity Solutions, which had already raised suspicions about its having previously participated in an inside information scheme in Adelanto when its parent company, Frontier Enterprises, bought 31 acres for its marijuana farm less than two weeks before the planning commission made a re-zoning of the property to accommodate that use, purchased property at 12011 Air Expressway. By buying the Air Expressway property before city officials indicated their readiness to put it into the marijuana sales district, Industrial Integrity Solutions cut hundreds of thousands of dollars or perhaps more than $1 million off the asking and eventual sales price on that property.
Adelanto’s contract economic development director, Jesse Flores, has been championing the city’s efforts to attract cannabis retailers. His contract does not preclude him from representing business interests, and questions have emerged about his relationship to some entities looking to establish dispensaries.
At question is whether those standing to make money off of the recently-manifested and still-manifesting changes in Adelanto’s ordinances have offered money – in the form of bribes or kickbacks – to the officials making those changes, whether those changes were formulated to advantage anyone already positioned in Adelanto in exchange for that generosity or whether information was provided to any of the entities that now stand to profit ahead of time in such a way as to allow them to so position themselves by securing property ahead of the escalating land costs.
The matter is of interest to federal law enforcement and securities regulation officials because federal law is more sharply defined in this regard than is California law.
Of note is that, as of now, before the re-zonings that will benefit those purchasers of the land are actually codified into an ordinance, all of the elements of a crime are not yet in place. Until the zone changes are made, it would be extremely difficult if not indeed impossible to demonstrate that any or all of the city council members were colluding with the land purchasers to alter city policy in their favor.
Woodard, Flores, the Serranos and Adelanto spokesman Michael Stevens spurned repeated invitations for comment. – Mark Gutglueck

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