Three members of the Adelanto City Council last week settled a lawsuit American Scientific Consultants LLC brought late last year over the city having backed out of an agreement to sell that company municipal property that was rezoned into a district in which cannabis related commercial activity is now allowed to take place. Though the council’s March 28 action seemed to have put the issue to bed, next week the city council is scheduled to revisit the matter in closed session, signaling some snag is preventing the settlement from being actuated.
The set of circumstances around the entire matter has intensified recurrent charges that land speculators and would-be cannabis marketers are enriching themselves by acting on inside information provided by Adelanto officials, and are offering kickbacks in exchange for that timely and illicit information.
Indeed, what is troubling for many is that significant numbers of those engaged in the development of marijuana-related commercial enterprises in Adelanto have formed firm and fast relationships with elected city officials and have expressed on multiple occasions that they consider themselves entitled to set up and run those businesses, even as others without connections at City Hall are complaining the city has slammed doors in their faces.
Adelanto’s political and staff leadership, prior to the 2014 election, was adamantly opposed to permitting marijuana sales within the confines of the 53-square mile city, even though it was hovering on the cusp of bankruptcy after declaring it was in a state of fiscal emergency in June 2013 and many were advocating allowing medical marijuana clinics, cooperatives and dispensaries to be set up there as a financial panacea. But shortly after Rich Kerr, John Woodard and Charlie Glasper were voted into office in November 2014 in a clean sweep that displaced the three incumbents up for election that year, mayor Cari Thomas and councilmen Charles Valvo and Steve Baisden, the troika of Kerr, incumbent councilman Jermaine Wright and Woodard pressed forward with a vision of converting Adelanto to a cannabis-based economy, though Wright was careful to play that intention close to his vest. Their collective move began somewhat cautiously in 2015, with the trio agreeing to limiting commercial marijuana activity in the city to indoor cultivation facilities within the city’s industrial park zone. By agreeing to that condition, Kerr, Woodard and Wright were able to get Glasper to support the concept of capitalizing on that element of the Compassionate Use Act approved by California’s voters in 1996 which allowed marijuana to be sold for medical purposes subject to it being prescribed by a licensed medical doctor. Consequent to the Compassionate Use Act, cities could permit dispensaries selling the drug or agricultural concerns cultivating it to set up operations which could then be taxed to create a source of revenue to local government. As long as the drug was not going to be marketed to end users in Adelanto, Glasper was willing to allow indoor farms to grow it and sell it wholesale to buyers outside the city.
That shift from strict prohibition to acquiescing in creating marijuana cultivation zones and a cannabis-involved business permitting and licensing process resulted in a frenzy in which would-be entrepreneurs, anticipating being able to set up highly lucrative businesses in town, began purchasing or leasing properties in Adelanto while simultaneously flooding into Adelanto City Hall literally bearing briefcases full of cash intended to effectuate the purchase of an entitlement to grow and sell marijuana by the ton.
Kerr, Wright and Woodard achieved the first stage of transitioning Adelanto into a commercial cannabis Mecca by adopting policies, ordinances and regulations in keeping with 1996’s Proposition 215 and its affiliated Compassionate Use Act. They elicited attention, not to mention suspicions that they were receiving kickbacks, when in December 2015 during a closed session vote the city council consented to selling 47 acres of land in the city’s industrial park that was in the possession of the successor to the city’s former redevelopment agency to Newport Beach-based Kojima Development, Inc. at the bargain basement price of $375,000, prorated out at $7,972 per acre. For many, the sale was inexplicable. The amount Kojima paid was $1,023,041 less than the city had paid for the property.
A month previous to the sale, the city had passed an ordinance clearing the way for marijuana cultivation to take place in its industrial parks. That zoomed the value of the property Kojima had purchased into the stratosphere. Immediately after approval of the sale was made, the city was inundated with offers on the property that dwarfed what Kojima had paid, ranging from $7 million to $12 million to $14 million, the last tendered by Marc O’Hara.
Market analysts, taking into consideration the action by the city to allow large scale marijuana cultivation operations to operate out of the industrial park in which the property Kojima bought was located, said the city sold the property for some $9 million to $12 million less than what it was worth. Immediately, reports were afoot that illegal inducements in the form of bribes and kickbacks had been provided to city officials in return for their having signed off on the land transaction.
Despite those insinuations, Kerr, Wright and Woodard pressed forward, emboldened by the statewide 2016 campaign to make smoking marijuana for recreational purposes legal under Proposition 64, the Adult Use of Marijuana Act. In the face of that development, in which Glasper’s personal opposition to allowing marijuana to be sold at the retail level and used locally became essentially irrelevant, Kerr, Wright and Woodard moved on to the second stage of getting Adelanto in on the ground floor of the California cannabis revolution. They began to press for permitting dispensaries to operate within the city. This created a further opportunity for would-be marijuana retailers, and applicants were beating a path to Kerr’s, Wright’s and Woodard’s doors. Whoever had an inside track on setting up a pot shop in one of the proscribed areas stood a substantial opportunity to get rich.
This created the spectacle of city officials themselves appearing to be cashing in on the bonanza they had created in their roles as stewards of the public trust. In one case involving Woodard, who is licensed as a real estate broker, he brokered David Serrano’s October 2016 purchase of a 2.25 acre lot located at 17499 Adelanto Road just south of Joshua Avenue upon which the Jet Room, a one-time cocktail lounge that had catered to airmen at the now defunct George Air Force Base, sat dormant and dilapidating. Serrano paid Dmitri Manucharyan $450,000 for the property. Less than seven months previously, Manucharyan had purchased the property for $239,000. While Serrano, a lawyer, initially maintained he was purchasing the jet room to transform it into legal offices, within two months the city council, including Woodard, ratified a zoning plan that designated the area between Pearmain Street, Air Expressway, just west of Mesa Linda Road and Rancho Road as eligible to host medical marijuana dispensaries. Contained within that area was the Jet Room. Ultimately, David Serrano submitted plans to the city calling for the conversion of the Jet Room into a cannabis sales business.
Paralleling what occurred with Serrano, C.B. Nanda likewise in 2016 interested himself in profiteering on the new era of tolerance toward marijuana in the City of Adelanto. Nanda created an entity, American Scientific Consultants, LLC, to achieve that goal.
According to Nanda’s attorney, Irvine-based Rick Augustini, who on December 21, 2017 filed a lawsuit against the City of Adelanto on behalf of Nanda and American Scientific, “ln or about mid-2016 ASC [American Scientific Consultants] decided to enter the medical cannabis business and started looking for real property to purchase in the City of Adelanto, including making offers on property owned by the city. In late 2016 and early 2017 ASC spent hundreds of hours and thousands of dollars securing medical cannabis permits and licenses from the City of Adelanto. Sometime prior to March 30, 2017, the city decided to sell the real property located at 17451 Raccoon Avenue Adelanto, as part of its effort to generate additional revenue to pay for infrastructure and resolve a budgetary shortfall. On or about March 30, 2017, ASC offered to purchase the subject property from defendant. Over the next several months ASC and defendant negotiated the terms of the sale of the subject property in an arms-length transaction.”
The property at 17451 Raccoon Avenue was the city’s public works yard. There were two main buildings on the property, one of which housed the city’s emergency operations center, which had in large measure been constructed on the site and outfitted through a $375,000 grant from the U.S. Department of Homeland Security the city received expressly for that purpose in 2011.
According to the lawsuit filed by Augustini on behalf of American Scientific, Nanda negotiated on the company’s behalf and Adelanto’s interim city manager, Mike Milhiser, negotiated on the city’s behalf. “Between March 30, 2017 and July 3, 2017, the city council discussed the sale of the subject property in closed session in the presence of the city attorney on multiple occasions, including on March 30, 2017, June 14, 2017 and June 28, 2017,” the lawsuit states. “Following the meeting on June 28, 2017, the defendant advised ASC that it would sell the subject property to it for $1,000,000. On or about July 3, 2017, ASC submitted a written offer to purchase the subject property for $1,000,000. On or about July 13, 2017 defendant accepted ASC’s offer and entered into [a] written agreement. ASC thereafter assigned its rights to AMN, LLC [a company affiliated with ASC] and entered into an agreement with Canniatric, LLC [a company which makes tinctures of cannabis] at the specific request of defendant because of its national reputation in the cannabis industry. Mr. Nanda signed the agreement on behalf of ASC and Mr. Milhiser signed the agreement on behalf of defendant. At the time ASC and defendant entered into the agreement the subject property was outside the cultivation zone that defendant had established for the manufacturing, testing and distribution of medical cannabis pursuant to its municipal code.”
With the escrow papers prepared by Milhiser signed by both the city and American Scientific, the sale moved into escrow. Both parties thereafter undertook their respective due diligence with regard to the sale, with American Scientific asking for documents relating to the property. Simultaneously, the city was exploring complications relating to the sale that might come about because of the city’s emergency operations center housed in one of the two buildings on the public works yard site and because the city had committed to keeping the operations center going for ten years after receiving federal money to modernize its emergency communications. The emergency operations center had been in place there for a little bit less than six years, meaning the city would be in violation of its commitment to the federal government to get the grants if it did not keep the emergency operations center in place for another four-plus years.
Despite the fact that American Scientific had entered into the arrangement to buy the city’s public works yard and despite its arrangements with AMN, LLC and Canniatric, LLC, according to Augustini, it was understood that the public works yard at the time American Scientific closed the deal to purchase it was outside the property zoned for commercial cannabis activity. That circumstance appears to be logically incoherent unless there was some understanding that rezoning of the property for commercial cannabis use would be forthcoming. A point understood by those close to the deal is that the property is considered ideal for cannabis cultivation because of its ready access to electricity.
In August, the city council elevated community development director Gabriel Elliott to the city manager’s position. On September 8, 2017, at the direction of the city council, upon which Kerr, Wright and Woodard were the controlling majority coalition, one of the first significant actions Elliott took as the city’s top staff member was to orchestrate the city council’s expansion of the city’s cultivation zone to include the property in the 17000 block of Raccoon Avenue. Elliott was not in favor of the zoning expansion, just as he felt it ill-advised for the city to proceed with the sale of the public works yard. Nevertheless, having acceded to the position of city manager less than a month prior to that, he facilitated the zoning change. According to Augustini, “American Scientific Consultants, LLC and C.B. Nanda had no involvement in or foreknowledge of defendant’s decision to expand the cultivation zone to include the subject property.”
Prior to the September 8 action by the city council, the city’s cultivation zone covered 663.35 acres. After the vote, the cultivation zone consisted of approximately 2,214.5 acres. The council’s decision to change the city’s zoning map increased significantly the value of the properties moved into the cultivation zone.
In October, the FBI, which had been conducting an investigation into a multiplicity of circumstances in Adelanto pertaining to the city’s moves to open it to the marketing of marijuana, cinched up a case against Wright, having successfully lured him into taking a bribe from an undercover FBI agent posing as a would-be marijuana distributor in exchange for assisting in cutting through city red tape to get that business up and running. Caught red-handed, Wright initially agreed to cooperate with the agents in further efforts to ferret out graft and corruption involving Adelanto officials and those seeking commercial marijuana business operating permits. Almost immediately, however, Wright compromised the undercover operation by disclosing it to others. On November 6, 2017, the U.S. Attorney’s Office obtained an arrest warrant for Wright and the following day the FBI arrested him on charges relating to bribery and conspiracy to engage in arson. He has remained in custody ever since. In January, he was removed from his position on the city council.
The day after Wright’s arrest, on November 8, the city council went into closed session, during which Elliott had scheduled the council to come to a determination with regard to whether the sale of the public works yard would be finalized. Yet of consequence was whether the closure of the city’s emergency operations center, which would take place if the public works yard was sold, would be a violation of the city’s commitment to the federal government in having received the federal grant used to create the emergency services center six years previously. Without Wright present, the crucial third vote to support finalizing the sale of the public works yard to American Scientific was not provided, as councilman Ed Camargo, who had always been opposed to the marijuanization of Adelanto, along with councilman Glasper opposed closing the deal. Both Kerr and Woodard, who had offered C.B. Nanda their personal assurances that the sale would be approved, were livid with Elliott, having correctly surmised that he had outmaneuvered them in blocking the sale of the public works yard. Meanwhile, word had reached city attorney Ruben Duran that American Scientific had a side arrangement with members of the Adelanto City Council. Duran terminated the deal to prevent a criminal act which would have involved city officials from being actuated, the Sentinel is informed. On December 21, Augustini filed a lawsuit against the City of Adelanto on behalf of American Scientific over what Augustini alleged was the city’s breach of an agreement to sell the city’s public works yard.
In the suit, Augustini maintained that on “November 9, 2017, an attorney representing defendant, Ruben Duran of Best Best & Krieger, purported to terminate the agreement by among other things falsely claiming the interim city manager, Mr. Milhiser, lacked the authority to enter into the agreement and the agreement was the result of a conflict of interest.”
The lawsuit, which embodies a number of contradictory elements and assertions, lays bare how American Scientific and by extension others seeking licensing to operate marijuana-related businesses in Adelanto are functioning in a milieu in which the city is essentially obliged to rezone property those would-be operators have acquired to accommodate cannabis-related commercial activities, skirting around the issue of the degree to which public officials have committed to making those changes ahead of time. Reasoning that the city’s public works yard has become worth $5 million as a result of the zone change made in September, Augustini asserted in the lawsuit that American Scientific Consultants is entitled to the profit it would have been able to realize by acquiring the property and then liquidating it in accordance with the greater value that would have been assigned to it by the council’s action. Consequently, Augustini is seeking for his client a judgment “for damages according to proof at trial but in no event less than $5,000,000.00 plus prejudgment interest at the legal rate.”
Last week, Kerr and Woodard succeeded in convincing Glasper that the city should settle the suit on terms by which the city agreed to sell the public works yard and its two buildings and accompanying one gross acre of property to American Scientific for $1 million, subject to a $1 per year leaseback arrangement by which the city will be allowed to have the emergency operations center remain in place for four years. Scientific American is to hereinafter abandon any litigative claims against Adelanto arising out of the city having sought to terminate the deal. Scientific American also agreed to end its appeal of the city’s action in revoking permits it had once granted to Scientific American for a cannabis-related operation on Koala Road. The city moved to shutter that operation after the city’s code enforcement division learned that Scientific American had jumped the gun on initiating operations there prior to having other permits and documents certified.
Despite that agreement, however, word has reached the Sentinel late this week that a glitch in the agreement has manifested, and the council is again scheduled to go into closed session on April 11 and discuss rescinding the agreement with Scientific American based on an unidentified issue which city attorney Ruben Duran believes will serve as sufficient grounds to obviate the sale. Accordingly, the city council is prepared to accept the possibility that Scientific American will reinitiate the lawsuit.
At the same city council meeting, it is anticipated that further indication, indeed what some are calling proof, will emerge that city officials are supplying inside information to land speculators or entrepreneurs purposed to begin cannabis-based operations in Adelanto. The city council is set to consider amending the city’s general plan land use and zoning map from desert living zoning allowing 2.5 units per acre of residential development to light manufacturing cannabis only zoning on an 178.75-acre irregularly shaped area within the boundaries of Calleja Road to the north, Aster Road to the east, Raccoon Avenue to the west, and Avalon Avenue to the south.
The change will allow marijuana-related commercial activity to take place on property purchased by Shad Boyd last year after he was given reassurances the property would be zoned for commercial cannabis activity. Boyd came before the city council at the December 13, 2017 meeting and during the segment of the meeting reserved for public communications said, “I’ve got a question, a kind of a problem I hope you guys can help me out with. Back on July 3rd, we had a special meeting. You guys expanded the zone, the cultivating zone, the green zone, however you want to look at it. That night you pulled up a map and you said that you were going from Raccoon and Yucca all the way down to Bellflower, coming back down Bellflower to Rancho, to Powerline Road, then all the way back to Raccoon. I got up and I spoke and I asked the city manager again, ‘Are these the boundaries?’ You got up with the pointer and you pointed out and said, ‘Yes. These are the boundaries.’ I went out and bought property, not on the end of the zone, in the middle of this zone that you guys announced out that night. You guys never came back and said, ‘Hey, we’re shortening this. I’ve talked to the city manager. He knows. He said, ‘Yeah. We did this.’ You shortened that zone. I’m right on the other side of the street. I bought this property that you guys said was in the zone and you guys changed the zone without coming to the public and saying, ‘Hey! We’re doing this.’ That’s the zone you guys came out with, and you changed it. So, it’s hurting me. So, I’ve asked. It’s come up in conversation. It was said they were going to make that zone, the whole industrial zone… was going to become the green zone. So, that was going to settle my complaint. But now you guys changed that to where you didn’t do that. So, my complaint comes back up into issue, that you guys announced this out that you made this zone. So, now I’m stuck with a piece of property off of the words that you guys said. It goes back to July 3rd. I’ve got the map here. I’ve got other emails with other partners of mine. So, I need to have this solved. I need your guys’ help. Just not short me. I’m on the other side of the street where you guys stopped the zone. I’m trying to build industry and help build with the city, and then you guys short me, on the other side of the street.”
Kerr responded, “I turned that over to the city manager. He has your cell phone number. We’re going to look into it and go back to July 3rd and look at whatever is on it. He’ll contact you and get up with it, and if the council has to bring it back, then the council will bring it back.”
Boyd said, “God bless you, sir.”
– Mark Gutglueck