Graft Indications Involving SB Mayor & Council In Cannabis Licensing

In fits, starts and under the focus of the FBI, DEA, IRS and the San Bernardino County District Attorney’s Office, the City of San Bernardino last week took a stride closer to allowing both the cultivation and the sale of marijuana to take place within its nearly 62 square mile confines.
The change comes following a veritable 180 degree reversal by several members of the city council and persistent official action over the last decade that was in keeping with the apparently sincerely-held belief of the city’s political leadership that the economically and socially disadvantaged city with the 23rd highest murder rate among American cities with a population of over 25,000 could in no way benefit by giving its residents unfettered access to another intoxicant.
Those officials’ attitudes ran counter to the will and desire of a segment of the community which wanted the city to function within the rubric of 1996’s Proposition 215, California’s Compassionate Use of Marijuana Act, allowing the sale of medicinal marijuana. In defiance of the city’s policy, by 2009 illicit dispensaries were flourishing in the city, and the traditional black market in the substance continued unabated. In July 2014, San Bernardino City Attorney Gary Saenz, taking stock of the number of pot shops sprouting up in the county’s largest city, offered his view that the cost and difficulty of closing down dispensaries made the city’s ban on the enterprises “futile.”
The council formed a legislative review committee composed of three council members to study the issue and promised to reconsider the ban. Saenz said the city was contemplating allowing some dispensaries to function under a strict set of guidelines that would include significant licensing fees.
Nevertheless, a majority of the council, consisting of John Valdivia, Henry Nickel, Jim Mulvihill, Fred Shorett and Mayor Carey Davis, were unwilling to embrace cannabis liberalization.
With the approach of the 2016 election and the upheaval of the State of California’s long-imposed criminalization of the use of marijuana for recreational purposes, a clear majority of the city council remained opposed to allowing the retailing of marijuana locally. In reaction to the anticipated presentation of 2016’s Proposition 64, the Adult Use of Marijuana Act, advocates of the liberalization of marijuana policy in San Bernardino put two measures, N and O, on the ballot for the November 8, 2016 election, gathering the requisite number of signatures of registered voters in the city to do so. In reactionary mode, the city council used its legislative authority to place its own measure, P, on the ballot, one that involved imposing a set of regulations on cannabis-related operations that would practically render establishing and maintaining such businesses prohibitively expensive.
Ultimately, the political establishment, which had assumed that “potheads” lacked the discipline and cohesiveness to mount any kind of political effort, found themselves humiliated, waking up on November 9, 2016 to learn that the cannabis availability advocates toward whom they held such disdain had defeated them within their own bailiwick, at the polls. Measure P, despite city officials’ puerile effort to sell it as opening the city to the marijuana availability a subset of the population was clambering for, went down to defeat. Conversely, both N and O passed. Because it was the top-vote getter among the three measures relating to the same issue, by law Measure O was to go into effect.
Nevertheless, even then city officials delayed in implementing it, leading to the measure’s proponents suing the city.
One member of the city council in particular, Viet Nam War Veteran and San Bernardino State University Geography Professor Jim Mulvihill made periodic public comments and denunciations of potheads, signaling his absolute opposition to societal tolerance of the substance, seemingly oblivious to the consideration that societal mores with regard to cannabis were no longer what they had been, that the law had changed and that, closer to home, he and those with his anti-marijuana sentiment had been outmuscled politically at the polls.
In the meantime, entrepreneurs were willing to brave the city’s prohibition on medical marijuana sales. Efforts by the city’s regulators, code enforcement division and police department were made to close those operations down. No sooner would one operation be located, cited and shuttered, however, than two more would pop up to take its place. Saenz’s admonishment to the council some time before that such efforts would prove futile was, city officials were forced to acknowledge, accurate.
Among those involved in defying the city’s ongoing and illegal perpetuation of the pre-Proposition 64/pre-Measure O prohibition was Stephanie Smith. In differing circumstances and under different conditions, Smith’s version of her participation in both the production and sale of marijuana varied. In one of those narratives she was the queenpin of the Southern California cannabis industry, intrepidly going where no others dared, based upon her wherewithal to do so. In another, she was merely the landlord to those running such businesses.
After working as promoter in Boston as a young woman, she landed in Phoenix and Tempe, where she purchased dilapidated properties, renovated them and sold them. In 2005, at the age of 30, she departed for Los Angeles and while attending UCLA’s Anderson School of Management took up with Dr. Craig Alan Bittner, a successful Beverly Hills-based plastic surgeon and liposuctionist to the wealthy and famous. The couple were making money hand-over-fist until Bittner permitted her to on occasion perform body sculpting procedures on some of his patients, resulting in Bittner losing his license.
Smith parlayed the couple’s still considerable nest egg into a series of shrewd investments as the real estate market was on the rise. In 2007, with real estate values plummeting and many property owners in a full-fledged panic, Smith remained calm, swooping in to pick up properties others were bailing out of, paying fifty cents, then forty cents, then thirty cents on the dollar of what those same buildings had been selling for just a few years before. She tenantized those buildings with anyone who could pay something, hung on into the economic recovery that inevitably began in 2012, and today her company, Industrial Partners Group, owns two million square feet of industrial space, primarily in Southern California. Some of her warehouses are utilized by national corporations. Other smaller but successful industrial concerns lease space from her. Beginning more than six years ago, she began leasing property to tenants utilizing it for indoor marijuana cultivation activity.
Having launched herself into the financial stratosphere through preparation, hard work, innovation, charisma, risk taking and bold endeavors that skirted the boundaries of legality, Smith is not reluctant to throw money into her efforts, which in practical terms means she is litigious. She has launched lawsuits against Colton, San Bernardino, Hemet and Moreno Valley, asserting, essentially, that the political leadership and municipal management in those jurisdictions have abused the discretion they are entrusted under state law which grants cities authority to regulate or ban cannabis businesses as they deem proper. According to her various suits, those cities have through the wrongheaded implementation of regulations either conferred monopolies on certain cannabis purveyors or have created circumstances where such monopolies will be the logical outcome. To the extent that such a monopolistic hold on those communities is truly a reality, Smith’s crusade is hailed as salutary. Concern remains, nonetheless, that the logical end of Smith’s political, procedural and legal efforts is that a monopoly will be conferred upon her.
On August 24, 2017, after an interminable delay, the City of San Bernardino issued its first permit for a legal marijuana dispensary operation. That action at once raised suspicions with regard to the rectitude of the city council, as the license went to an entity functioning out of 100 W. Hospitality Lane, the address of the Flesh Showgirls club. The de facto owner of Flesh Showgirls is Randy Welty, a larger-than-life vice kingpin who owns, or principally owns, eight adult live entertainment venues – that is, topless or topless/bottomless/ fully nude or partially nude theaters or bars, seven adult bookstores, and a full or partial interest in 56 medical marijuana dispensaries.
The clear implication was that the city council – or at least several members of it – were being greased. A battle for control over the marijuana empire appeared to be in full swing, and Smith, who was loudly proclaiming that city officials were being corrupted by her competition, appeared to be losing.
In December 2017, San Bernardino Police made three raids on marijuana growing operations or warehouses in the city, all of which were on premises owned by Smith. They seized 25,000 marijuana plants at two locations and another 4.49 tons of marijuana at the third location. Though eight men were arrested and charged with cultivating marijuana in connection with those operations, Smith was not arrested, though she was briefly detained with regard to the raids.
In the same timeframe, authorities served a search warrant at her home, taking documents and communications devices.
In February 2018, the San Bernardino City Council passed an ordinance of its own creation allowing a limited number of marijuana-related commercial businesses in the city to function on one-year duration permits that are to be renewed or discontinued annually, dependent upon whether their owners and operators comply with state and local law.
The ordinance allows up to 17 cannabis-based businesses within the 61.95-square mile city, and is intended to supersede Measure O. The ordinance set a ratio of one cannabis-oriented business per 12,500 residents, which translates into a maximum of 17 marijuana concerns. What was not specified is the ratio to be maintained among the types of businesses – that is, dispensaries, cultivation facilities, research facilities and testing labs, and wholesale distribution warehouses. Under the ordinance, the city council was given ultimate discretion in determining what kind and how many such businesses will be permitted. Throughout 2018, the city worked toward arriving at a protocol for apportioning permits, coming to a finalized conclusion last month, nearly two months into 2019, at a special meeting held on Thursday February 21. After more than three hours of input from nearly two score of applicants, the council conferred commercial cannabis licenses on 16 operators. Of those, five were retail permits, five were what were referred to as microbusiness permits, four were cultivation permits, one was a manufacturing permit and another was a distribution permit.
More than two years after the city was under the legal gun to do so, it had at last made a tangible commitment to accommodate actual purveyors of the drug, though some complained that the city had still managed to put the cart before the horse in that each of the licensees must secure land-use approvals or entitlements for the sites at which they are to operate, a further process which will take most of those businesses until April to complete. City staffers are expected to update the council on that progress in April.
The manner in which city officials proceeded with the change left many with the impression that virtually everyone in positions of substantial authority in the city – from its new mayor, to all of its council members, its city manager, its police chief and its land use/community development/planning staff – are the recipients of graft in the form of money generated by the mob during its previous incarnation marketing drugs on the black market, as those underworld figures are now using their financial advantage to secure a further leg up on their future competition in transitioning into the now-legitimized marijuana trade.
Unmentioned by anyone was that the day before the council’s action on February 21, a contingent of San Bernardino police officers had traveled 77 miles west across the San Bernardino County/Los Angeles County boundary and descended upon Smith’s home in Pacific Palisades to serve a search warrant. In the home, which Smith shares with Bittner and the four of their five children, officers came across a substantial quantity of outdated oxycodone and hydrocodone, along with $200,000 in cash. The opioids were part of the painkiller supply utilized by Bittner in his now defunct plastic surgery practice. All of those drugs were more than seven years past their effective date. That however, did not prevent the police department from taking Smith into custody, booking her into the Lynwood Detention Facility in Los Angeles County and presenting the seized materials and the cash to the Los Angeles County District Attorneys Office, along with a report stating that Smith was in possession of controlled substances which were being sold.
In apparent cooperation with the San Bernardino Police Department, the Los Angeles County District Attorney’s Office stymied Smith’s release from Lynwood, even though she immediately met the imposed $30,000 bail, based on prosecutor’s demand that proof first be provided that the bail posted had not been the proceeds of criminal activity. On February 22, she was released after such proof was provided.
Of note is that the $200,000 in cash at Smith’s residence was rent money paid by Smith’s tenants who are engaged in marijuana-related enterprises since they are cash-only businesses because federal laws prohibit banks, which are federally insured, from dealing with businesses trafficking in marijuana, which is yet considered an illegal substance under federal law.
Smith was thus not on hand at the February 21 special meeting, at which Empire Connect, Pure Dispensaries, Have a Heart, JIVA, and PTRE Management, all of which, curiously, are located in San Bernardino’s 3rd Ward at the extreme south end of the city, were given retail licenses. Equally notable was that four of the five microbusiness licensees went to businesses located within the 3rd Ward, those being Orange Show Cultivators, which is to engage in cultivation, manufacturing and distribution); SOCA Farms, involving retailing, cultivation and distribution; Central Avenue Nursery, a cultivator, retailer and distributor; and Nibble This, which is to entail retailing, manufacturing and distribution. Nibble This has also been provided with a permit to open a second retailing, manufacturing and distribution operation at a location in the 6th Ward, on the northwestern corner of the city.
The purely cultivation permits are more evenly distributed geographically, with Accessible Options set to grow in the southeastern 1st Ward; 14 Four and GWC Real Estate Services given agricultural clearance in the 3rd Ward; and Organtix Orchards to raise the herb in the 6th Ward.
AM-PM Management, located in the centrally-positioned 2nd Ward, was the recipient of a manufacturing permit and Blunt Brothers, a distributor, is to operated its warehouse and dispatch office in the 3rd Ward.
In all there had been 39 applications for permits, and most of the applicants had a spokesperson present on February 20 to make a pitch to the council. In the end, 23 of the applicants were turned away by the city, including Washington LLC, which is owned by Smith.
In justifying the choices, city officials made vague allusion to a four-step evaluation and winnowing process that all of the applicants were subjected to. HdL Companies, the entity that served as the city’s consultant in making the evaluations of the 39 companies, did not have a representative at the special meeting.
Ben Eilenberg, Smith’s attorney, told the Sentinel that Smith’s arrest at the hands of the San Bernardino Police the day before the council’s special meeting was noteworthy. “I find the timing of the arrest suspicious,” Eilenberg said.
If, indeed, city officials believed Smith would take her arrest supinely, they were in for an awakening. Released on February 22, Smith regrouped at her Pacific Palisades home over the weekend. On Monday February 25, Eilenberg lodged on Washington LLC’s behalf a lawsuit against the City of San Bernardino,
According to Eilenberg, city officials, and all of them, are on the take. “The effects of the ‘pay for play’ corruption led to the city issuing a large number of licenses that were illegal,” according to the suit. In awarding the permits, according to Eilenberg, the city had failed to adhere to its own declared standards.
The suit states that “Over 50% of the issued licenses were illegal, thereby throwing the entire process into doubt.” Identified as out of compliance with the city’s codes, policies, municipal plan, zoning codes and/or general plan were Organtix Orchards, AM-PM Mgmt. Inc., Orange Show Cultivators, both Nibble This LLC operations, A Bud & Beyond, Blunt Brothers, and Accessible Options.”
According to the suit, money originating with applicants for the licenses was being passed around to the city’s elected officials, and on occasion city staff in positions as high ranking as the city manager were coordinating how the money, disguised as political donations, was to be vectored and to whom, in return for which the licenses were granted.
A private investigator employed by Smith has been able to retrieve texts and emails that passed between city officials and cannabis operation applicants or their representatives in which preparations for the exchange of approval for money took place. The proof that something is amiss exists in the consideration that several of the cannabis operations that are out of compliance with the city’s standards were given permits while others which were in compliance came away empty-handed at the end of the February 21 special meeting, Eilenberg asserts.
Apparently there was some substance to what Eilenberg alleged, in that on February 27, in the hearing for the injunction that Smith was seeking to suspend the licensing of all 16 selected cannabis-related businesses, San Bernardino Superior Court before Judge Janet M. Frangie issued temporary restraining orders against seven of the businesses Washington LLC claims gained approval for operational plans that are in violation of the city’s municipal codes, policies, municipal standards, zoning codes and/or general plan. Those companies are Organtix Orchards, AM-PM Mgmt. Inc., Orange Show Cultivators, both Nibble This LLC operations, Blunt Brothers and Accessible Options. A Bud and Beyond, which Smith also alleged to be noncompliant, was not included in those restrained because the city had not granted it a permit.
The matter would have been heard by Judge David Cohn, who in the last several years has routinely been handed cases relating to marijuana licensing issues within San Bernardino County municipalities, but Cohn was on vacation.
Today, March 1, Connected Cannabis Co., represented by attorney Jeff Augustini, filed suit against the city in an action that mirrors the suit Smith brought. Connected Cannabis maintains that not only should the permits on the seven operations already suspended be rescinded but that all 16 that were approved be prohibited from proceeding. Several of those given licenses, and others, were not certified by the San Bernardino Community Development Department as being a requisite 600 feet or more away from schools, parks, churches, youth centers, operations where alcohol is served or sold, according to Augustini. Moreover, Augustini suggests that “the credibility of the city’s selection process” has come into question “amid growing rumors and allegations of corruption, cronyism, political maneuvering, and the use of the process to score political points and to carry out political vendettas.”
Connected Cannabis wants the previous permitting process to be scratched and the city to start over.
Observing what is transpiring are the FBI, the federal Drug Enforcement Agency and investigators with the San Bernardino County District Attorney’s Office’s Public Integrity Unit. The mayor and all members of the current city council are under focus, as are the city manager, members of her staff, and employees within the San Bernardino Community Development Department. Having fallen by the wayside is former City Councilman Benito Barrios, who was previously under intense scrutiny. Investigators had grounds to believe that he had a financial interest in at least one of the city’s cannabis operations. His official departure as a member of the city council in December, more than two months prior to the city’s action on February 20, alleviated the potential of a conflict of interest on his part being actuated.
Investigators are following leads and tangents which suggest that the temptation of massive amounts of money may have overwhelmed the judgment of several, or perhaps even all, members of the council, who may have moved to profit themselves in the first blush of the cannabis frenzy that devolved from the passage of Measure O. With the window for profit rapidly closing as the principle of supply and demand is exerting downward pressure on the cannabis market’s pricing structure with the advance into legalization, the theory is that members of the council took advantage of the willingness of would-be cannabis entrepreneurs to purchase the necessary votes to provide them with a legitimate license to operate as marijuana purveyors in the city.
Of note is that Councilman Jim Mulvihill, whose opposition to marijuana availability outran that of any of his colleagues two, three and four years ago, has now signed onto the city’s marijuanification. Mulvihill’s defenders, while conceding that he is culturally tone deaf in many respects and was for that reason until a short time ago several decades behind social trends, insist that the provision of under-the-table money to the 7th Ward councilman was not likely to have occurred and that the most logical explanation for his having flipped on the issue is that he has been educated through his participation with Southern California Associated Governments to accept marijuana as a legal substance that presents an opportunity for municipalities to reap much-needed tax revenue.
The San Bernardino elected official most thoroughly entangled with questionable entities involved in the cannabis culture is Mayor John Valdivia. Though Valdivia was once adamantly opposed to cannabis seeping its way into San Bernardino, law enforcement has tracked a substantial amount of cash that has been filtered to him by individuals who have been documented as operating illicit, unlicensed and/or unpermitted marijuana-related businesses. Valdivia, or his campaign treasurer, has reported some of that cash as political donations. Investigators, at present, are waiting to see if money given to him from such sources otherwise will be reported as campaign donations. One factor that redounds in Valdivia’s favor in terms of the ongoing criminal investigation relating to potential bribes or kickbacks being provided to San Bernardino officials is that in the capacity of mayor, a position to which he was elected in November and which he assumed in December, Valdivia does not vote on issues that come before the council, except in the case of a tie. The same level of grace, however, would not extend to any members of the council who might vote in support of a business application, either as a consequence of a monetary inducement provided to them to do so or at Vadivia’s behest.
-Mark Gutglueck


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