Policing the cannabis trade: Overcoming old suspicions, anticipating new hazards

After being robbed of $9,000 on Jan. 9, a San Diego man did something unusual.

He called the police.

“Just a few years ago, cannabis business people were considered criminals,” said Hezekiah Allen, executive director of the California Growers Association, a marijuana trade group. “There’s a fear that if you call law enforcement, you’ll get in trouble.”

That’s a dangerous misperception, said Lt. Scott Wahl, a spokesman for the San Diego Police Department. The police, he noted, are committed to enforcing the laws, regardless of the victim’s background. Second, he argued, accurate information on crime is essential.

“In order for us to react and develop a strategy to deal with this situation, we have to understand the scope of the problem,” he said. “We encourage people to report these crimes, so these don’t grow into larger problems.”

Less than a month into California’s experiment with legal recreational marijuana, it’s clear that serious safety issues confront Cannabis, Inc. Because marijuana remains illegal under federal law, the industry is barred from the financial tools other businesses use — everything from checking accounts to debit cards, from lines of credit to loans.

And cash-only dispensaries peddle an item with a high street value.

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“Two things crooks like,” said Lt. Matt Novak of the San Diego Police Department’s narcotics unit, “cash and marijuana. It makes them big targets.”

Lincoln Fish, CEO of Outco, a “seed to sale” marijuana company in an unincorporated El Cajon, agreed.

“Some poor guy is going to get shot in the head while moving product from one legal place to another, or while moving cash from one legal place to another,” Fish said. “And then there’s going to be a public outcry.”

‘Rapidly evolving’

Reefer Madness, meet Main Street Mary Jane.

Signs of pot’s new respectability are everywhere. Bill Lockyer, a former California attorney general, is co-founder of a marijuana products distributor. Outco is joining the San Diego Regional Chamber of Commerce, an organization that only a few years ago denied the company’s application.

“Our average patient age is 58 and a half,” said Fish, escorting visitors through his business, which notched $4.5 million in revenue last year. The warehouse near Gillespie Field includes a shop stocked with medicinal marijuana creams and tinctures, a laboratory for testing products and extracting cannabis oils, and “grow rooms,” where cuttings from “mother plants” are raised for harvest.

A graduate of the University of Pennsylvania’s Wharton School, Fish opened Outco as a licensed medical marijuana business three years ago. A year later, burglars took a crowbar to the front door. They failed to breach the door, but did set off a silent alarm. Sheriff’s deputies responded and arrested the would-be thieves.

Fish praised the sheriff’s department: “They’ve been nothing but cooperative. They’ve been great.”

In this June 27, 2017, photo, bundles of $20 bills are placed on a table as Jerred Kiloh, owner of the Higher Path medical marijuana dispensary, prepares a trip to Los Angeles City Hall to pay his monthly tax payment in cash in Los Angeles. For Kiloh, the cash is a daily hassle. It needs to be counted repeatedly to safeguard against loss. State and local taxes must be set aside and stored, sometimes for a month or more. When vendors show up, they get paid in cash, too. (AP Photo/Jae C. Hong)

Statewide, the relationship between legal marijuana merchants and law enforcement is “rapidly evolving,” the California Growers Association’s Allen said, but there’s room for improvement. “Both sides are still a little bit skeptical of each other.”

Some agencies have been helpful, Allen said, citing the California Highway Patrol’s efforts to combat impaired driving — “they’re leading the way, spearheading a dialogue.”

At Outco, deputies conducted a security survey. The company adopted every recommendation, from reinforcing doors to creating unobstructed lines of sight from the lobby to the parking area. Deputies followed up with quarterly inspections.

Fish maintains this has forged to a good partnership with police — and that his experience is typical. All of his colleagues in the marijuana trade “would absolutely call law enforcement” if they were crime victims, he said.

Make that all of his colleagues in the legal marijuana trade.

Police say about 100 unlicensed, illegal marijuana delivery services now operate in San Diego. Moreover, they maintain that neighborhood dealers are still peddling pot.

“Marijuana didn’t stop coming across the border just because it got legalized,” Wahl said. “It’s using the legal market as cover.”

Stuffed envelopes

Since illegal dealers don’t pay taxes or fees, they can offer bargain basement blunt. But a cheap baggie bought on the street may contain lethal pesticides or other impurities. At Outco, Fish said, chemists ensure the product’s quality.

“Whether they come into the building as a seed or a plant,” said Matt Zbeic, Outco’s production manager, “every one has a bar code. You need to show a detailed lineage from start to finish.”

This allows the company to track potential problems back to the source — and provides identification, in case of theft.

Outco’s offices include a walk-in safe. That’s the initial solution to a problem plaguing any successful dispensary: what to do with all the money? Some of the cash goes to the staff — they are paid with greenbacks stuffed into envelopes — and some makes its way to vendors.

“Contractors don’t mind taking cash,” Fish said.

Still, loose currency piles up. Fish said there are several ways to handle the excess, including hiring armored trucks to haul money to a secure storage area, then using that cash to establish a line of credit at an offshore bank. Others truck cash to Colorado, where Safe Harbor Private Banking does business with cannabis enterprises.

Since September, Hawaiian consumers have been able to link their bank accounts to an app, CanPay, which is used to make purchases.

Still, banking issues leave marijuana employees easy prey for thieves and, some fear, could torpedo the industry. California state treasurer John Chiang has warned that the state is in danger of losing its share of North American sales that may surpass $20 billion by 2021.

Check out our updated map showing shops licensed to sell recreational cannabis in California.

“The clash between state and federal law threatens to cripple legal California cannabis businesses before they even get up and running,” Chiang wrote in a November 2017 report. “One of the main threats to legalization is that banks generally will not open accounts for cannabis businesses out of fear they will be penalized under federal law.”

That fear intensified this month, when Attorney General Jeff Sessions announced that federal authorities will no longer ignore state laws that contradict federal marijuana statutes.

“If we don’t wise up pretty soon,” Fish said, “all of this is going to go to Canada.”

Risky relationship?

Among the ironies attending this newly legalized trade is this: for decades, marijuana was an after-thought among many law enforcement agencies, including the San Diego Police Department’s narcotics unit. Last year, though, it created a Marijuana Enforcement Team.

The goal, according to Novak, the narcotics lieutenant, was to crack down on a black market police believe will flourish in San Diego’s new pot environment. “They probably won’t stick out as much in a city that has the legal industry,” he said.

Novak expects organized crime, including Mexican cartels, to infiltrate legal operations. “Their goal is not to sell narcotics,” he said. “It is to make money. They’ll get their fingers into legal operations the way they always do — with threats or with money, with payoffs.”

Authorities don’t know if this has happened yet. There are many unknowns in how San Diego and the state will respond to the new approach to marijuana. There’s broad agreement, though, that ties between the industry and law enforcement should be strengthened.

In San Francisco this month, a worker from a legal dispensary was robbed of about $7,000.

“He chose not to report it,” said the Calfornia Growers Association’s Allen. “He thought there was more risk in getting law enforcement involved than any chance of recouping any damages. That’s pretty indicative of the relationship.”

© 2018 The San Diego Union-Tribune. Visit The San Diego Union-Tribune at www.sandiegouniontribune.com. Distributed by Tribune Content Agency, LLC.

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