2017’s Overlooked Story: Does Santa Ana Now Have a Recreational Marijuana Monopoly in the OC?

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Of the 2017 political stories in OC that I don’t think have been entirely digested, near the top is Nick Gerda’s Santa Ana Will Allow Up to 30 Recreational Marijuana Shops in Voice of OC.  Sifting through it generates a number of facts that perhaps should have been expected individually, but add up to something unexpected: has the Old Guard of the Democratic Party established a lucrative de facto monopoly on marijuana sales — that’s smokable leaf, edibles, and whatever else — in Orange County?

If so, what do Republicans think about that?

Former DPOC Chair and current Santa Ana ganjapreneur Frank Barbaro with a good bud. (Photoillustration of a not-at-all-stoned Barbaro adapted, not kidding here, from 2017 Election night photo in the OC Register’s “The Buzz.” (It has long been the philosophy of this blog that, whenever one can substitute the head of former OCGOP Chair and possible CA-45 candidate Scott Baugh with a gigantic bud of cannabis, one probably should.)

Among the points that Gerda notes, which I am paraphrasing and sometimes compositing:

  1. So far as he’s aware, as of last November 29 Santa Ana was the only one of OC’s 34 cities (and its county-controlled unincorporated areas) to have decided to authorize the sale of recreational marijuana as January 1, 2018 — the first day possible, under Prop 64, which is also known as “today.”  All but Santa Ana and perhaps Tustin, in fact, have voted to ban such sales.
  2. Santa Ana had 17 legal medical marijuana (“MMJ”) dispensaries, with 3 on the way and 10 more facilities selling solely recreational marijuana just having been approved.  Non-retail services such as growing space may also be approved, and the county cannot preclude mobile delivery services.
  3. The 10 new facilities will be chosen using a system granting points to applicants who, among other factors, “commit to local hiring, are experienced in operating an existing commercial marijuana business elsewhere in the country, and support ‘community benefit and/or youth programs in Santa Ana’.”  [n.b.: It is not clear to OJB why experience selling marijuana in Santa Ana would be less valued than experience doing so in Washington, Colorado, or elsewhere in California.]
  4. Beyond tax revenues from medical marijuana, sales of retail marijuana are expected to garner Santa Ana between $1.7 million and $4.7 million in revenue during 2018 alone.
  5. Beyond the benefits of having owners chosen in part based on their willingness to support “community benefit” and “youth programs” in the city — now there is a potential slush fund that bears watching! —  Santa Ana’s “City Council has directed that the retail marijuana revenues be split in equal thirds between enforcement (like the Police Department, code enforcement, and City Attorney’s Office), community services (like parks and recreation, the city library, and Police Department-operated prevention programs), and administration (like the City Manager’s Office, Finance Department, and other city agencies)” according to acting assistant to the city manager Jorge Garcia.
  6. Non-profits have to fear whether accepting a share of the above monies would affect their non-profit status, as the IRS knows well that marijuana sales are illegal under federal law and has stated that non-profits would have to pay full taxes on such receipts.    [n.b., Gerda does not note that, if the regulations allow them to receive such monies, for-profit companies providing youth and community benefit services wouldn’t have to care!  Keep an eye on what for-profit companies may be set up to receive these monies!  And bear in mind that it’s the marijuana vendors who would presumably decided where their donations would go — and there’s no mention of restrictions on self-dealing!  In fact, as cities wouldn’t be prosecuted for accepting such monies, channeling donations through the cities to programs owned by the same people who run the retail stores might be enough to launder the money clean enough to bank!]

Gerda quotes Santa Ana Councilman Jose Solorio — a close political associate of some of the names about to be mentioned — as saying that “[n]one of the existing medical marijuana dispensaries have opposed the idea of being required to provide community benefits and hire local residents.”  I’ll BET they haven’t!

Now here’s the truly political portion of the story.  There were two abstentions on the new regulations: Mayor Miguel Pulido and Councilman Vince Sarmiento, who not only didn’t vote, but didn’t take part in discussions.  One question I have is whether this was not taking part in public discussions or also not taking part in private discussions — including not having agents cause their views to become known to the members who voted.  Sarmiento told Gerda the day after the late November Council meeting.

Sarmiento said he was still awaiting an opinion from the California Fair Political Practices Commission about whether he could participate. Pulido did not explain why he was choosing not to participate in making the marijuana regulations that he had been retained by some public agencies to consult in this space. I don’t have an investment interest or any sort of relationship to any of the operators in our city. It’s just that I represent the agencies in other communities that have asked me to be” a legal counsel.  Sarmiento added that in some cases he had (quoting Gerda) “recommended cities not move forward with allowing and regulating cannabis, and that they should instead do “an outright moratorium.”  He added that he didn’t think that there was any technical conflict of interest at hand, but that “I don’t want there to be any perceived conflict either.”

I’m sorry to disappoint but: it sounds like Sarmiento was apparently advising his clients outside of the City of Santa Ana not to approve ordinances or regulations that would compete with the City of Santa Ana!”  That may not be a “conflict of interest” of the sort where he would personally be profiting, but what sort of lunatic potential competitor would hire as legal counsel a City Council member of a city that was poised to corner the market on legal sales of marijuana?  Arguably, Sarmiento had a fiduciary duty to the city to discourage other communities from entering the market because that would mean more tax revenue for Santa Ana!

Sarmiento can argue that he has a right and responsibility not to divulge the names of his clients, but … damn, someone ought to get busy with public records requests towards other entities to dins out who hired Vince Sarmiento to tell them not to compete in this lucrative area with his own city!

Another question — and this may be one of those things that is, amazingly, legal under our system — is whether Sarmiento had friends and associates who would be profiting from forfeiting tax revenue that could go to Santa Ana.  It’s less of an issue given that Sarmiento abstained and probably (as he’s not an idiot) didn’t transmit his opinions on specific regulations towards other decision-makers.  But is it possible that someone who is less not-of-an-idiot could have done so?

Pulido reportedly told Gerda in a phone interview that:

he recused himself because one of his lead fundraisers, Melahat Rafiei, represents marijuana dispensaries in the city, through the Santa Ana Cannabis Association.

“I’m recusing myself for the same reason I recused myself every time for about the last year or so, and that is namely – and I stated that – my financial chair and advisor, my good friend – her name is Melahat” …. “You know she’s very active with the association here in Santa Ana, and so I don’t want to have any conflict or the appearance of conflict, and so I choose to recuse myself.”

The mayor said he does not have any investments or ownership interests in marijuana dispensaries or businesses.

Yeah, but he does have good friends with investments!  I’m not divulging anything I have to say here because I contend that the letter of some law has been violated but whatever Pulido had to do with the process (and, depending on what happens with choosing who gets them creating the extra ten retail entities may alleviate the problem — or, I suppose, worsen it) would likely be straining at the boundaries of the spirit of such a law.

(Fun fact before we continue: after Jordan Brandman, Melahat’s favorite client — based on “number of times career prospects touted personally to me when we were speaking — has been Vince Sarmiento.  I don’t hold that against him, but … why didn’t he try to use her as a shield like Pulido desperately did?)

Let’s leave this next as what Vern likes to call chismes, or what I’d call “scuttlebutt.”

It was a point of discussion in DPOC circles at the time in the wake of Prop 64 passing that former DPOC Chair — and former (at a minimum) Pulido business partner (they owned the former Santa Ana headquarters of the DPOC with a third person whose identity I’d want to confirm before naming) AND notorious pothead — Frank Barbaro had supposedly dispatched Melahat to act as an agent for him (and perhaps others) in participating in the process of obtaining licenses.  (I can’t recall whether it was lottery or an auction, a combination, or something else.)  The story was that Melahat (and therefore Barbaro) had done really well in the process, obtaining either some or many or most or maybe something approaching or reaching all, of the licenses in question.  I don’t get the sense that I was out of the norm in thinking that (1) it was poetically fitting that Barbaro would get into the business, (2) highly unsurprising that Melahat would be his agent, and (3) not very surprising if the playing field for the competition for licenses had been somewhat, um, tilted.  (Not that I know that it was — but it sure would be nice to have the figures on how well Frank and Melahat had done, which I presume must be published by now.  (Right?)  Melahat’s status as the Pooh-Bah of the “Santa Ana Cannabis Association” is similarly unsurprising, especially if her client had scored big among the licenses.  (I am left wondering whether this intriguing Voice of OC story — largely about Pulido and Barbaro, but with mentions of Melahat and our old friend Dishonest Dave Gilliard’s CAHOA campaign-donation laundry service — was ever updated.  Read it, leave your impression in comments!)

At some level, Frank and Melahat either dominating (even if  not actually cornering) the marijuana market in Santa Ana has the makings of a funny folk tale.  I don’t know about you, but to me it is a lot less funny when it raises the possibility that by controlling Santa Ana, they thereby might have established a monopoly in ALL OF ORANGE COUNTY.

THEN it would become a serious consumer protection issue — not that the anti-trust cops in DC would touch it — as well as a public health issue, because the idea behind pot legalization was in part to make it easier on adult consumers financially as well as in jail time risk — and if a monopoly (or something approaching it) hiked up prices it would encourage the use of more dangerous substitutes — by which I could mean alcohol but actually mean meth and opiates.

One of the pre-Prop 64 measures was named “Regulate Marijuana Like Wine” — to his credit, Barbaro supported it — and I still consider this a good guide.  If Santa Ana were the only “wet” city in the county after Prohibition, how would it have been taken in the lion’s share of the liquor licenses had ended up in very limited hands.  (All right — for all I know, that may have happened.  I still think that it would raise eyebrows.)  So I think that Santa Ana and the rest of the county do need to take a clear-eyed look at the state of diversity of ownership interests in the one “wet” city, cannabis-wise, in the county.

But people uncomfortable with anything even approximating a monopoly should want to do more than that.  I think that it’s great that Democratic-dominated Santa Ana has all those tax revenues in store, I really do.  But what about other cities?  Fullerton comes to mind.  (I wish that Brea did, but I’m not going to kid myself.)  Costa Mesa, Huntington Beach. Laguna Beach, San Juan Capistrano.   Anaheim?  No, because of Disney, though if times get as desperate as we think….   (Again, we ask as usual, is Disney really going to uproot?) Probably not cities very close to bordering LA County, which will be able to underprice them — so tough luck, La Habra and Stanton.  (La Habra Heights, though — they may not be in OC, but they sure are easy to get to….)  But the rock-ribbed Republican city that keeps coming to my mind is … Placentia.  They got hit by that terrible embezzlement last year, and they’re notorious for trying to squeeze their tax-paying residents — if I were looking for a place to break a Democratic monopoly on pot, that’s where I might look first.  (The city even sounds like it could be a cannabis brand name.)

But, of course, if there’s much less of a monopoly — or oligopoly, let’s not get to technical here — in OC, then there’s much less of a problem.  So — when will we find out?  It’s not going to take convening a Grand Jury, right?

UPDATE:  Here’s the other story I was looking for; I mistakenly recalled it being in the Voice while it was actually Nick Schou in the OC Weekly.  It goes deeper into detail about the lottery and about Barbaro’s alleged claims to be able to “pick winners and losers” (my phrase, not a quote) in the Santa Ana lottery — which is the sort of thing that can lead to centralization of control over the people who won franchise opportunities.  Each of those licenses has now decreased in value by about a third due to market dilution: again, one wonders if this is trying to undo some previous damage due to a flawed process for the first 20 retail entities — or is something more planned for the next 10?

Whatever one thinks of the process, the question stands: does the rest of OC really want Santa Ana to have a monopoly over OC’s marijuana market?  Any other city in the county could presumably put an end to that.

Update 2Here’s another interesting recent story, this one from the San Francisco Chronicle, asking the question: “Recreational pot launch: Will new retail shops enjoy a near-monopoly?”  NONE of what they describe seems to approach the absurdity and extremity of the situation in Orange County.

About Greg Diamond

Somewhat verbose worker's rights and government accountability attorney, residing in northwest Brea. General Counsel of CATER, the Coalition of Anaheim Taxpayers for Economic Responsibility, a non-partisan group of people sick of local corruption. Deposed as Northern Vice Chair of DPOC in April 2014 when his anti-corruption and pro-consumer work in Anaheim infuriated the Building Trades and Teamsters in spring 2014, who then worked with the lawless and power-mad DPOC Chair to eliminate his internal oversight. Occasionally runs for office to challenge some nasty incumbent who would otherwise run unopposed. (Someday he might pick a fight with the intent to win rather than just dent someone. You'll know it when you see it.) He got 45% of the vote against Bob Huff for State Senate in 2012 and in 2014 became the first attorney to challenge OCDA Tony Rackauckas since 2002. None of his pre-putsch writings ever spoke for the Democratic Party at the local, county, state, national, or galactic level, nor do they now. A family member co-owns a business offering campaign treasurer services to Democratic candidates and the odd independent. He is very proud of her. He doesn't directly profit from her work and it doesn't affect his coverage. (He does not always favor her clients, though she might hesitate to take one that he truly hated.) He does advise some local campaigns informally and (so far) without compensation. (If that last bit changes, he will declare the interest.)