Pubdate: Sat, 14 Dec 2013
Source: Record, The (Stockton, CA)
Copyright: 2013 The Record
Author: Keith Reid


Davies Maintains Innocence As He Heads to Prison; U.S. Attorney Says 
Stockton Man Gambled and Lost

STOCKTON - Stockton businessman Matthew Davies was ordered Friday by 
a U.S. District Court judge to surrender himself to a federal prison 
on March 3 and serve a five-year sentence for his role in 
manufacturing medical marijuana and distributing it through multiple 
dispensaries in Stockton and Sacramento.

Davies, 36, likely will spend his time performing dairy farm work at 
a minimum-security facility in Lompoc. He pleaded guilty in June to 
federal drug charges dating back to 2010.

His sentencing and upcoming prison time mark the conclusion of a 
three-year saga that has pitted federal drug laws against 
state-approved laws that allow for medical marijuana sales, Davies 
said, describing his operations as being "under the letter of California law."

Davies said he "takes full responsibility for his actions" but 
maintains that he believed his businesses were clean. He paid more 
than $1 million to advisers, lawyers and auditors to keep it that way, he said.

On the other side, U.S. Attorney Benjamin B. Wagner said Davies and 
his partners were building a $10 million "marijuana empire" in a 
short amount of time and opened their businesses for sheer profit. 
Wagner said some of Davies' operations underreported income, and that 
even though he reported a $37,500 salary over 18 months, 
significantly more money was taken and reinvested to expand his 
medical marijuana businesses.

"He keeps saying he made ($37,500). We just disagree," Wagner said. 
"He has spent a lot of time and money with advisers portraying 
himself as not having made any money, but he was building a chain of 
marijuana businesses that were setting up for a lucrative 
future."Wagner didn't provide specifics, only that $160,000 was 
seized during the investigation. Otherwise, he said he wasn't 
interested in a public debate with Davies over the money trail.

Davies this week has opened up about his dispensaries, which include 
the Stockton-based Central Valley Caregivers Cooperative and four 
others. In an interview with The Record, he described himself as a 
businessman who loves Stockton and deeply cares how the public here 
perceives him.

His position: He is an educated businessman who partook in an 
industry that could help patients get medicine. He thought the 
business was shielded by the Obama administration's guidelines, 
outlined in a memo stating federal prosecutors would not go after 
medical marijuana dispensaries in states that allow them.

When the drug charges were levied against him, he said he was "whipsawed."

"First thing I want to say is, I love this town and I'm going to live 
here for the next 50 years. I care deeply what this town thinks about 
me, and I want people to know the whole story," Davies said. "I want 
people to see me as a great guy, as a great husband and father. I 
didn't believe I was doing anything wrong."

Still, he said, he is accepting of his sentence. Taking his case to a 
federal court trial was a non-starter, because the jury would have 
been instructed that there is no such thing as legal marijuana sales 
under federal laws. A five-year sentence was the best option, he said.

"I take complete responsibility for my actions," said the father of 
two young girls, Rowan, 2, and Rebecca, 1. "If this went to trial, 
they'd ask, 'Did you sell marijuana?' My answer is 'yes,' so that's it."

Davies, whose father is Stockton businessman Bruce Davies, said he 
was prosecuted because his business became large scale and because he 
has a master's degree. The feds don't want smart businessmen to 
invest in medical marijuana nonprofit groups, he said. His businesses 
generated $10 million in revenue over a year and a half, he said, and 
that meant heavy scrutiny.

He didn't get rich, he said, drawing only a $37,500 salary for 
himself over that time and roughly $30,000 in salary to his wife, 
Molly. The rest went into the large overhead of operating a medical 
marijuana business, he said. The companies showed a $300,000 profit, 
according to Davies, which equates to a 3 percent reserve fund that 
is allowable under nonprofit group guidelines.

"I was labeled as a 'genius' for growing the business so quickly and 
as an idiot who couldn't do that much business without getting money 
back for myself," he said. "I was scheduled to make $75,000 a year, 
which is commensurate with a nonprofit of this size. The CEO of 
Goodwill makes $250,000 a year because it's commensurate with that 
nonprofit organization. That is allowed."

His case is different than that of Hayward man Winslow Norton, Davies 
said. In that case, police seized $600,000, fancy cars and real 
estate in relation to a $50 million-plus operation, according to the 
Contra Costa Times.

Davies said his company paid $500,000 in taxes and employed 50 people 
at an average of $15 an hour, wages he said are strong for the retail 
sales industry. Investigators never found large sums of cash, hidden 
bank accounts or other signs of a lucrative business, he said.

"They didn't find nothing like that with me. I was in 100 percent 
compliance," he said.

What investigators did find was the $160,000 referred to by Wagner.

Davies explains that amount as $100,000 in an account reserved for 
legal fees, $20,000 that was to be used for employee payroll and 
$40,000 for operating expenses.

Davies said he paid his lawyers $250,000 for his defense.

Wagner said California laws regarding medical marijuana are more 
murky than the media and public realize. He said his office doesn't 
have the time or resources to chase after every operation.

Davies became the target of an investigation after a burglary was 
reported at one of his grow operations inside a large east Stockton 
warehouse, not because federal prosecutors sought him out, Wagner said.

"He knew what he was doing was in violation of federal law. He 
gambled that we wouldn't care," Wagner said. "Mr. Davies was pretty 
active in the marijuana area in terms of a business model. He even 
purchased a dispensary in Elk Grove where police had arrested the 
previous owner. He was building an empire."

Wagner went further, saying a five-year sentence is rather lenient in 
large-scale drug cases. He said his office is trying to prosecute 
cases such as this in a fair way because he knows there's a level of 
confusion with what is and isn't legal under state versus federal laws.

Davies said five years is "a lifetime" for a man with a wife and 
young kids. He's hopeful that his time in prison won't be detrimental 
to his daughters.

"How old were you when you had your first memory?" Davies asked. 
"Around 4 years old? My hope is that I can do this sentence, and then 
I can come home and move forward."
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