Pubdate: Sun, 14 Feb 2016
Source: Orange County Register, The (CA)
Copyright: 2016 The Orange County Register
Author: Brooke Edwards Staggs


ADELANTO - On a Wednesday night in December, investors from Orange 
County and Los Angeles descended on a crumbling outpost that, until 
then, many had only unwittingly driven past on the way to Las Vegas.

The outsiders and residents alike packed Adelanto City Hall, eager to 
weigh in on the City Council's ongoing debate over its new marijuana 
ordinance. But when the city attorney announced that Don Kojima of 
Newport Beach had scored 47 acres of prime city-owned land for just 
$375,000, men in pricey suits began shouting out offers to pay 10 
times that much.

Welcome to the unlikely land rush that is transforming this desert town.

Adelanto, known 80 years ago for its fruit trees, is tying its star 
to another agricultural boom. In November, it became the second city 
in Southern California to permit commercial cultivation of medical marijuana.

Since then, land prices have skyrocketed as 27 companies secured 
permits to grow cannabis in Adelanto warehouses. Two more 
applications are pending.

If the city approves conditional use permits, the first several 
thousand of a potential half-million square feet of marijuana could 
be growing in Adelanto by summer. At full production, cultivators 
could churn out roughly 50,000 pounds of marijuana up to six times a 
year to service California's growing medical marijuana industry.

Adding to the surreal scene playing out here are reports of celebrity tie-ins.

Ky-Mani Marley, one of Bob Marley's sons, has already signed on to 
license a strain of cannabis that will be grown there, according to 
Freddy Sayegh, the attorney on the project. Tommy Chong has also 
shown interest. So has B-Real of Cypress Hill fame, plus other 
high-profile musicians and professional athletes whose names are 
being kept under wraps.

The rush comes as California rolls out its Medical Marijuana 
Regulation and Safety Act, which creates a licensing program for 
cannabis businesses including cultivators. But investors are also 
looking toward November, when California voters are expected to 
legalize recreational marijuana - with the Golden State projected to 
dwarf the nearly $1 billion brought in by Colorado's adult-use market in 2015.

In Adelanto, supporters see acceptance of an industry that's still 
shunned elsewhere as confirmation that the city is living up to its 
name, which means "progress" in Spanish.

"Tomorrow, they'll be on the correct side of history and be 
recognized as a city that actually embraced safety and embraced 
something that heals people," said Randall Longwith, a Fullerton 
attorney who's representing 12 Adelanto investors.

"In my personal opinion," local real estate agent Elizabeth Brown 
said, "this is going to save Adelanto."

Others, though, see the move as an act of desperation, with the 
desert city an easy target for yet another controversial industry 
after years of facing insolvency.

"It's just a way for the government to make money," Tina Owens, 50, 
said as she loaded her trunk with groceries from Adelanto's only supermarket.


Until last fall, Adelanto was known, if at all, as a prison town.

Its first prison was built in 1991, as the city braced itself for the 
closure of nearby George Air Force Base.

That didn't stop Adelanto's long slide into high unemployment and 
depressed property values. More than a third of the city's nearly 
33,000 residents now live below the poverty line. So it kept 
welcoming more prisons, banking on the promise of jobs and steady 
revenue in the form of an annual bed tax.

There are now four prisons within city limits that house some 3,340 
county, state and federal inmates. Another 1,000-bed prison is 
expected to come up for a vote March 1, city planner Mark de Manincor 
said. But Adelanto only takes in $160,000 each year from the prisons, 
which employ roughly 680 people combined.

Other development schemes also came up short. Green-energy developers 
targeted Adelanto in hopes of covering its 56 square miles of desert 
in solar panels that would sell power to utilities. But just four of 
those projects have panned out, de Manincor said, yielding 400 acres 
of solar panels, one-time development fees and a handful of jobs.

In 2010, teetering on bankruptcy, Adelanto sold its first prison, 
which had been run by the state, to the private firm GEO Group for 
$28 million. That one-time revenue is still sustaining the city, 
though the cash is quickly running out.

Adelanto declared a fiscal emergency and floated a 7.95 percent 
utility tax on the November 2014 ballot. Residents, whose median 
household income is just $38,768, responded with a resounding no.

Then came promises of a new kind of boom.


Although California legalized medical marijuana in 1996, it's still 
rare to find a city that permits commercial cultivation.

"What that does is it forces people to operate on an underground 
level, with zero regulation, zero tax structure, zero 
accountability," said Sayegh, a Los Angeles-based attorney who's 
spearheading three Adelanto projects. "You might as well accept it, 
regulate, tax it, keep pesticides out of it and allow it to thrive."

Desert Hot Springs became the first Southern California city to allow 
large-scale grows in 2014. Those facilities are just starting to come 
online in the Coachella Valley city, with five approved and seven pending.

When investors started talking to Adelanto about cultivation, nearly 
all of the City Council was against it. The exception was John "Bug" 
Woodard Jr.

"I had nothing to lose," said Woodard, a real estate agent with 
flowing gray hair who hosts the Woodystock Blues Festival on his 
desert ranch. "The city could not get in any worse shape than it was. 
It was broke."

After a year of heated meetings  featuring disapproving school 
district and public safety leaders  Woodard couldn't persuade the 
City Council to approve dispensaries. But on Nov. 23, the council 
voted 4-1 to allow cultivation.

The city's ordinance limits grows to enclosed spaces with nondescript 
signs. They can't be within 2,500 feet of schools, parks or churches. 
Applicants have to go through background checks and promise to 
install security cameras and alarms.

The ordinance also says cultivation permits are only good for 12 
months. That drew concern from some applicants, nervous about 
investing so much money with only a yearlong guarantee.

"If you're doing everything appropriately, then there should be no 
reason that you don't have your license renewed," said Longwith, the 
attorney representing a dozen investors. "They're putting their neck 
on the line, so I think they deserve some reassurances."

Adelanto originally talked about granting just six permits. At the 
last minute, the council decided to let zoning dictate the limit, 
allowing as many cultivation facilities as can fit in three 
industrial parks that total more than 21 million square feet.

One park - the acreage Kojima bought - is vacant. The other two are a 
mix of empty parcels and large warehouses, with some 44 manufacturing 
businesses that are about to get a flood of unusual neighbors.


A wide range of characters has joined Adelanto's land rush.

The owners of Fat Jack's Bar and Grill in neighboring Apple Valley 
have snatched up property to build a cultivation facility.

Medical marijuana dispensaries Organix out of Santa Ana and East L.A. 
Caregivers have thrown their hats into the ring. So has Anaheim Hills 
real estate developer Manooch Khanbeigi.

Kojima, a soft-spoken man who's done speculative development in 
Southern California for 40 years, is expected to build multiple 
warehouses to lease to growers. He paid so little for the property 
because the city believed it had to price at its assessed value, 
following a conflict with the state over redevelopment funds.

Joseph Brady, president of the commercial real estate firm the Bradco 
Companies, said that before Adelanto voted to allow cultivation he'd 
get one call a week with people interested in buying land or 
buildings. Since the September vote, he's been averaging five calls a day.

"I've had a broker's license since March 1980," Brady said. "I have 
never in my life seen anything like this happen."

One plot was valued at $1.5 million before the zoning changed to 
allow cultivation, he said; now it's in escrow for $4 million.

Brown, who's with Lee & Associates, said land that was going for 50 
to 90 cents per square foot is now going for $12 to $14.

With banks still unwilling to serve medical marijuana businesses due 
to federal laws against the drug, most land buyers are paying cash, Brown said.

Federal laws killed one deal Brady was working, where a building 
owner planned to lease space to two cultivators. When the landlord 
heard the government could seize land used to facilitate a federal 
crime, he quickly backed out.

But Sayegh told a group of investors, cultivators, doctors, 
architects and record executives who flew across the country Tuesday 
for a tour of three Adelanto facilities that they won't have to fear 
raids since they'll be complying with city and state laws.


Sayegh's Adelanto Research Technologies  in a massive warehouse that 
was home to Cabo Yachts until the company left town in 2010  will 
focus on cultivating exclusive strains of cannabis for distribution 
throughout the state.

Ecologies Laboratories says it will focus on medical research, with 
biochemist Kang Hsu hoping to study how cannabis can be used to calm 
pediatric epilepsy, shrink brain tumors and ward off PTSD in veterans.

Those lofty plans won over the owner of a building that's long been 
leased for storage to General Atomics Aeronautical Systems, which 
makes the Predator drone. Rather than renew the defense company's 
lease, the landlord opted to give the space to Ecologies Laboratories.

General Atomics also uses several other buildings in town, employing 
some 250 people, and the city hopes to find it another property, de 
Manincor said. Still, the company has threatened to pull out of 
Adelanto altogether.

"We are currently weighing our options as a result of the city's 
inability to recognize the negative impact of this ordinance on 
Adelanto's second-largest employer," General Atomics spokeswoman 
Kimberly Kasitz said in an email.

Adelanto has already raked in $203,000 in permit application fees. 
And the city should see a bump in its meager property tax revenue as 
land values rise.

The real money, though, will come in November if voters approve a tax 
on cultivation facilities.

The city took a risk in permitting cultivation without first having a 
tax structure in place. And cultivators won't know what tax rate 
they'll face until many have already invested heavily in development, 
since details of the tax are still being drafted.

"It looks like everyone who touches marijuana is in this green rush 
and making millions of dollars. But in reality, high taxes can just 
crush these businesses," Longwith said.


Under the tax structure imposed in Desert Hot Springs, cultivation is 
taxed at $25 for the first 3,000 square feet and $10 for each square 
foot after that. If it adopted that approach, Adelanto might make 
more than $6 million each year from the first 27 cultivators. (By way 
of context, the city's entire general fund budget this fiscal year is 
$13 million.)

Longwith calls that tax structure "onerous." But de Manincor 
recommends Adelanto take an even tougher stance, not slashing the tax 
after 3,000 square feet. He feels doing that creates an unfair 
advantage for large cultivators.

If all Adelanto growers paid $25 per square feet, the city would rake 
in $12 million a year from the 27 permitted cultivators.

The city may feel emboldened now, with so few cities permitting 
cultivation. But competition is expected to increase soon. Brown 
points to two unnamed cities in Riverside County and many others 
throughout the state that are considering similar regulations. And 
those numbers are expected to jump if Californians vote this fall to 
legalize recreational use.

More pot-friendly cities might have to compete for cultivators. But 
for now, all eyes are on Adelanto.

"This will bring millions and millions and millions of dollars 
flowing into our city," Woodard said. "Adelanto is going to blow 
everyone's mind. We're going to blow the entire world's mind."
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MAP posted-by: Jay Bergstrom