Pubdate: Sat, 26 Mar 2016
Source: Lodi News-Sentinel (CA)
Copyright: 2016 Lodi News-Sentinel
Author: Peter Hecht, the Sacramento Bee


DESERT HOT SPRINGS - Two years ago, in this desolate Coachella Valley 
town surrounded by scraggly mesquite, voters heartily endorsed 
marijuana as a cure for their ailing economy.

For decades, Desert Hot Springs had relied on its steaming mineral 
waters to lure tourists to local motels for healing baths and spa 
treatments. But the town of 28,000 mostly suffered. A third of its 
residents lived in poverty, and the city filed for municipal 
bankruptcy in 2001. A housing bust seven years later deepened the fallout.

So in 2014, 68 percent of Desert Hot Springs voters approved 
California's first local initiative to authorize industrial 
cultivation of marijuana. With freeway connections to hundreds of 
marijuana dispensaries in Los Angeles, San Diego and Orange County, 
the town set out to lure pot entrepreneurs to revive its industrial 
districts with new construction bursting with cannabis.

Now Desert Hot Springs is home to a pot real estate bonanza, with 
well-heeled outsiders snapping up land and buildings to develop 
massive, city-sanctioned grow facilities, capable of producing 
thousands of pounds of marijuana in multiple yields a year.

Near towering wind farms, a drab warehouse complex is being 
transformed into a marijuana production center called "Pineapple 
Park." Down the street, Santa Ana dispensary operators are readying a 
cathedral-like cannabis greenhouse. On a remote desert parcel, 
investors just secured a permit to build a million square feet of 
buildings to lease out to pot growers.

"Cultivation is going to explode in California," said Desert Hot 
Springs Mayor Scott Matas, a marketing consultant, former UPS driver 
and private post office owner who championed marijuana development in 
the town near Palm Springs. "We're being proactive to what's coming 
down the pipeline. I'm a conservative. But I saw an opportunity for 
jobs and revenues. Is it bold? Absolutely. But I think it's promising."

Desert Hot Springs' pot boom is accelerating after Democratic Gov. 
Jerry Brown in October signed first-ever California regulations that 
will allow local and state licenses for commercial growers of medical 

Brown's signature, and a soon-to-be-established state Bureau of 
Medical Marijuana Regulation, ushered in a new era for regulating 
marijuana as a for-profit industry, replacing California's nebulous 
rules that merely permitted medicinal users to collectively cultivate 
and share marijuana.

Wary of the new regulations, which are still to be fleshed out, 
hundreds of California cities and counties have rushed to ban 
marijuana businesses even as secretive, unlicensed commercial grow 
rooms operate across the state. Other jurisdictions, such as 
Sacramento, have moved guardedly to permit limited commercial cultivation.

Desert Hot Springs is seeking to become an exception, as it counts on 
a fiscal windfall from a $25-per-square-foot tax on the first 3,000 
square feet of marijuana plants and a $10-per-square-foot tax on 
additional plant space for each new business. The city, which in 2014 
had an unemployment rate of more than 10 percent, also has set goals 
for 20 percent of pot workers to be residents.

With a likely November ballot measure to legalize recreational use in 
the Golden State, the Riverside County town is one of at least four 
economically depressed Southern California cities now banking on a 
revival by licensing and taxing marijuana cultivation.

While state rules permit individual businesses to grow pot gardens of 
up to 22,000 square feet indoors, Desert Hot Springs last month 
approved plans that are expected to bring in up to 3 million square 
feet of production warehouses and greenhouses over the next five to 10 years.

Matas says five recently approved marijuana industrial developments - 
and half a dozen more in the pipeline - will lease out scores of 
"cultivation condos" for separate marijuana ventures. He predicts an 
eventual tax windfall of $20 million a year - $6 million more than 
Desert Hot Spring's entire current city budget.

Recently, Matthew Feinstein, CEO of Pineapple Express Inc., a 
publicly traded marijuana marketing, consulting and business 
development firm, parked his glistening black Mercedes in Desert Hot 
Springs near beige metallic warehouses being vacated by a Pentecostal church.

Feinstein, whose company is headquartered on Avenue of the Stars in 
Los Angeles' Century City, touted his $3 million "Pineapple Park" 
venture, a nearly 9-acre marijuana-business-and-production facility.

"It's the first time it's legal. It's the green gold rush," said 
Feinstein, 46, a University of California, Berkeley political science 
graduate who used to be CEO of a DVD distribution company. He said he 
"got out of a dying industry and went into a growing industry."

Pineapple Express is marketing 10year leases for indoor cultivation 
and greenhouse facilities at up to $500,000 down and monthly rents of 
$160,000 - with a three-month break for the first growing cycle. So 
far, it has lured a marijuana plant breeding company called 
Clonenetics Laboratories and a grower for Southern California 
dispensaries. Feinstein said he hopes to sign leases with 13 more 
cultivating clients.

Feinstein's company will grow no marijuana itself. But products 
leaving its warehouses will be packaged under the label "Powered by 
Pineapple Express," a branding that takes its name from the weather 
system as well as a pot strain actor Seth Rogen made famous in the 
2008 stoner action film of the same name.

"Everybody is saying California is going for recreational use in 
November. We're looking to be the first mover," said Feinstein, whose 
company lists a market capitalization of $454 million, with its stock 
(PNPL) trading recently at around $8 a share. "And when it is 
federally legal, people like Philip Morris and 'Big Pharma' are going 
to enter this industry. And we'll be right up there with them."

Nearby, a firm called CalCann Holding Corp., is planning a $5 million 
development, including a climate-controlled glass greenhouse. Within 
a year, it is expected to begin using the desert sun and 
artificial-light augmentations to produce 8,000 pounds of marijuana 
buds annually.

The CalCann venture is headed by general counsel Aaron Herzberg, a 
Newport Beach lawyer, and CEO Chris Francy, a former Philadelphia 
executive for Internet businesses that sold computer accessories and 
auto parts. Herzberg and Francy hold licenses for three Santa Ana 
medical marijuana dispensaries, including the new Orange County 
Cannabis Club and a soon-to-open store - called Roseanne's Joint - 
with actress Roseanne Barr.

At their Cannabis Club, amid brightly lit selections of marijuana 
buds, Herzberg and Francy spoke ebulliently about their desert 
cultivation dreams.

"Desert Hot Springs demonstrated that the community was behind the 
idea that cultivation of marijuana was part of the future of the 
city," said Herzberg, a flashy, upbeat figure who used to handle 
divorce cases for wellto-do clients on the Orange County coast. Now 
he promises that CalCann will bring "industrial agricultural 
techniques to marijuana."

"Why hasn't this been done before?" Herzberg asked rhetorically. "It 
hasn't been done because of prohibition - because you would be raided."

It was just five years ago that a city-of-Oakland plan to license 
four 100,000-square-foot indoor industrial farms for marijuana 
inspired the U.S. Department of Justice to launch a sweeping 
crackdown on California pot businesses.

But after voters in Colorado and Washington made their states the 
first to legalize marijuana for recreational use in 2012, pot 
politics - and development prospects - changed dramatically.

In a 2013 memo, the Justice Department declared that it wouldn't 
interfere in states that permitted medical or recreational marijuana 
if those states enacted "robust controls" and regulations to prevent 
infiltration by criminal gangs, interstate trafficking or providing 
pot to minors.
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MAP posted-by: Jay Bergstrom