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.
ONE TOWN, FOUR PRISONS
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.
‘IT WAS BROKE’
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.
CAST OF CHARACTERS
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.
PUSHING ASIDE DRONES
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.
MILLIONS AT STAKE
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.”
Source: The Orange County Register, Brooke Edwards
Photo: Adelanto Councilman John “Bug” Woodard Jr. championed the ordinance to bring medical marijuana cultivation to the high desert town. (BILL ALKOFER, STAFF PHOTOGRAPHER)