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Cops Raid Legal Cannabis Companies Despite Upcoming Recreational Vote

| Jul 29, 2016 | News

At 7:37 a.m. on January 28, 2016, nearly 30 officers from the San Diego joint narcotics task force conducted a raid on Med-West Distributors, a licensed medical cannabis extraction company. The officers, decked out in helmets and tactical gear and clutching assault rifles and handguns, used a sledgehammer to open the door, and then burst into the lobby. Once inside, the task force arrested two employees present, cracked open the company’s safe, and collected its inventory–more than 30,000 cartridges of cannabis oil and a couple of pounds of concentrate.

The narcotics task force seized $1.4 million in cash, product, and money from various bank accounts belonging to owner James Slatic ($325,570 in cash was found in the safe). Med-West had been providing hundreds of licensed dispensaries around California with medical CO2-extracted cannabis oil and products under the state’s medical marijuana laws since 2010. The company was licensed by the city of San Diego and operating openly. Slatic says his company was raided a second time in late June and is now officially closed.

San Diego law enforcement used federal asset forfeiture laws to freeze and seize the company’s cash and the money in Slatic’s personal bank account, the bank account of his wife (who is a federal employee at Veterans Affairs), and his kids’ college savings accounts. The San Diego Sheriff’s Office and San Diego County District Attorney’s Office declined to explain why they seized Med-West’s and the Slatic family’s money, but neither has charged Slatic with a crime.

Med-West is not the only legal medical marijuana concentrate company in California that has been raided recently by the authorities. Law enforcement agencies have raided at least five other cannabis extraction companies since January. Jessica McElfresh, one of Slatic’s attorneys, says state law enforcement started targeting concentrate businesses this year. Typically, McElfresh says, the state had not used asset forfeiture laws against medical marijuana companies in the past, but has doubled down on the strategy with a focus on THC concentrate companies. McElfresh says the state is now using asset forfeiture to target legal marijuana businesses that cannot effectively fight federal asset forfeiture laws because marijuana is illegal federally.

“Over the past year, we have seen more investigations, more raids and systematic asset seizures of medical marijuana companies using CO2 to make concentrates than ever before,” says McElfresh. “According to California state law, medical marijuana is legal. The laws are complicated and ambiguous, but the state has decided this is something they want to allow and regulate.”

Despite the fact that California legalized medical marijuana in 1996 with Proposition 215, it has remained a gray market because the law was vague, it did not cover every sector of the industry, and each city could adopt its own unique rules or ban the industry. Over the years, new laws were passed like Senate Bill 420 to help create more structure, but the complexities left people in the industry open to prosecution at the state, local, and federal level.

Last year, three bills were passed that collectively make up the Medical Marijuana Regulation and Safety Act (MMRSA), legislation that spells out rules, requirements and licensing guidelines for all aspects of the industry. The act went into effect on January 1, 2016, but the specifics are still being written and state licenses will not be issued until 2018. This two-year gap leaves the window open for police to continue to conduct raids and seize assets via federal asset forfeiture laws until MMRSA is implemented at the state level.

The state is also gearing up to vote on legalizing recreational marijuana in November. This has left many with the impression that the authorities are making hay while the sun shines. “They are just trying to get money from us while they still can. That’s why it’s called smash-and-grab,” says Slatic. “The prosecutors do not give us their prosecutorial strategy, but many people think drug task forces have become addicted to the assets. Law enforcement knows we have trouble getting banking, so during my raid they found $325,570 in cash in the safe, and the cops were high-fiving each other.”

Asset forfeiture laws allow police to seize assets they believe are the proceeds of a criminal enterprise without arresting someone and proving his or her guilt. Unlike criminal charges against a person, defendants of federal asset forfeiture laws have little recourse to get their money back. Across the U.S., law enforcement agencies have seized $1 billion through asset forfeiture in marijuana cases from 2002 through 2012, according to data from the Justice Department. (During the same period, authorities have seized a total of $6.5 billion in all drug-related cases.) The seized assets, The Wall Street Journal reports, have helped fund portions of drug task forces around the nation. But as laws reform, that pivotal revenue stream is drying up in states like California, Colorado, Oregon, and Washington.

Slatic, who was until recently the CEO of a $12 million medical marijuana company, was considered an industry leader and job creator and was a member of an industry investor group and multiple boards and organizations. Even though he has not been charged with a crime, Slatic says some of the industry organizations have asked him to resign. In one fell swoop, his business, his savings, and his two daughters’ college savings accounts were gone. Slatic says he had to borrow money from his 86-year-old mother to get through the year, and apply for federal loans to ensure his two daughters can stay in state school. He created an Indiegogo campaign to raise moneyto pay for his legal fees. With the threat of an indictment hanging over his head, he says he hasn’t been sleeping much.

Henry Wykowski, a San Francisco-based attorney who also represents Slatic, says legal medical marijuana business like Med-West operate openly and pay taxes, but most still cannot access the banking system, which makes them much easier targets for asset forfeiture than underground illegal drug dealers. And with this lucrative asset seizure revenue stream threatened by legalization, he says police are motivated to pick the “lowest hanging fruit” while it’s still on the vine.

Still, police need probable cause to search a business. The search warrant for Med-West is partially sealed, citing a confidential informant. The unsealed portion explains that detective Israel Hernandez believed Med-West was using “volatile chemicals” to make THC concentrate, citing a criminal violation of a health and safety code that carries prison time. (HSC 11379.6, the penal code originally written to go after crystal meth labs, was amended in 2015 to include cannabis.)

Even though medical marijuana is legal in California, the warrants say that the “medical marijuana defense” would need to be affirmed by the defendants in court once charged and does not prevent police from investigating companies suspected of controlled substance violations. But since he has not been charged, Slatic has been unable to make this defense.

The asset forfeiture warrant, written by detective Mark Carlson, who is a cross-sworn officer for the San Diego Police Department and the DEA, says he had probable cause to search and freeze all assets belonging to James Slatic and his wife from various financial institutions based on the raid.

In a hearing on June 2 in San Diego Superior Court, Jorge Del Portillo, the San Diego deputy district attorney, referred to the case as a “long-term, large-scale investigation” and mentioned the DEA might be filing charges. In court, McElfresh cited Luis v. U.S., a recent Supreme Court decision that declared defendants are entitled to assets unrelated to alleged crimes, but the judge denied the motion. As for the money in Slatic’s wife’s account and the college savings accounts belonging to his daughters, Del Portillo compared the money to a “a bloody knife that is seized at a crime scene.” The burden is on Slatic to prove otherwise.

Federal and civil asset forfeiture laws consider assets guilty until proven innocent, the inverse of when people are arrested. Although no charges have been filed, Del Portillo said the D.A.’s office might pursue charges for “sale of marijuana, manufacturing of concentrated cannabis, cultivation.”

Slatic’s lawyers are also concerned that the DEA is actively participating in Med-West and other extraction company raids. Since 2014, Congress has included theRohrabacher-Farr Amendment in the federal budget, which bans the Department of Justice, including the DEA, from spending federal money to “prevent such States from implementing their own State laws that authorize the use, distribution, possession, or cultivation of medical marijuana.”

“Congress has clearly said that the DEA should stop interfering in state medical marijuana,” says Wykowski. “This is the DEA ignoring the will of Congress and doing whatever they want.”

The DEA says that THC extraction labs using butane are dangerous and on the rise, but would not comment on specific raids nor answer why companies using non-volatile solvents like CO2, like Med-West, have been raided.

Slatic, who is a founding member of the California Cannabis Industry Association, helped politicians like California assemblyman Rob Bonta write MMRSA to help institute clear laws and regulations for the industry.

A host of politicians, prosecutors, and district attorneys from all over the country have written letters to the San Diego District Attorney’s Office asking them to return Slatic’s assets and to stop pursuing criminal charges. In one letter, the group of prosecutors and D.A.’s describe the asset forfeiture as “disturbing and illegal.”

McElfresh says the U.S. justice system and law enforcement is experiencing certain growing pains as drug laws are reformed.

“You see changes at the macro level, but the micro level is more complicated and more difficult to change,” says McElfresh. “I think the long road is clear–different states will have different laws and policies. But in the meantime, there will be problems ahead as reform happens. These cops were charged with arresting and investigating marijuana, and now it’s becoming legal. It must be destablizing to one’s sense of self to look back on what they have spent so much time fighting and they have to change.”

But Slatic has another idea. He says that during the last year of alcohol prohibition, there were more raids and arrests than the previous 12 years during prohibition.

“If you look at the history of alcohol prohibition and cannabis, there are a lot of parallels,” says Slatic. “Powerful forces are unhappy about legalization of cannabis, and they’re not taking it lightly.”