MICHAEL MONTGOMERY, Center for Investigative Reporting/KQED: [voice-over] San Francisco's Cow Palace has hosted everything from rodeos to revival meetings. But last summer, it was home to something completely different, a trade show for marijuana.
When I first began covering this story, marijuana was on the verge of becoming legal here in California. Inside, it already seemed pretty legal to me.
EXHIBITOR: The coolest mug in the city, right here!
MICHAEL MONTGOMERY: Everything was on offer — pot smoothies, pot cookies, every known device for smoking, inhaling and generally consuming marijuana.
WILLIAM PANZER, Co-Author, Prop 215: California was the Wild, Wild West 150 years ago, and it's the wild, wild west again now when it comes to cannabis.
MICHAEL MONTGOMERY: Attorney William Panzer co-authored California's medical marijuana law back in 1996 to help seriously ill patients. But 15 years on, he says it's created the biggest marijuana marketplace in the country.
WILLIAM PANZER: It's opened the door for a lot of different cannabis-related businesses. You can imagine when they repealed Prohibition, the kind of industry that came up around alcohol, not just alcohol itself. Same thing was happening. And it's still happening here.
MICHAEL MONTGOMERY: Today, under Proposition 215, almost any adult can get medical marijuana anytime. It's as easy as filling out a form, meeting with a doctor for a few minutes, and here, paying $100 for the wristband that says you're legal and gets you smoking your favorite bud within minutes.
DHAR MANN, Entrepreneur: How're you doing, man? I'm Dhar. OK. Nice to meet you. And this is Derek.
MICHAEL MONTGOMERY: Medical marijuana has also created a new kind of business opportunity for someone like Dhar Mann.
DHAR MANN: We actually have marijuana plants growing inside of our store. So it's 15,000 square feet —
MICHAEL MONTGOMERY: A self-described "potrepreneur," Mann was making the rounds last summer with his business partner, Derek Peterson.
[on camera] Tell me, what are you trying to find here? What are you looking for?
DHAR MANN: Well, I mean, you know, just looking around at different types of apparel companies, seed companies, medical marijuana recommendation centers —
MICHAEL MONTGOMERY: [voice-over] Their plan was nothing if not ambitious, a chain of marijuana superstores in California and many of the 15 other states that have adopted medical marijuana laws in recent years. In this "Wal-Mart of weed," they would sell all of the supplies a grower might need, everything but pot itself.
But for Mann and Peterson, the big prize was across the bay in Oakland, where that same summer, the city was making headlines with a bold new plan.
NEWSCASTER: Oakland could soon become the first city in the country to make growing pot in large warehouses legal.
NEWSCASTER: Last night, Oakland becoming the first city to authorize industrial-scale farms to grow medical marijuana —
MICHAEL MONTGOMERY: Oakland's idea was to auction off four licenses for massive indoor grow facilities to supply the state's medical marijuana dispensaries, the first official experiment with industrial-scale pot production in the country.
Oakland city officials were feeling pretty confident about the plan. In October, at the opening of the "WeGrow" marijuana superstore, the main candidates for mayor were running hard on the economics of pot production.
JEAN QUAN, Mayoral Candidate, Oakland: People often ask me, ``How much taxes do we get currently?'' Under the current system, we're getting just under a million dollars in taxes, sales tax for the medical marijuana. But when the production facilities come on line, we're estimating the first few years $5 million to $8 million. Now, that is a sizable chunk of change.
JOHN RUSSO, City Attorney, Oakland, 2000-11: Was the city council and city of Oakland perhaps dazzled by the great riches that were going to come our way? Absolutely. They talked about it, calling it the ``green rush,'' right, you know, in line with the gold rush. This is the new green rush.
MICHAEL MONTGOMERY: Oakland's then-city attorney, John Russo, said the plan faced big legal hurdles, but the city was determined to push forward.
JOHN RUSSO: You can understand. Municipal budgets are under tremendous stress. When you're talking about laying off police officers, closing libraries, and along comes this idea that a minimal expense will allow the city to pick up several million dollars worth of revenue, of course they were eager to do that.
JEAN QUAN: Oakland is very proud to be able to combine our progressive politics and good business today. Thank you.
MICHAEL MONTGOMERY: But Oakland's plan to grow medical marijuana got the attention of the U.S. Department of Justice.
[on camera] You started getting signals from the feds that this was not a good idea.
JOHN RUSSO: ``Signals'' is a very subtle way of describing it. They were very clear with me verbally, and came to visit me on two different occasions to tell me, in effect, ``What is Oakland doing? This is clearly not legal.''
MICHAEL MONTGOMERY: [voice-over] A few hours' drive north of Oakland, another plan to regulate medical marijuana growing was being launched, more quietly and carefully, in an area known as the Emerald Triangle.
Though you'll see only a few outward signs of it, these little towns are home to some of the biggest pot-producing farms in the country. The hippies who pioneered pot growing here decades ago are still around, but the business has scaled up dramatically in the last few years, with vast pot fields set up like organic farms and state-of-the-art equipment to help get more pot to market faster for younger growers like Joey Berger.
JOEY BERGER: This sound that we're hearing, this noise, this is the noise of an industry here. Yeah, the "Twister" is the leading cannabis-trimming machine on the market today. It can turn the workforce of five into the workforce of 30 or more. And it's revolutionizing the way medical cannabis collectives process. And they're able to save money and they're able to pass those savings on to their patients.
MICHAEL MONTGOMERY: Growers at farms Berger works with are careful to say all this pot is headed for medical marijuana patients and dispensaries, and not the black market. But it's been getting harder for local law enforcement to tell the difference. That's why, last year, Mendocino County launched an unusual program.
Sergeant Randy Johnson was put in charge.
Sgt. RANDY JOHNSON: Well, it's new territory. None of us has ever done anything like this. It's not even all the way legal. I mean, it's legal in our county.
MICHAEL MONTGOMERY: Johnson used to bust local pot growers. Now he's working with them. Matt Cohen is one of the new breed of growers in the county.
Sgt. RANDY JOHNSON: How's everything going?
MATT COHEN: Busy, busy, busy.
MICHAEL MONTGOMERY: For years, he says, he's tried to run his medical marijuana operation like a legitimate business. So when the county announced a new program to license pot growers, he was one of the first to sign up.
MATT COHEN: Right here, you can see it says ``Mendocino County Sheriff'' on it. It's upside-down, though.
MICHAEL MONTGOMERY: These zip ties mark the plant as legal. Cohen paid $50 for each of the ties, $1,500 to join the program, and $500 for every inspection.
In return, Cohen gets to grow a lot more plants than otherwise allowed, up to 99 of them, which can generate several hundred thousand dollars a year in income for his farm co-op.
And he gets to do all this without any fears of getting busted by the sheriff.
[www.pbs.org: More on this unique program]
Sgt. RANDY JOHNSON: And have you been having any problems with your security, or has that been working out well?
MATT COHEN: No, it's been going — it's been working good.
I want to see the whole program to succeed. I want to see the county succeed. I want to see Mendocino County be the Napa of cannabis after prohibition. You know, I want all the good people in this community that are doing what they're doing — I want them to be doing it legally and to still have a job.
Sgt. RANDY JOHNSON: If you get this so it's — maybe use cable so you can make it tight, so that it doesn't — you don't have that loop.
MATT COHEN: They don't sloop — swoop into each other.
TOM ALLMAN, Sheriff, Mendocino County: Some people are watching this right now, shaking their heads, saying, ``I can't believe there's a cop in uniform that's working with marijuana people.'' We're not a bunch of Cheech and Chong law enforcement officers that are encouraging people to grow marijuana. Nothing could be farther from the truth.
MICHAEL MONTGOMERY: Mendocino County sheriff Tom Allman has been walking a tightrope with marijuana growers for years. Then came medical marijuana and increasing confusion about what's legal and what's not.
TOM ALLMAN: We're trying to remove the gray area. We're trying to make it black and white. And if we can remove the gray, if we can remove the inconsistencies, if we can have people not confused about the marijuana laws, then I've succeeded.
MICHAEL MONTGOMERY: [on camera] How do you keep track of what Matt is growing here?
[voice-over] When we first began filming last fall, only about 20 growers had signed up for the tagging program, generating a few hundred thousand dollars in fees for the cash-strapped county.
MATT COHEN: The cannabis is grown in Mendocino County through the local regulation ordinance here.
MICHAEL MONTGOMERY: But Cohen, like other growers in the program, has a problem — getting his product to his customers.
MATT COHEN: Well, basically, I'm the boss, and I've got to make this run because our two guys got nailed two days in a row last week. So I'm making the run.
MICHAEL MONTGOMERY: Two of Cohen's delivery men were pulled over at random by police in neighboring Sonoma County and arrested for transporting illegal narcotics. Now, as he heads south with several pounds of medical marijuana in the back, he makes a last-minute call to his business manager in case there's a bust.
MATT COHEN: Of course, you know everybody — if it's the feds, you don't need to talk to anybody and know — you know, you can choose to remain silent — ``I want to speak to my lawyer.'' And if it's the locals then, you know, they're our pals and we do whatever they ask of us. I'm just going to set the cruise at 65. We'll see if we get pulled over. The irony is that most of the cannabis driving down this road is probably going out of state.
MICHAEL MONTGOMERY: On this day, Cohen's making a delivery to one of his customers near Oakland.
MATT COHEN: Hey, Nate! Hey, how's it going? I'm Matt.
MICHAEL MONTGOMERY: In the end, it's a fairly routine transaction for Cohen and his staff. The price, the letter from the customer's doctor- it's all been worked out by phone and Internet. But it's also been an obstacle course of local, state and federal laws.
WILLIAM PANZER, Co-Author, Prop 215: The problem is that the medical marijuana program act was the result of a committee of a lot of people putting it together and it doesn't make a lot of sense. There's a lot of internal inconsistency in the medical marijuana program act which leaves it open for very wide interpretation.
MICHAEL MONTGOMERY: It was with an eye to settling these inconsistencies that pro-pot advocates around the state had made a big push for a new marijuana law last fall.
ADVOCATE: Make California the first green state. We've got the blue states and the red states —
MICHAEL MONTGOMERY: In Oakland, they gathered on election night to watch the results of the state ballot measure, Proposition 19, that would have fully legalized marijuana use in California.
ADVOCATE: So polls closed an hour ago. Prop 19 looks like it's not doing so well.
MICHAEL MONTGOMERY: When the votes were counted statewide, legalization was defeated.
JOHN RUSSO, City Attorney, Oakland, 2000-11: When Proposition 19 failed, that clearly put Oakland's city council in a difficult place.
MICHAEL MONTGOMERY, CIR's California Watch: Over at city hall, they now had a decision to make. It was about whether to push forward with their plan to grow medical marijuana on a massive scale and tax it.
Then a letter arrived.
[on camera] This is a letter written to you —
JOHN RUSSO: Yes.
MICHAEL MONTGOMERY: —from the U.S. attorney here in northern California warning Oakland about the plans to license large-scale pot cultivation. And what's the essence of the letter?
JOHN RUSSO: The essence is, ``This is clearly illegal. You can't do this. We're concerned that it is contrary to federal law.''
MICHAEL MONTGOMERY: [voice-over] The letter, from the new U.S. attorney, Melinda Haag, drew a hard line at Oakland's industrial growing warehouses, threatening criminal prosecution of city officials, if necessary. The city decided to put the pot production plan on hold. Not long after, the WeGrow pot superstore in Oakland, which had opened with such fanfare just six months earlier, closed its doors.
The politics of pot are, for now, at a stalemate. But the state's marijuana marketplace, legal and illegal, is still thriving.
HELICOPTER PILOT: See there's that large patch that's vacant here? That was all weed.
MICHAEL MONTGOMERY: A few hours south of Oakland, among these vegetable fields in the state's central valley, drug agents say pot production is now booming, right in plain sight.
HELICOPTER PILOT: We were just out there. They're drying some in that white truck right there and they're processing stuff. But that's pretty much all that's left.
MICHAEL MONTGOMERY: Bill Ruzzamenti was a special agent with the DEA for 30 years and now runs a federally-funded drug task force in California to seek out and seize illegal marijuana and eradicate the grows.
OFFICER: Can you open it up? Open that up, too, if you don't mind. OK, I'm going to take it out, OK?
MICHAEL MONTGOMERY: This looks like an open and shut case, until Ruzzamenti sees the posted doctors' recommendations.
[on camera] They're curing and getting this marijuana ready, and there's nothing you guys can do?
BILL RUZZAMENTI, Dir., Fed'l Drug Task Force: No, because it's all being done under the auspices of 215, that it's a medical marijuana grow and that they have posted permits or posted recommendations from doctors that preclude the sheriff's department and/or anybody else from taking it off.
The whole concept of medical marijuana is being used as a cover by drug traffickers and drug dealers to sell marijuana outside of the state of California, where they can make more profit.
MICHAEL MONTGOMERY: [voice-over] Earlier in the week, sheriff's deputies were able to seize thousands of pounds of pot from the same area. It would have been worth several million dollars wholesale in California. But the cops allege that the pot was actually going to be driven out of state.
NEWSCASTER: Investigators say the two women never stopped to sleep and drove straight through California, Arizona, New Mexico and Texas.
MICHAEL MONTGOMERY: Teaming up with a local news team, the task force tracked another load of the Fresno pot to Dallas, where it was going to be sold for triple the price.
RICK ADAMS, Fmr. Agent, IRS Criminal Investigation Div.: Marijuana's by far the most profitable of all the illegal narcotics, cocaine, methamphetamine, it blows them away.
There's another grow right there.
MICHAEL MONTGOMERY: Former IRS agent Rick Adams spent decades working money-laundering cases linked to marijuana grows across California.
RICK ADAMS: Here's one here, here's one here.
MICHAEL MONTGOMERY: He says so many growers have flocked to California that the local market is flooded, so the big profits come from out of state.
RICK ADAMS: You can sell it for so much more per pound in New York City and in Virginia than you can here in California. Because of the glut in the market here in California, it just moves. If you can't sell it here, move it over there.
Here's a grow. Here's another one. There's a grow.
We're walking north, up the east fork of the Cotton Creek in Shasta County.
MICHAEL MONTGOMERY: Back around the Emerald Triangle, national demand for California pot is now attracting a new influx of growers to these forests. They come in from out of state, often from out of the country, and try to turn a fast profit.
RICK ADAMS: There's plots like this all the way up for half a mile. They get them quick, three months, turned around, get another three-month grow out of it. And that's what we're starting to see more and more.
MICHAEL MONTGOMERY: Even seasoned drug agents have been surprised by the scale of these massive new pot grows.
AGENT: Our numbers are already skyrocketing. In the last three weeks, we've done 140,000 plants.
MICHAEL MONTGOMERY: Last year, they seized seven million plants, which they say would have been worth some $17 billion dollars.
And a lot of this pot is now being grown on public lands, sometimes in national parks, often in fields guarded by men with guns.
TOM ALLMAN, Sheriff, Mendocino County: I've had people come to me and say, ``My family has hunted in the Mendocino National Forest for five generations, and we don't go there anymore because every time we go there, we hear shots being fired around, or people have literally walked into our hunting camp and said, `Get out of here.' ''
MICHAEL MONTGOMERY: For Sheriff Allman's men, tensions around the new growers in the forest came to a head last year. Talk of Mexican drug gangs and even the cartels led to more raids, and then to several shootings, mostly of Mexican men guarding big grows.
Lt. RUSTY NOE, Mendocino Cty. Sheriff's Office: As our SWAT team was clearing through one of the gardens, they came down a real narrow trail in the brush, and it just opened up into a camp with about seven people in it. One guy stayed. He had an AK-47 type rifle and a handgun, and actually pointed it and tried to get a round off at the SWAT team. And they, of course, engaged and took his life.
MICHAEL MONTGOMERY: We made contact with a man who used to run marijuana grows in California backed by Mexican money. He's now working closely with law enforcement. He says the Mexican cartels are not directly involved, but former members are helping finance and distribute California pot.
INFORMANT: [subtitles] The cartels all have people in the United States. The gardens don't have anything to do with the cartel, but only with individuals. They're people who do business with the cartel but don't work for the cartel boss. They come each season, and then they return to Mexico.
TOMMY LANIER, National Marijuana Policy Coordinator: A lot of those people are afraid that they're going to be targets themselves in Mexico, so they figured out that it's easier to come to the U.S. They can grow a lot of marijuana. They know how to smuggle in aliens. They have all those networks already set up.
MICHAEL MONTGOMERY: Tommy Lanier helps coordinate national marijuana strategy with the office of the White House drug czar. He says California's medical marijuana law has encouraged Mexicans fleeing the drug wars to move north.
[on camera] So for Mexican pot growers, drug traffickers, California's a sort of a safe haven.
TOMMY LANIER: We have established and probably dismantled well over a hundred organizations since 2004, Mexican traffickers that are involved, that have connections to Mexico. These people are engaged in making money. They like to exploit the medical individuals that are the 1 or 2 percent that use marijuana for the purpose of pain management.
MICHAEL MONTGOMERY: So 1 or 2 percent of the marijuana grown is going into the medical marijuana industry, and the rest is going into the black market?
TOMMY LANIER: I would say it's pretty close to that, yes. As far as I'm concerned, the medical marijuana industry is a black market, in my point of view, there is no legal, illegal. It is illegal.
MICHAEL MONTGOMERY: [voice-over] Back in Mendocino County, Sheriff Allman has to square that federal position with his local realities. So he's invited Tommy Lanier to a meeting with state and local officials to lay out a bold new plan.
TOM ALLMAN, Sheriff, Mendocino County: This is going to be the biggest teamwork operation that our six rural counties have ever seen.
MICHAEL MONTGOMERY: Allman is proposing an assault on those big pot farms on public lands, and he wants the feds to help him root out the big players he suspects are behind them. He's got their attention, including the U.S. attorney whose letter shut down the Oakland grow plan, Melinda Haag.
MELINDA HAAG, U.S. Attorney: So I have met with the sheriff since I became U.S. attorney. We've talked about this issue in my office and —
MICHAEL MONTGOMERY: But on this same day, 20 miles to the north, Sheriff Allman's own officer, Randy Johnson, was conducting a very different kind of meeting with the marijuana growers signing up for Mendocino's legal zip-tie program.
Sgt. RANDY JOHNSON: —is that prior to July, when this program started, what I knew about marijuana was chop it down and haul it to the evidence locker, OK? So I've learned a lot about what you're doing and —
MICHAEL MONTGOMERY: The irony of the day was not lost on county supervisor John McCowen, who had helped design Mendocino's program.
[on camera] On the one hand, you're talking about big raids on illegal growers. And on the other hand, you're licensing legal pot growers.
JOHN McCOWEN, Supervisor, Mendocino Cty.: We are so blessed. [laughs] But the reality is, I think, both things are necessary. If marijuana is ever to be legalized, it will be regulated. And I think that what we're actually doing — although, again, this was not the intention — by creating a model of what legal, regulated marijuana looks like, I hope we are paving the way for an end to prohibition.
MICHAEL MONTGOMERY: Mendocino County's quietly radical experiment with pot regulation is gaining support among the growers and over 80 have now signed up with the sheriff. But as they come out of the shadows, they're worried.
Around the country, states with medical marijuana laws have been getting warning letters from their local U.S. attorneys, and now from Washington, as well.
TOMMY LANIER: I think what the U.S. attorney's done is an extremely great way to send a message to everybody that this is the position of the Department of Justice. And it doesn't matter if you're in California, Oregon, Washington, Michigan, this is the standard.
MICHAEL MONTGOMERY: [on camera] Does that same threat go to Sheriff Allman? Could he be under some kind of legal threat from the federal government?
TOMMY LANIER: Yes. Whether it's a permit program, regulation or something like that, they're against federal law. And yes, they could be a target.
MICHAEL MONTGOMERY: Are you concerned that the feds are going to go after you because of this program?
TOM ALLMAN, Sheriff, Mendocino County: If they can give me a rational alternative, I'll be their best friend. But there's not. I mean, 14 states and the District of Columbia are on this slippery slope and they're all saying the same thing, that the voters have approved medical marijuana one way or the other. You know, I haven't seen it going the other way by the voters. I haven't seen voters saying ``Let's take it off the books.''
MICHAEL MONTGOMERY: [voice-over] The word in recent weeks is that letter from the U.S. attorney may soon arrive here in Mendocino County, right in the heart of growing season. Then everyone involved in the tagging program, from the growers to the sheriff's office to county officials, may be forced to decide: Shut it down, or risk jail themselves.