The Pot Republic

Interview Rick Adams

Rick Adams

He is a retired special agent who worked for the criminal investigation unit of the IRS in California for more than 25 years. Part of his work involved looking into money laundering and other financial crimes committed by drug kingpins. This is the edited transcript of an interview conducted on Oct. 28, 2010.

Our sense with all of our reporting suggests that more marijuana is being grown in California than ever before, or certainly a huge amount. You've been in this a long time. What's your sense? How big is the marketplace when we look at [it] in terms of the amount of marijuana being grown?

It's huge. It gets to be mind-boggling, especially when you start looking at the numbers.

“Marijuana is by far the most profitable of all the illegal narcotics. Cocaine, methamphetamine -- it blows them away.”

I go back to the '80s. And in the '80s a lot of marijuana was being imported from Thailand -- Thai Stick, Mother Lode, ships full of marijuana. We took one off in the bay back in it was the early '90s, I think. We took a 50-ton load off a boat.

When was the last time you heard that? We don't need to be bringing this stuff in from Thailand or any other country because it's all being produced here. So that's just one indicator of when you see where it's coming from.

I worked with people in the '90s who were smuggling across the border from Mexico, real cheap weed. And we haven't seen that, ... not the DTOs [drug trafficking organizations], but domestic guys bringing it across. You don't need to. It's right here. Why bring it? And it's better quality.

And then in the early 2000s we were seeing a huge influx of B.C. Bud, British Columbia Bud that was being grown indoors. And we're not seeing that as much anymore because we don't need their bud. We have it here. We have indoor grows; we have outdoor grows. Our quality is awesome. There's no reason to. ...

The methods have all been adopted by the growers here, and there's a lot of science involved in this, and they know exactly when to prune it, when to fertilize it, put nutrients on it, the types of soil that you bury it in, start it in, and to think you can start a seedling that's this big in April and by November have a 14-foot-tall, in an anomaly situation, a marijuana plant. Nothing grows like that. They're so much larger than Christmas trees.

... [What's happened to] seizure numbers ... in the last five years?

Seizures are way up. They've tripled in the last five years. ... The DTOs, of course, Mexican drug trafficking organizations, that's probably a large percentage of these plants. They're being grown on national park, Forest Service, BLM [Bureau of Land Management] land. And they grow large gardens, 10,000-, 20,000-, 100,000-plant gardens. ... They just go by pure quantity. The quality is lower, but you're paying one guy, two or three guys to sit up there and maintain them. It's still a profitable business. But that's where a lot of these seizures are coming from.

Indoor grows have also grown substantially, although a 1,000-plant indoor grow is pretty big, not counting the commercial ones, [with] mini-warehouses and that kind of stuff. They can get large. ...

You've been in this a long time. What would you say are the major trends that you've seen in terms of marijuana in California in the last five, 10 years?

The major trends are more gardens, smaller gardens. That's what I've personally seen on the domestic growers. I'm not talking, again, [about] the Mexican drug trafficking organizations.

Most gardens are 50 plants, less than 100. The plants are high-quality and larger than they've ever been that I've seen. But that's the trend I'm seeing. It seems like one person can only take care of so many plants and get a good quality out of it, get the THC content up, the bud nice and big. It takes a lot of work. So there's only so many plants one person can take care of, and that seems to be around 50.

So this is a kind of a cottage industry-type thing.

Yes, it's amazing. We went on Google Earth the other day, and up in the Nevada area or wherever, you can just go up into the foothills and start using Google Earth, and you can see the grows sitting down there that were taken off a satellite. You can just boom, boom, boom. ... Certain areas are well known for their marijuana production -- and you can go up there, and you can actually see the plots with the plants on them. It's amazing.

So given that you've been in law enforcement, what do you do with that information? Are these so small that you're not going to bother going after them?

It's not that we don't bother. It's we have a finite amount of resources. ... [It] just makes financial sense, fiscal sense to concentrate on those who have the larger grows. We also are seeing people who will grow in a 50-plant plot, so when you do fly over or you do look on Google Earth, you don't see 500 plants down there. You see 10-, 50-plant plots. ...

So the net result is a lot more marijuana being grown.

Oh, yes. Absolutely more marijuana is being produced and hitting the streets and being exported.

... How does the system work when it's harvest time right now? What's going to happen with this marijuana that's cultivated? ...

Three things can happen with marijuana that's harvested here in California. You can take it to a dispensary and try to sell it out the back door, try to get something for your money there; you can put it back on the black market, which has been around forever, the street marijuana; or you can export it.

And all of them have risks and rewards. The dispensary's probably going to pay you less, and they can negotiate with you. They have plenty of sources of supply. The black market is a little more dangerous. You can get your stuff ripped off, so you're playing that game also. And you may not get paid. You front them the dope, and he just takes off with it.

And then anything that is going to be exported -- i.e., exported to another state, interstate -- you have to have, of course, the connection. You have to have somebody who's willing to accept it, and then you have to get it there.

But the risk/reward for export is exponential. 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 on the market here in California. It just moves. If you can't sell it here, move it over there, you know what I mean? It costs the same to produce, so if you can sell it for $2,000 a pound here at a dispensary out the back door or $4,000 a pound in New York City, hey, you make $2,000 per pound just by shipping it UPS, FedEx, put it in a truck, put it in a car, whatever method works.

Spell out the risk factor if you were a grower or a dealer moving out of state.

There's risks in state and out of state. Of course, the thing [is], marijuana production is not legal on the federal arena, so you always have that risk; you always face that. Shipping out of state, of course, now you bring in another law enforcement agency. You bring in the state and locals from those states in which they don't have any marijuana, either medical or legal marijuana at all, so you risk seizure of your marijuana, and you risk being arrested in other states.

... A lot of growers up north, they gave up long ago on the dispensaries. It's very competitive, partly because the number of dispensaries are limited whereas the marketplace of growers is huge, so there's an imbalance there. .... So talk to me a little bit about the phenomenon of the middleman or aggregators or whatever we want to call them. ...

Yeah, that's always been … the ghost in the story, those middlemen, those brokers, because you know where it hits the streets and you know who's growing it. It's those people getting it from the growers to the street, whether it's a dispensary, whether it's out of state, whether it's down in Los Angeles. It's those guys [who] have been tough to catch. We don't catch those guys, and I don't know why. I don't know where they come from; I don't know where they go. They're difficult. I've never done one. ...

... Do you have any inkling that marijuana -- I'm not talking about the DTO marijuana -- that this kind of thing is aggregated and moved out in huge supplies? Are there huge loads?

I just can't imagine that it doesn't happen. It has to happen that way. I just have not seen it happen that way.

But I also don't want to mislead you to believe that that is the only way it happens. I believe most of it is contacts. You've got four or five growers. One guy has a buddy down in L.A. He's said, "I'll take your dope, too, your harvest, because you can't get rid of it, and I'll give you $2,000 a pound for it." And then he of course sells it to the guy in L.A. for $2,500. And so he gets a little kick on that as well as his own dope, and then the guy in L.A. hits the university circuit or hits the dispensary circuit or however that happens. I think most of it is in smaller quantities. ...

I don't know if you're seeing moving vans, semi-tractor trailers full of this stuff moving to L.A. We've never seized a load like that to my knowledge. I have not. I haven't been in any investigation in which a tractor-trailer was taken off domestically. Of course, coming up from Mexico they do that. ...

In terms of marijuana moving out of state, tell me about the importance of these delivery services -- overnight, using FedEx, UPS, USPS. Tell me about the importance of that.

The predominant method of moving marijuana out of state is through a common carrier, whether it be postal service, UPS, FedEx, DHL, any number of one of these common carriers. That's based upon it's the most expedient and cheapest. It's fast, it's cheap, and it's not really tracked. So you use that.

But of course, if you're trying to move 100 pounds with all that entails, with the smells and packaging, you wouldn't do it that way. You have too much to risk at $2,000 a pound, 100 pounds. You know, $200,000, you're not going to risk it. You're going to either break it up into smaller packages or more likely pay somebody a couple grand to drive it across the United States.

If we had a package here that was going to FedEx, try to describe to me what we would see when we opened the box.

The last package I saw that was being shipped by common carrier was in the common carrier box, whether it be Fed Ex, UPS, USPS. Inside, if you open that box, inside there was a box that was wrapped in happy-birthday paper or Christmas paper like it was a gift, and then inside that was vacuum-packed packages of marijuana. And that's the predominant method you'll see. And they weigh under 5 pounds, because a lot of these common carriers have a box, and as much as you can get into it, it's all the same price. So you can shove 10 pounds in here or 5 pounds in there. It's the same cost.

And you say it's not really tracked? ...

Well, you know, there's millions of packages being sent every single day, … so it gets lost in the shuffle. What are the odds of your package being picked off? Pretty small, especially if you vacuum-pack it. The number one indicators, of course, would be smell or some suspicious manner of delivery or receipt, but if you pass those, why would anybody mess with your box? ...

Let's get into the money piece. So this isn't huge quantities: 5 pounds, 3 pounds. So how does it usually work with the money piece of it then? Say a box heading to New York from California, what's been your sense of how does this exchange work?

For a package of marijuana heading from California to New York, your cost is whatever you have sweat, [put] labor into if you grew it yourself or if you bought it on the open market, $2,500 a pound. You ship it to New York to your sub-dealer, and you can get close to $4,000 a pound. So the mere shipment is a $1,500 profit; not counting, of course, if you grew it yourself, you could have received the $2,500 to begin with. So in other words, it's almost $4,000 in profit if you grew it yourself, and not counting, of course, nutrients and potting soil and your cost of goods. But other than that, it's almost all profit.

Marijuana is by far the most profitable of all the illegal narcotics. Cocaine, methamphetamine -- it blows them away. For instance, you make some meth down in Mexico. Most of these drugs, of course, have to come up from the south. They have multiple costs. One, you have to pay the people to grow the cocaine, the coke leaves. There's processing; there's chemicals. There's a lot of loss, whether it's theft or being stolen. You have bribery. You have all the different costs that come into [play] -- the smugglers, the mules, law enforcement seizures. All these things have to be taken into the cost.

Marijuana, you go and you plant a seedling in your backyard that either you started from seed from the prior year's crop so it's free, and you stick it inside a closet with a light over it, and it gets about 2 or 3 inches tall, and you transport it to a pot full of potting soil that you bought with some type of fertilizer in it, maybe, and just your regular commercial potting soil. And then once it gets to a certain size, you either leave it in the pot or you put it in the ground.

So, yeah, there's a lot of attention having to be given to it. And of course you have pesticides and you have nutrients, but so do tomato plants if you were growing them in your garden. So do all plants in which you're expecting to get some produce from. There is a certain amount of cost, but it's not that great.

So when you harvest, it's all profit, while with cocaine, if you sell a kilo or you obtain a kilo from somebody and you're going to just move that kilo along, you may kick another $5,000 or $1,000 on top. And so you move 10 kilos, yeah, you've made 10 grand at $1,000 a kilo, but look at your exposure. I mean, why do that? ...

So this box has arrived in New York, and let's say it's 5 pounds; say it's $20,000. What happens to the money? How does the person back here get paid?

Any number of ways, and that's where the money laundering kicks in. That's where my specialty was. Once they sell it, for instance, the 5-pound box at $4,000 a pound, so now he owes my guy, the guy here in California, $20,000. There's any number of ways of getting it here. They can, again, drive it back if you had a driver take it there. Of course you can have them take the money back. If it was shipped there, you'll often seen them ship it back, you know, using the same common carriers. That's pretty common, too -- dangerous, but common.

But a dog's not going to be able to smell money, I don't think.

Yeah. I mean, they have alerted on money if it's been in conjunction with the narcotics, but you can also deposit it to the California guy's bank account.

Do they do that?

They do that. Let's say the guy in California has a bank account at one of the major banks, and it has satellite offices or other banks. It's a nationwide bank, any nationwide bank, and they can just deposit the money. As long as they have his account number, they can deposit the money into his account back east.

But won't large cash deposits alert banks?

Yes. That's why they structure. They keep their dollar amounts under the reporting thresholds.

Under $10,000.

Under $10,000, yes. So this one particular package that we're talking about, the 5-pound package. He needs to get $20,000 back. Seven or thereabouts deposits to the bank, to the guy in California's account, does the trick. It's paid.

So it's a lot of little transactions.

Yes, on that kind of level, on the package level. When we're talking [about] somebody shipping 100, 200, 500, 1,000 pounds across, now we're talking about volumes of money that you can't do that with, and it now has to be transshipped back to pay your guy.

... One of the things, if you talk to any grower, anyone in this business, it's a cash business. One of their biggest challenges is what to do with their money. Talk to me a little bit about that from the grower's perspective. ...

The marijuana trade is, of course, a cash economy, like all illegal narcotics. That's to keep it from being spotted by law enforcement, of course. You start putting it in bank accounts, you start buying monetary instruments, you can send red flags up.

So that is always the problem with any trafficker, whether he's a small grower in his backyard who then sells the profits or one of these larger DTOs. Once you have currency, it's "What do I do with it?" Well, the smaller the grower, the easier it is. You just pay your bills. When you go to one of the supermarkets, instead of using a debit card, credit card or writing a check, you just pay with cash.

So that's how the money gets back into the economy, is these growers buying just the personal effects from a large grocery store chain, some of the big-box stores, even the local small hardware stores, etc. Instead of like you and I would do -- you pay with a credit card, you pay with a debit card or write a check -- they don't do that. They just use their cash. And that's how the economy starts getting dominated. That's the first insidious effect of the marijuana trade then that works into becoming endemic.

What do you mean, insidious?

The next thing you know, the economy is powered by the profits from marijuana. This currency now floats throughout the community, whether it's down the chain -- the doctor, you know, because he's being paid. He's not directly being paid with that currency, but it went into a big-box store. They then pay the employees with a check who then need to pay the doctor or dentist to get a tooth removed. It's insidious, and then it becomes endemic.

Have you ever found a way to quantify how much of the economy up there is a cash economy? Is there any way to calculate the cash holdings in the banks or something?

There is a way, yes. The way to quantify it is the shipments of bulk currency from banks in the Humboldt-Mendocino area to the Federal Reserve. Most communities are asking for currency. ...

So what you're saying is that in these communities where a lot of marijuana is being grown, especially Northern California, there is an outflow of cash, that there is so much cash there that it's being sent out by the banks back to the Federal Reserve.

That's correct. They have a surplus of cash up in that area. And to get rid of it -- you just don't want it hanging around your bank, so you ship it to the Federal Reserve while, conversely, [in] similar-type counties in the central California area there's no currency being shipped. In fact, they often have to request currency be shipped to them to pay the migrant workers or whoever is running through. So they're actually asking for currency in, let's say, Colusa County, while Humboldt County has plenty of currency that they need to then get out. So that's one method of quantifying how much of the money [of] their economy is cash-based. ...

Does the shipment of this bulk cash to the Federal Reserve raise any kind of red flag?

The shipment of all this currency to the Federal Reserve does not trigger any red flags. All it does is it tells us there's a lot of currency up in Mendocino and Humboldt County, and then you can speculate as to where it came from, and we know that that's their number one cash crop. So the correlation can be made. The inference is that it's from marijuana, not from grapes. That's not the way those industries work. There is no other industry up in that area that is cash-intensive other than marijuana trafficking.

So the cash is clean by the time it gets to the Federal Reserve.

Absolutely, yes. There's nothing wrong with the bank shipping that money. There's nothing wrong with the banks accepting that money from these large commercial enterprises. That's completely legitimate.

And in fact there's nothing wrong with spending cash. There's nothing illegal about spending cash. I don't want to tell anybody that. It's if the cash is from an illegal activity, then obviously you have something to be concerned about.

Have you [found cases] where growers, they just can't spend all the money? ...

Yes,. I've recovered hundreds of thousands of dollars of cash during search warrants, even in safe deposit boxes. They want to put it somewhere that it's secure, but like you said, sometimes if they're generating enough profits, that's where the money laundering kicks in. That's where they need to use a business front, any number of methods, whether it's structuring the currency transactions under the red-flag limits, structuring the purchase of vehicles, boats, real estate -- that's the big one. That's where they have the most difficult time.

I mean, these guys want more land to grow more marijuana. How do you buy the land? You can't qualify for any loans because you don't have a job, so you have to pay cash. And when I say pay cash, you have to put the money down. They've got the cash. The real estate and escrow company, they're not going to accept currency, so you need to convert it; you need to get it into the banking system.

And that's where the money laundering kicks in. That's the real big problem with the guys who make a lot of money. The guy with the 30, 40 plants in his backyard, he doesn't have the problem. He gets paid, and then he just starts spending it. But it's the bigger guys who are having the problems with the currency. They might hire, employ a money launderer, have a business where they can commingle the money into the account. ...

... Is what we're talking about with people paying with cash, is that kind of peanuts in terms of the larger picture of the amount of money that's being made from this illegal growing?

No. Actually I believe that is where most of the currency is coming from. It's these smaller growers who spend the money in the local community, which is then accumulated at the bank level and then sent to the Federal Reserve. ... I don't believe it's from these large-scale guys making millions and millions and millions of dollars in currency and have that problem. They don't live up there predominantly. They may grow up there, but they have multiple houses, multiple venues, multiple sites. ...

Do you think that's one of the key things that makes it so difficult, from a law enforcement standpoint, to destroy the growing scenes up there, because they're so small, they're so granular?

Right. I can't even tell you how many times I've taken off marijuana grows and you can see the property next door has a grow, and I can't go there because I have to go back and get a search warrant, come back, and you would just go on. I mean, again, the Google Earth, every neighbor on the street. I would have to write so many search warrants, and that's just one street. You just can't do that. That's not the best practice.

Again, from the federal level, I'm supposed to go after kingpins, so I go after these very large growers, these very large traffickers, the brokers, that kind of person.

But does that situation make it kind of unwinnable, if you will, using the drug-war metaphor, in that the target is too dispersed?

There are a lot of people involved in it, yes, and many, many people beyond that who are sympathizers or users and sympathizers, so yes, it does make it difficult.

[But] the real difficulty comes if you don't take a multi-stage approach. The way the law enforcement system in the United States is set up is the feds take the kingpins, the state takes the midlevel guys, and the local and state take the lower guys, the street dealers. That's how it works. When you stop having the people, any one of those levels stops working, it puts a hitch in the entire system, and that's what we've had here. ...

... Without going into huge detail of a specific case, what kinds of prosecutions have you been involved in talking about growers? Like, how big?

I've been involved in the investigation of and the prosecution of the types of targets that the federal government looks at, [who] are those individuals who are producing thousands of plants per year and have been doing so for multiple years. Those are our best targets, because from a money-laundering standpoint, you're looking at not this year's crop, because it hasn't been sold. I have to concentrate on prior years' crops and what did they do with that money. So that's where my focus has always been.

Have you been looking at what, in terms of amount of money, that they've been making?

Nothing less than a million dollars a year in profits, in absolute profits. To get a grasp on the kind of money we're talking about, even a little indoor or little outdoor grow -- and by little I mean few plants, with the right kind of care -- those plants, let's say 20 plants, will produce potentially 20 pounds or more. One pound of plant, that's not a great plant. So let's just say even 2 pounds of plant, there's 40 pounds time[s] just $2,000 a pound; that's $8,000 a year for just 20 plants.

And it's cash. It's not being taxed. You pay no Social Security. You pay no federal income tax. So that would be the equivalent of you and I -- your average person would have to make, what, $110,000 to $120,000. So that's what a 20-plant grow could potentially net you, [the] same as having a job, a 40-hour-a-week job making $120,000. And they only work six months. We need to work an entire year and go to an office, and they're not working eight hours a day out there.

I mean, it's like tomatoes. You plant them; you water them; you watch them. You make sure the bugs don't get them and that nobody steals your tomatoes, and in the end you reap a pretty significant profit off 20 plants. So when you're talking they're allowing 99 plants or 100 plants, do the math. I mean, $2,000 a pound times 100 plants, 100 pounds, 200 pounds, $200,000, $400,000 a year -- wow, that's huge. And very, very little downside. What are the odds you're going to get prosecuted? ...

Talk to me a little bit about the way in which to some degree there's a loop up north in terms of the way in which the pot economy is sustained. That is to say, that there is maybe an unwritten code that you're not going to ask too many questions. ... Is that your impression with some of these communities?

That is my impression, and I have seen that. The impression is that it's so endemic within their community and in the commercial community, the money, the need for that money to be in there and fueling the economy, that you're committing economic suicide if you actively and aggressively pursue the source of these funds that you're receiving.

For instance, a person comes in, and he has $7,000 in cash, and you have an ATV to sell. Nothing's wrong. There's nothing illegal about doing that, selling something for $7,000. There's no forms that have to be filled out [for] you [to be] taking that currency. If you are an ATV salesman or a tractor salesman and you don't want to do that transaction, he will go down the street to your competitors, and he will make that transaction occur. It's economic suicide if you don't do it.

And the ones that maybe in the beginning, 10 years ago, 15 years ago before it became this financial juggernaut up there, people probably did fight it, and they are no longer in business. So now you have the people up there [to whom] it just makes sense. It doesn't make economic sense to turn down business. And it is not their job to determine and to ask those types of questions, as long as they follow the forms and do the right thing.

Now, that's by law. Obviously there's a moral and ethical responsibility, a community responsibility possibly, and that can be debated as to whether or not they should or shouldn't be dealing with these people knowing or under the assumption that the money is from illegal trafficking.

What [if] it's something that costs more than $10,000? How does someone go about buying that if they're a grower, if they have cash? How does that work?

The number one way would be to structure the transaction, only pay a portion up front and then pay it on installments, go to multiple institutions in one day, don't buy it all at one time, keep your transactions under $10,000. That's structuring. Now, that is flat-out illegal, and we do those all the time. That's a pretty common crime.

But if someone wants to buy a car, say it's a $30,000 car, when you say structure a transaction, what is it?

There's many methods of structuring as there is in growing the different strains -- going to your bank three days in a row, buying $9,000 in cashier's checks at each bank. ...

Well, then people would carry cash. Would they take cash to a bank and buy cashier's checks?


They don't have to have an account there?

They have to have an account in most instances. So you have an account at the local bank. You go in with $9,000, you know, that might raise some red flags, so you buy $7,000 cashier's checks, payable to A-1 Motors, and you do that three times, and there's $21,000. And then you go in with $9,000 in currency, and that tops it off. There's $30,000.

And there's no red flags.

Not by the banks. The dealership, the auto dealership, yes, they need to file a form. There's forms everywhere. Congress has passed that legislation to mandate anybody in business who conducts business in excess of $10,000 in currency, they also must file a form. Banks, jewelry stores, Macy's department store, everybody has to fill out this form. ...

So do a lot of people buy things on payment plans so that they're only paying, you know, $400 a month? Would that get around?

That would get around, but again, most of these people don't have jobs. No one's going to put them on a payment program. I mean, you have to qualify.

I mean, yeah, but in the small community they know who they are. They know they're good for their money.

What they do is they try to get as much down as possible. They'll try to get the $9,000, $7,000 down, and they may carry a note on you, but marijuana traffickers are just as flaky as your average person. They blow their money, and now you're out.

Does this kind of create a culture of acquiescence; that is to say, for you as an investigator, do you have a hard time when you go to these communities, getting people to cooperate?

Yes and no. I mean, there's some people who will go out of their way to help me. It's the same thing. It's just human nature. It's the human community. Some. But I do find in that area they're more reticent than they are in, let's say, Colusa County. They are more reticent in Humboldt and Mendocino to be open with me, because again, if they're found to be the one who's cooperating with my investigation, even though it's their duty to do so, what impact might that have on their livelihood, on their life? So they have to be careful.

You mean in terms of if they're a businessperson they could lose business?

Right. If the word gets out in the community, like you say, it's a small community that this person is reporting and helping, then they're not going to be in business very long. Business is going to go to somewhere else.

Does that hamper investigations? Has it in the past?

Not really. The beauty about financial investigations is the paper talks, and you don't need testimony. You just need somebody to say, "Yeah, I sold them a car, and here's the paperwork." I can go through the paperwork: "Yes, they bought a piece of property. Here's their escrow file." I'll follow that. So that's what I do. That's what we do. ...

... Do you see any parallels [to Prohibition] with your work sometimes? ...

I can see the similarities, yes. I obviously I wasn't alive during Prohibition. I have seen all the videos about Prohibition. I don't know if we're talking about two different animals or whether it's apples and oranges. Alcohol was legal. Then it was illegal, [but] it was already a part of our culture and a part of our society, and it goes back thousands of years.

Now, I know people argue that marijuana has also gone back thousands of years. But it wasn't entrenched in our culture like alcohol was. So we may be talking about apples and oranges in some ways. But there are parallels, no doubt about it. And we'll see how it all plays out in the end. It's going to be interesting.

Now, me personally, that's the beauty about the financial aspect of this and the financial investigation. The marijuana is secondary. ... I know they're not going to pay any taxes on this. I know they're not going to pay their fair share, but they're going to use the government assistance programs, the highways and everything else that we all do, we all have access to. They're going to use that without paying their fair share, so this is really tax evasion in progress.

So I don't have some of these dilemmas that you might think about when you're talking about Prohibition, because if I'm in there, you've made a lot of money, and if you've made a lot of money and you're doing something illegal, it is in my career, you're not paying taxes on it. And that huge economy up there is not paying taxes. ...

Has anyone tried to come up with any numbers on how much money the government is losing when all this tax evasion was being talked about?

I'm sure some Berkeley professor would be better suited to, but I will tell you in my 27 years, I have seen it only once where a person paid his fair share. It does not happen. It does not happen.

And they can pay taxes. The IRS doesn't ask --

Oh, yeah.

If you're a grower -- I mean, I think this has come up in the context of medical marijuana folks -- that federal law does not allow that. But they're still able. They can pay taxes to the IRS. The IRS doesn't demand to know the source of the [income], right?

Right. I mean, eventually they may if you get audited. But yes, you can file the Schedule C, horticulture, your business name, whatever it happens to be, much like a farmer would, and file the requisite forms, and the IRS isn't going to not cash your check. They're going to deposit it.

Now, I don't know what all happens. That would be such a mystery as to how that would all play out, because you don't see it. ...

Can you differentiate between the medical marijuana market and the illegal market?

The medical marijuana market and the black market or the illegal market pretty much go hand in hand. They're very, very similar. One has the guise of being in a legitimate state, 215. The black market one, depending on what your quality in the dispensaries are looking for, from what I understand, at any given time they're looking for different strains, different types, and if you don't have what they're looking for, they're not buying. So you need to dump it on somebody else who will take it someplace else, usually to a large urban center -- the Bay Area, Los Angeles -- or ship it out of state. But they are getting rid of it. I'm not seeing marijuana left around from last year's harvest. ...

... How big is the federal presence in Northern California in terms of the marijuana industry?

We make a presence, obviously. We go up there. The feds are up there on a year-round basis. The presence -- we don't have an office up there. The closest we come is Santa Rosa, and we have three people in Santa Rosa. The bulk of our employees are here in the Bay Area and in Sacramento.

So do we have a full-time IRS guy up there who that's his focus, is the marijuana trade? No. No, that's not true. But again, the federal presence makes a difference, no doubt about it. Having somebody up there full-time might make a difference, but you have to remember, since we're looking at kingpins, it's not going to affect these smaller growers, [and] they're the ones that fuel the economy. We can still target and pick off these kingpins from a distance. We don't have to be right in town, right in Fortuna or right in Eureka.

But I do not believe DEA [Drug Enforcement Administration] has an office up there. I do not believe Customs has an office up there with a permanent agent assigned. I'm sure the FBI does. But they have many, many statutes that they need to deal with, including bank robberies, etc, etc. So their main focus is not narcotics in that area. ...

My takeaway from what you're saying is that you do think the bulk of the growing, with the exception of the big grows on public lands, is done by smaller-scale growers; that is to say, 50, 100 maybe, plants.


Is it fair to say that when we talk about kingpins, they may not be growers. They may be people who are at the next level up, who are running, who are aggregating and then shipping that stuff. Where are the kingpins? Are there that many, from the growers' standpoint?

There are. There are kingpins. Some things that make people a kingpin are like sharecropping. You own the land. You own the land, and you lease it out. And if you own 100 acres and you subdivide it up among a bunch of coops, and they each grow 50 plants, and you get a third of their crop, now you're a kingpin. You've got a lot of money. You've got a lot of crop there.

So that often makes a kingpin, is the sharecropping aspect, or even just owning multiple parcels of land, each with 50 to 100 plants on each parcel, so that it doesn't -- again, you don't see the 500-plant grows anymore in these domestic guys. What's really telling is you can get up in the helicopter and fly the foothills and you can see grows as far as the eye can see. I mean, they're everywhere. But they're smaller grows. They're not 500 plants. I didn't see any of those this year. They're not as prevalent, or they're well hidden: They're indoors; they're under the brush; they're under tarps; they're in big barns; they're in greenhouses, the PVC-piped greenhouses with the opaque sheathing over top. That's pretty common.

So you'll see there, you'll see multi-100-plant grows there, and those guys make that -- that makes kingpin status or getting there. And if they've been doing that year after year after year, boom, now they have millions of dollars that I'm capable of following.

You have to really understand that a financial investigation is, because it takes so long, we're very picky about who we choose. My estimate would be we find about $1 of every $5 because, again, it goes to Raley's and he buys $100 in groceries. How would I ever know that unless he kept the receipt in his house and I did a search warrant and I found it? You wouldn't know.

When you physically go to a home, someone's property, are there any just obvious signs that you see visually that lead you to at least suspect that this person is perhaps a little bit more successful, a little bit further up the ladder in terms of the growing world?

Yes. When I go to a house, when we conduct a search warrant, usually before we even go, he's already made kingpin status. And that can be detected by what you own. It's just like anything else. What you own is indicative of how much money you make. The more properties you own, the more cars you own, the more toys you own, is indicative of your income potential or what you actually already have made.

It's the same thing as if you went to an elite community, Blackhawk or wherever. They have beautiful houses, beautiful cars, boom! Same thing with the drug trafficker, and that's across the board. Whether it's marijuana, cocaine, whatever, it's across the board. I look for the toys. I look for the properties, the things that you and I want, the great American dream. They're just the green dream, both marijuana and money. ...


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Posted July 26, 2011

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