It started with an announcement then a crackdown in Massachusetts before the legal cannabis industry realized one of its longtime fears was coming to fruition. The FBI is coming.

In an August 15 podcast titled “Public corruption threat emerges in marijuana industry,” Bureau investigators David Kirschner and Regino Chavez confirmed the feds were ramping up their levels of intervention to ensure public officials in cannabis-legal states don’t use their platforms to cash in on the lucrative new industry.

“It’s our role as the FBI to help to ensure that the corruption doesn’t spread in this new industry,” Kirschner said.

The FBI said state and local officials taking bribes from cannabis business owners in exchange for legal licenses and other benefits are among the most widespread problems in the fledgling industry. Kirschner and Chavez said corruption was most prevalent in western U.S. states, like California and Nevada, where cannabis business licenses are capped and decentralized, meaning both state and local officials are involved in the process.

It didn’t take long for the dominoes to start falling. On September 6, the FBI announced that authorities had arrested Fall River Massachusetts mayor Jasiel Correia and charged the 27-year-old with extorting four prospective cannabis vendors in the city in exchange for legal licenses. Correia demanded cash payments of up to $250,000 from each vendor, authorities said, and was also paid with pounds of cannabis flower and campaign donations. Correia is facing 24 felony charges, including counts of bribery, extortion, wire fraud and filing false tax returns, which carry a possible sentence of decades in federal prison. After posting $25,000 bail, Correia was voted out of his elected position by the Fall River city council.

In Nevada, an ongoing court battle this summer led to testimony from Jorge Pupo, the deputy head of the state’s taxation department in charge of cannabis enforcement, confessing that he drastically altered licensing regulations on the fly during an application process last year to favor clients of a prominent Las Vegas attorney. Pupo’s alterations led to clients of business lawyer Amanda Connor winning the lion’s share of 61 new dispensary licenses, which are capped by state law. In justifying the process, which saw only 17 of 127 companies that applied awarded with a new dispensary license, Pupo testified in court that Connor “kept bugging me” about a requirement to have a building location scrapped. Much of the alleged persuasion came during lavish dinners that the two enjoyed together in the weeks before Pupo’s department scored the applications. The building location requirement was eventually removed.

Pupo also testified that Armen Yemenidjian, former owner and current executive of Essence Cannabis Dispensary, which scored a whopping seven of the 61 available licenses during the license lottery, offered him employment after his tenure with the Nevada Department of Taxation.

“You can’t just stop talking to everyone,” Pupo testified, according to official court documents.

Judge Elizabeth Gonzalez ordered a partial injunction on the issuing of the licenses after determining Pupo and his department “arbitrarily and capriciously” altered regulations to give a select group of applicants an advantage over the rest. Recent transfer sales of Nevada dispensary licenses suggest each is worth at least $10 million.

FBI spokeswoman Sandra Breault declined to comment on whether federal authorities were investigating Nevada regulators as part of its crackdown on cannabis-related corruption, citing bureau policy of not commenting on ongoing investigations that don’t involve a risk to public safety. However, attorneys and cannabis business owners in the Silver State seem to confirm the feds are at least putting feelers out.

Dominic Gentile, an attorney representing plaintiffs in the ongoing lawsuit against the Department of Taxation over the cannabis licensing scandal, said he was contacted by bureau officials and asked to be interviewed. Ditto for a Las Vegas dispensary owner involved in the case, who requested anonymity.

In response to the recent fallout, the office of Governor Steve Sisolak on Sep. 6 stepped in to place Pupo “on leave.” While the timing was not ideal for the taxation department, considering the court case is still ongoing and is scheduled for trial in March 2020, sources close to the governor say Pupo’s temporary removal was directly related to the FBI’s announcement and subsequent media coverage of the taxation department’s wrongdoings, which resulted in a flurry of calls being made to the governor’s office this month.

Sisolak’s office did not respond to a request for comment, but a leading Nevada political scholar said removing Pupo could demonstrate an effort by the Nevada governor to cleanse the state’s cannabis regulating body of what appears to be its most corrupt official. David Damore, a political science professor at UNLV, added Sisolak’s move is a sign to federal authorities that he wants to fight corruption in Nevada’s legal cannabis industry before the FBI has to.

“It’s their way of saying ‘we see this, we understand it’s wrong and we’re stepping in to correct it,'” Damore said. “They just have to hope it wasn’t too little too late.”

In California, pressure is growing against state regulators commissioned with shutting down the Golden State’s rampant illegal market as efforts for nearly two years of adult-use legalization have largely failed. Despite tripling the number of raids on unlicensed cannabis shops in 2019 compared to 2018, California’s Bureau of Cannabis Control is still allowing thousands of illegal cannabis growers and sellers to dominate the legal industry, advocacy groups say.

While dozens of illicit cannabis dealers go as far as advertising their product in the public domain—via billboards, TV and social media ads—the cannabis bureau has filled less than half of the 68 enforcement positions authorized and funded this year by the state to crack down on the black market operators.

The California Cannabis Industry Association, a leading advocacy group for legal cannabis operators, worried that “severely inadequate” state and local crackdowns have been influenced in part by the financial power of illegal operators to stave off regulators. When reached for comment, a CCIA representative fell short of alleging a bribery scheme.

“All we can say for certain is some of the illegal operators have been here for generations and are very influential,” said CCIA spokesman Josh Drayton.  

Nicole Elliott, appointed in February to lead cannabis enforcement as California Gov. Gavin Newsom’s senior advisor on cannabis, denied any bribery influences. She said state authorities’ shutdown of the black market will be “careful and deliberate,” taking three to five more years to be fully completed.

Elliott said the FBI was previously involved in California’s legal cannabis industry earlier this decade when the bureau contributed to the shutting down of three illegal cannabis consumption lounges in San Francisco. She said Golden State authorities have always “worked cooperatively” with the feds and would do so in the event of future intervention.

“We’ve always warned our marijuana operators that local governments, state governments and the federal government may not always see eye-to-eye,” Elliott said, “but we have to work together to find common ground.”

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