As Oklahoma’s medical marijuana industry booms, regulators struggle to keep up

Editor’s word: This story was produced in partnership with the nonprofit newsroom The Frontier.

Row by row, Oklahoma Bureau of Narcotics and Harmful Medicine brokers and Garvin County deputies minimize down 2,500 marijuana crops and loaded them in a dump truck for destruction throughout an April 2021 raid close to Pauls Valley.

The develop operation had a Oklahoma Medical Marijuana Authority license, however had not obtained a further allow from the OBNDD, in response to authorities. Each are required to legally develop marijuana within the state.

The develop’s two homeowners, a person who just lately moved from Colorado named Dao Feng, and Tulsa resident Kathleen Windler, had been later arrested.

The April 30 raid and arrests triggered a series of occasions that led to tens of millions of {dollars} in seized funds and tons of of different medical marijuana farms and dispensaries shedding their licenses. After the bust, Windler, a 68-year outdated paralegal who was listed as the bulk in-state proprietor for tons of of medical marijuana companies within the state, voluntarily surrendered 300 licenses.

The Windler case marked a pink flag for authorities and regulators, prompting state regulators to take a better take a look at marijuana companies with solely tenuous hyperlinks to the in-state residents they listed as majority homeowners.

Oklahoma has attracted 8,306 licensed commerical marijuana operations since 2019, outnumbering extra populous states like California and Colorado. Observers have referred to Oklahoma as “the only free-market marijuana industry in the country,” with 10 p.c of the inhabitants carrying medical marijuana playing cards.

Regulators estimate that medical marijuana is already a billion-dollar business within the state, second solely to grease and pure fuel.

The scale and progress of the business have outpaced regulators’ capability to maintain up with enforcement. OMMA is required to bodily examine all licensed marijuana companies within the state, however has visited lower than half because the inception of this system, in response to the company.

At the very least 75% of an Oklahoma marijuana enterprise have to be owned by somebody who has lived within the state for at the very least two years, however companies are discovering artistic methods to get across the requirement.

The state legal guidelines governing medical marijuana develop operations have led to tons of of instances of ghost homeowners — in-state residents who’re homeowners of firms on paper solely. The observe has opened the door to out-of-state and foreign-backed firms and people to regulate massive parts of the state’s marijuana market.

“It simply took time for phrase to get out that Oklahoma is a state with fairly mild laws, has been from the beginning, fairly low tax burden, comparatively fairly low value of residing, very low obstacles to entry and low licensing charges and all that,” mentioned Barrett Brown, deputy director and coverage liaison for OMMA.

The scenario has damage respectable marijuana develop operations, introduced in attainable components of organized crime and raised questions of moral labor practices at some operations. The inflow of latest medical marijuana companies has additionally strained the infrastructure of some rural communities.

State laws require the OMMA to make a willpower to just accept or reject a license software inside 90 days, however the authority doesn’t have the workers or capability to bodily examine the enterprise inside that 90-day window.

“At present, you simply come to OMMA and submit the required documentation for the statute,” Brown mentioned. “And so long as every little thing checks out, you are good to go along with nobody having inspected the enterprise.”

Since Oklahoma voters legalized medical marijuana in 2018, state businesses have collected greater than $332 million in gross sales and excise tax. In 2021 alone, medical marijuana generated almost $150 million in new gross sales and excise tax income. Most of these funds don’t go towards enforcement. State regulation requires that 75% of any taxes collected above OMMA’s budgeted quantity go towards schooling.

The state has 50 inspectors however would wish about 100 extra to get by means of the backlog of inspections, Brown mentioned. The purpose, he mentioned, is to have all companies inspected by the tip of 2022.

Brown additionally mentioned he’s speaking with the Legislature to strengthen the required documentation for business licenses to assist OMMA root out fraudulent functions.

“Pre-licensure inspections, I feel that will additionally assist tremendously,” Brown mentioned. “If we’re nothing greater than to provide us extra time to conduct any type of investigations.”

Regardless of being short-handed, state regulators and regulation enforcement say they’ve made some headway prior to now yr in opposition to fraudulent and unlawful develop operations, however there’s nonetheless a protracted method to go. And lawmakers count on to see dozens of payments filed for the upcoming legislative session to tighten medical marijuana laws.

Ghost homeowners

Earlier than her arrest, Windler labored as a paralegal for the Tulsa-based Jones Brown regulation agency, which has helped tons of of shoppers set up medical marijuana companies in Oklahoma, in response to state information.

Lots of these companies had been truly owned by individuals from out of state or from outdoors the nation.

Starting in 2019, the Jones Brown agency directed medical marijuana companies to signal a consulting settlement with Windler, who would step in as an in-state proprietor of the businesses, Windler claims in a lawsuit she later filed in opposition to the Jones Brown regulation agency. In accordance with the go well with, authorities started investigating Windler and the Jones Brown regulation agency in late 2020.

The agreements between Windler and the out-of-state homeowners had been simple — Windler can be listed as the bulk proprietor on paperwork submitted to state regulators, however she was not entitled to a share of the earnings, couldn’t make enterprise selections or declare possession of any firm property. In trade, every firm would pay Windler $3,000 a yr, at some stage in the contract.

Windler was finally listed as the bulk proprietor for 300 medical marijuana companies in Oklahoma.

State officers instructed The Frontier and KOSU that the observe of signing on ghost homeowners to satisfy the in-state residency requirement is widespread.

“They’re undoubtedly not the primary regulation agency that has performed one thing like this. I do know that there have been investigations of different regulation corporations for providing that sort of recommendation,” mentioned Oklahoma Metropolis legal professional Andrew Casey, who’s representing Windler in her civil go well with in opposition to Jones Brown.

Casey mentioned that Windler trusted her former bosses on the Jones Brown regulation agency once they instructed her it was authorized to signal the ghost proprietor agreements. However that recommendation would finally get her arrested, he mentioned.

In late August, Windler employed Casey as her legal professional and sued the Jones Brown agency, together with its founders Logan Jones and Eric Brown, and different related teams. The lawsuit claims Jones and Brown duped Windler into signing the ghost proprietor agreements.

David Cheek, an legal professional for Jones Brown, argued at a courtroom listening to in December that Windler was an lively participant within the ghost proprietor scheme. Jones and Brown each declined interview requests by The Frontier and KOSU.

“She knew what was happening. She knew precisely what was happening,” Cheek instructed the courtroom. “She was an lively participant each step of the way in which, and paid properly for it.”

Cheek argued state statutes are obscure on what constitutes possession of a medical marijuana enterprise, and that Jones and Brown acted inside the bounds of the regulation.

“You possibly can criticize us every now and then for being too artistic, however with all due respect. We’re entitled to learn the phrases the Legislature handed and be artistic,” Cheek mentioned.

Windler’s abrupt give up of tons of of tons of of enterprise licenses the place she was listed as an proprietor final yr set off a shockwave within the state’s medical marijuana business. Dozens of medical marijuana companies filed lawsuits in opposition to the OMMA in search of to have their licenses reinstated. The instances are nonetheless pending, however judges have issued short-term injunctions permitting the companies to proceed working.

After the Pauls Valley raid, Windler and Feng had been charged with cultivation of marijuana, possession of a managed harmful substance and not using a tax stamp and violation of the U.S. Uniform Managed Harmful Substances Act — all felonies.

In November, prosecutors dropped the costs in opposition to Windler, however legal instances in opposition to Feng and three Chinese language nationals arrested in the course of the Pauls Valley raid are nonetheless transferring ahead.

Shortly after the raid, OBNDD seized almost $3.2 million from Feng’s checking account, alleging the cash was for use to violate federal regulation that bans marijuana cultivation. A choose has but to enter a choice in these instances, and Feng is mounting a protection to reclaim the cash, in response to courtroom information.

Feng’s legal professional, Marco Palumbo, mentioned his shopper had the correct license on the time of the raid, although he didn’t present a duplicate of that license to KOSU and The Frontier. Mark Woodward, a spokesman for OBNDD, mentioned the license was by no means issued to the enterprise.

Authorized disputes 

Lue and Julie Her moved from California final yr to begin their very own medical marijuana develop operation in Okfuskee County. Drawn by the comparatively low cost worth of land, the low-cost obstacles to entry into the Oklahoma market, and assurances from the Jones Brown regulation agency that the in-state resident majority proprietor requirement wouldn’t be an issue, Lue mentioned he and his spouse determined to attempt to stake their declare within the state’s booming marijuana business.

They spent greater than $50,000 to arrange three greenhouses and a plant nursery, and to pay for labor and authorized charges.

As a result of the Hers had lived in Oklahoma for lower than two years, they did not but meet the state’s residency necessities to get a license to develop medical marijuana. The Hers mentioned they trusted the Jones Brown regulation agency’s assurances that state residency necessities wouldn’t be a difficulty to begin rising inside weeks.

They labored with Windler to get their license final Might and paid the regulation agency round $15,000. Quickly after getting their OMMA license, however earlier than getting their OBNDD license, the Hers mentioned Windler forfeited their license.

“My license is about to run out, and we’ll begin the entire course of (once more), and that’s an entire bunch of cash wasted,” Lue Her mentioned.

So that they went to their second plan: They discovered one other Oklahoma resident and submitted their software once more. They’ve since been calling day-after-day for the previous few months, however say the license continues to be beneath evaluation.

“We spent some huge cash on this property right here and we are able to’t do something,” Lue Her mentioned. “We’re simply sitting right here.”

The Hers are actually a part of a lawsuit in opposition to the OMMA together with almost two dozen different marijuana companies that declare Windler had no proper to give up their licenses.

Speedy business progress has led to issues 

Speedy progress of the state’s medical marijuana business has led to points starting from pressure on utilities to alleged involvement in organized crime.

A rural couple residing in Sapulpa has filed a lawsuit in opposition to 21 marijuana companies, claiming unlawful growers constructed lower than 50 ft from their property line. Residents Keith and Stephanie Grant say they will’t take pleasure in their dwelling because of what they describe as a “pungent scent” or the sound of helicopters the growers function that circle their dwelling.

Some rural electrical and water utilities managers are scuffling with the inflow of rising operations. One rural water district in Garvin County instructed KOSU and The Frontier that a single large marijuana grow in the district used more water in one month than the rest of its customers combined.

Farmers are nervous about lawsuits if pesticides they spray find yourself inside a close-by marijuana develop. OMMA director Adria Berry mentioned the company is creating working groups to resolve the problems between industries.

Oklahoma Bureau of Narcotics spokesman Mark Woodward mentioned the company is conscious of a number of brokers, brokers and regulation corporations tied to fraudulent licenses specializing in qualifying out-of-state homeowners to develop marijuana in Oklahoma.

Low-cost land and low licensing prices have lured marijuana growers to Oklahoma, he mentioned.

“That is why lots of these teams are hiring ghost homeowners,” Woodward mentioned. “And principally, their solely information of the farm is that they go to the mailbox as soon as a month and get a examine to say on the paper that they are the proprietor.”

Woodward says lax laws have lured out-of-state and worldwide funding that may very well be fronts for organized crime.

Migrant employees introduced in to reap and domesticate the crops have few authorized protections since marijuana stays unlawful on the federal degree. There are federal and state applications to assist agricultural employers discover employees and shield migrant employees’ rights. The applications don’t shield migrant employees at medical marijuana operations as a result of they’re federally funded, mentioned Shelley Zumwalt, govt director of the Oklahoma Employment Safety Fee.

Complaints in rural areas, laws on the way in which 

Lawmakers are taking discover of the issue. Oklahoma enacted legal guidelines in 2021 to provide $5 million in OMMA licensing fees to OBNDD to analyze fraudulent marijuana operations and supply funding to the Oklahoma Attorney General’s office to analyze and accumulate information on overseas land possession within the state. Sen. Jim Inhofe’s workplace has additionally requested $4 million from Congress to fund OBNDD’s marijuana enforcement workforce.

Oklahoma legislators plan to introduce a brand new wave of payments to additional regulate the business within the coming legislative session. Tightening possession necessities is on the prime of the checklist.

Rep. Scott Fetgatter, R-Okmulgee, mentioned the state’s residency rule spelled bother from the start.

“What that basically did was … arrange an surroundings for straw man enterprise constructions, and people have been deemed unlawful,” Fetgatter mentioned.

One other proposed invoice would let native governments cap the variety of licenses of their areas.

An unhealthy business

Growers like Sean Sherwood, a co-owner of Lucid Moon in Guthrie moved to Oklahoma in 2019 from Arizona to get into the enterprise. Not like Arizona, which caps the number of licenses it points, it wasn’t exhausting to get began within the marijuana enterprise in Oklahoma.

“It was a lot simpler to face out as a good, stable enterprise individual, you understand, doing all the proper issues, simply because it is easy to chop by means of the noise of those that had been possibly novices or simply entering into the business,” Sherwood mentioned. “And total, it was only a more healthy marketplace for the enterprise finish. It was not as cutthroat and never as aggressive because it has gotten just lately.”

Now, Sherwood describes the market as unhealthy. Oversaturation of the market has prompted costs to tank, and so they purchased their location in an enormous industrial complicated from somebody who went out of enterprise, he mentioned.

“The way in which I’ve described it’s treacherous,” Sherwood mentioned. “It is very, very aggressive. If you do not know what you are doing, you will get chewed up and spit proper again out.”

There’s hope that issues might get higher, Sherwood mentioned. He mentioned a moratorium on licenses, tightening up laws and permitting leisure use might assist the market.

As marijuana growers put together for survival, OMMA officers like Brown mentioned Oklahoma is by itself path for fixing the business’s challenges.

“I actually assume we’re on our personal path,” Brown mentioned. “I do not know the place we’ll be in 5 years. However I can inform you that our purpose is for the medical marijuana business to be handled like another business.”