Pot in California

Coalinga made millions from pot, so why could some city employees lose their jobs?

Adult cannabis plants grow inside a temperature controlled room at Canndescent’s greenhouse in Desert Hot Springs, Calif.
Adult cannabis plants grow inside a temperature controlled room at Canndescent’s greenhouse in Desert Hot Springs, Calif. TNS

The first town in the central San Joaquin Valley to embrace the marijuana industry may be in trouble.

Coalinga, nestled between the hills on the southern edge of Fresno County, made waves across the state last year when it decided to allow marijuana companies to grow, transport and sell the still-controversial plant.

Proponents, critics and the city’s government were in relative agreement on the reason why Coalinga bucked the trend: The town of fewer than 20,000 people needed money. Badly.

The plan seemed to be working. Minutes after the City Council voted to allow cultivation, it accepted a $4.1 million bid from Ocean Grown Extracts for Claremont Custody Center, a former prison that was not only an eyesore on the north side of town but also hamstrung the city with a nearly $3 million debt. The cultivation facility would pay the city hundreds of thousands of dollars per year in taxes. Damian Marley, son of Reggae legend Bob Marley, even signed onto the deal with Ocean Grown.

A close-up look at Forbidden Farms' marijuana growing operation in Shelton and the processing facility on the Tacoma Tideflats in Washington. Owned by the Balduff brothers Garrett and Taylor, the premium producer even supplies cannabis connoisseur

In the year since Claremont’s sale, Coalinga sold half of its vacant Juniper Ridge Industrial Park to cannabis companies. The five plots were worth a combined $945,000. They sold for $2.1 million. The other five are currently in escrow, which is expected to close in October.

You can imagine the shock, then, for 23 Coalinga city employees when they recently heard they may be fired if a November ballot measure imposing a 1 percent sales tax increase fails. The cuts would include five full-time police officers and 15 reserve firefighters. Coalinga’s current sales tax is about 8 percent.

$4,087,150The price paid by cannabis company Ocean Grown Extracts for Claremont Custody Center.

Coalinga, it would appear, is not out of the woods yet. And the town’s current struggles may perhaps serve as a warning to Fresno, Madera, Visalia and other Valley cities considering allowing cannabis businesses.

Coalinga City Manager Marissa Trejo said the town’s current budget has a $585,000 deficit. And that’s after every city department was slashed to the bone in the past few years.

“We’ve cut operational expenses as much as possible,” she said. “No one (in the city departments) is getting what they want – only what they need.”

As it turns out, money from the Claremont sale was immediately eaten up by Coalinga’s staggering debt. It owed about $3 million in deferred maintenance on the prison, and most of the remaining million went toward balancing last year’s budget.

The city also doesn’t get to keep all of the profits from the recent sales in its industrial park. That money goes to the state, which then distributes it to all the taxing entities in Coalinga – the hospital district, school district, parks and recreation, and so on. In fact, only about 20 percent will be given back to the city, and Trejo said it could take the state 18 months to distribute it.

We’ve cut operational expenses as much as possible. No one (in the city departments) is getting what they want – only what they need.

Coalinga City Manager Marissa Trejo, speaking about possible layoffs

But the biggest problem with Coalinga’s new industry is simple: It doesn’t exist. At least, not yet.

Only a small portion of Claremont is currently producing cannabis products in the city of Coalinga. The other production plans are in limbo for a variety of reasons, including logistical problems like power and plumbing. And progress on a voter-approved dispensary – which would likely be the first and only place to buy recreational weed in a 200-mile radius – has been slow.

The reason for the stall depends on who you ask.

Patrick Keough is the former mayor pro tem of Coalinga. He was perhaps the biggest proponent for the city to go green – for no other reason, he said recently in an interview, than because it was the only way to get the city out of its massive debt. Now, he believes the city is blowing its chance to gain a foothold in a billion-dollar industry.

“Coalinga was a little bit ahead of the curve,” Keough said. “We voted for it before recreational passed. Since then, 50 (California) city and county entities have put in a taxation mechanism.”

Keough said Coalinga’s taxation rate was in the mid-to-high range for the state. When you couple that with the fact that Claremont doesn’t have enough power and the industrial park doesn’t have proper plumbing, he added, the city is far less attractive to marijuana companies. The “if you legalize it, they will come” mantra that has spread through the Valley as cities and counties investigate the issue is not necessarily true.

5The number of full-time police officers who may be fired if Coalinga fails to pass a sales tax.

How does he know what marijuana companies are thinking?

He works for a few.

Keough did not seek re-election after his first term. Instead, he now holds a variety of jobs: real-estate broker, notary public, college professor.

And part-time marijuana consultant.

Keough charges a varying rate for advice and guidance for both marijuana businesses and municipalities. Various local cities have used him, as have cannabis companies looking to move into places like Hanford, which recently allowed marijuana cultivation. He declined to put any dollar amount on his rate, saying it was confidential between him and his employers. He is barred from negotiating deals with the city of Coalinga for one year as part of a standard outgoing agreement.

His consultancy operation was actually a friend’s idea, Keough said. His friend put together a free website for him while the two were sitting in Starbucks. Keough never planned to be involved in the cannabis industry, and he objected to the notion that he may have pushed pot on Coalinga only to profit from it later.

“I’ve made hardly anything off of cannabis,” Keough said. “I’ve sold advice. That’s it. I have no (real estate) clients. I was fully employed and tenured with the school district when I made my decision (to support marijuana in Coalinga). And that’d be amazing to have the foresight to say ‘I’m going to turn a prison into a pot farm and make a career from it.’ 

I’ve made hardly anything off of cannabis. I’ve sold advice. That’s it.

Former Coalinga Mayor Pro Tem Patrick Keough

Keough has since left the Coalinga-Huron school district, saying its administration had made his job running the district’s continuation school quite difficult after he went against the district’s wishes by supporting marijuana in Coalinga. He said he now teaches American government twice a week at West Hills Community College as his primary source of income.

The former councilman believes his city is making it too difficult for cannabis companies to do business, which has kept it from generating the sustained revenue from tax collection and job creation he pushed from the get-go. This is why, he said, several companies have backed out of moving into the industrial park.

He also criticized Coalinga for not having an up-and-running dispensary.

“The vote passed in November, so where’s the dispensary?” Keough said. “The citizens told us they wanted it. We were already pot-friendly. Why don’t we at least have a site, company and retail model yet?”

The vote passed in November, so where’s the dispensary? The citizens told us they wanted it. We were already pot-friendly. Why don’t we at least have a site, company and retail model yet?

Former Coalinga Mayor Pro Tem Patrick Keough

Trejo, the city manager, said the Coalinga City Council will vote in August on whether to approve two possible dispensary locations – one in the industrial park and one past Lucille Avenue on the southern tip of town. If the vote passes, cannabis companies can begin submitting proposals for either location.

Only one dispensary will be allowed, Trejo said. The council has asked that the business focus on providing cannabis to patients, but recreational sales will also be allowed.

Proposition 64 establishes one ounce of marijuana, or 8 grams of cannabis concentrates, as the legal limit for recreational pot possession for adults over the age of 21.

Choosing a spot wasn’t easy. State law prohibits the sale of marijuana within 600 feet of a school, day care center or youth center. West Hills objected to any dispensaries near its Coalinga campus, saying cannabis sales could hurt its federal funding. Various other groups and residents also opposed marijuana sales near their homes and businesses.

Coalinga also doesn’t have many vacant storefronts available in industrial zones, which are the only legally permissible areas in the city to open a pot business.

When asked why Claremont was not fully producing a year after its sale, Trejo said Ocean Grown is currently working with Pacific Gas and Electric Co. to meet its power needs. Trejo was told the former prison would be getting 75 percent of its energy demands met by the end of August, but PG&E may need to build a new substation.

PG&E spokesman Denny Boyles said he could not comment on any specific customer, but he noted that the company works with all businesses – after first verifying their business licences – to help meet their power needs.

The city has begun to collect some taxes from cultivation at Claremont, just not as much as officials originally anticipated.

The city has struggled, she added, ever since the California Department of Corrections and Rehabilitation left Claremont after California Assembly Bill 109 became law in 2011, shutting down many private prisons. The state had been maintaining the facility and paying the city $1 million annually in rent. Now, the city was responsible for maintenance and out a seven-figure annual payment.

$1 millionCoalinga lost an annual income of $1 million when Claremont Custody Center shut down in 2011.

Increases to pension and health insurance costs for city employees have also hurt Coalinga, Trejo said.

If Coalinga passes a sales tax, Trejo said the city should have enough revenue to keep its staffing intact. She noted that many cities throughout the Valley, including sister city Huron, have a similar tax.

The latest developments would seem to put Coalinga Police Chief Michael Salvador in a tough spot. The law enforcement veteran opposed bringing marijuana – still an illegal drug in the eyes of the federal government – to Coalinga. Now, he may have to police a new, freshly legal industry with even fewer officers than he started with.

Over the past year, Salvador’s department has worked to enforce tough regulations on marijuana companies. They’ve performed background checks on every employee, ensured cannabis products are properly stored and are guaranteed immediate access to Claremont’s surveillance and security systems.

As of Tuesday there had not been a single break-in or problem with cannabis companies or their employees, Salvador said.

“Everyone has been totally compliant,” Salvador said. “It’s a work in progress, but as far as first impressions go, it’s been a good one.”

He expressed a similar optimism when asked about the potential cut of nearly one-quarter of his full-time police force.

“I haven’t lost anybody yet,” Salvador said. “I trust our electorate. Our electorate has always been good to us.”