CA: Troubles Deepen For Co-Founder Of Mendocino County’s Only Cannabis Distribution Business

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Photo Credit: Alvin Jornada

Lucas Seymour hoped his legal troubles as a cannabis businessman were largely behind him in early December after he and his partner secured a Mendocino County license to run their Ukiah-based distribution business.

But in the span of three weeks, Seymour and his firm, Old Kai, have become the target of a high-profile crackdown by local law enforcement that has ultimately forced Seymour to step down as co-owner of a company he helped create in 2016, in the run-up to the state’s historic vote legalizing recreational use of marijuana.

The trouble for Old Kai began three days before Christmas with a reportedly routine CHP traffic stop and the seizure by local authorities of nearly 1,900 pounds of cannabis from a company truck just blocks from Old Kai’s warehouse. Seventeen days later, local officers, acting on a probation search linked to a 2015 misdemeanor conviction for Seymour, entered the firm’s place of business and removed box loads of financial documents.

Seymour and his partners view the pair of incidents as clear examples of law enforcement overreach. They say they operate an aboveboard business looking to comply with all applicable laws, and their Santa Rosa attorney, Joe Rogoway, has produced documents he says give the company all the necessary clearance to operate in the county.

Mendocino County authorities, meanwhile, remain tight-lipped, with both Sheriff Tom Allman and a spokesman for District Attorney David Eyster declining to speak in any detail about the case.

It has sparked significant debate in Mendocino County, an Emerald Triangle stronghold with deep roots in the cannabis trade, and wider attention inside California’s burgeoning marijuana industry, where entrepreneurs in both the medical and emerging nonmedical marketplace are struggling to navigate a new maze of local and state laws while not running afoul of authorities tasked with policing that altered legal landscape.

“The driving force behind what I did with this company, and the seriousness with which I take compliance, is in part because of that incident,” Seymour said of his 2015 marijuana-related arrest. “I don’t want anyone else that is serious about compliance to feel the way I felt in that entire process.”

The whereabouts of Old Kai’s seized marijuana — 1,875 pounds in all, and mostly a mix of old flowers and trim slated for concentrated cannabis oil production — remains unknown. It could be worth up to $750,000, industry experts say.

Sheriff Allman and other officials with the Mendocino Major Crimes Task Force, whose officers carried out the seizure, have refused to say if it has been destroyed, which is typical with suspected drug contraband.

“I look forward to talking about the case once further information can be revealed,” Allman said. “I’m not going to counter what has been said at this time.”

Concerns raised for industry

The case is causing ripples far beyond Mendocino County as cannabis startups and medicinal marijuana purveyors seek to gain a foothold in the newly expanded recreational trade, which began Jan. 1.

“The industry certainly is paying attention to this case,” said San Francisco-based cannabis attorney Nicole Howell Neubert, who serves as chief political adviser to the California Grower’s Association. She and others are concerned about the possibility that law enforcement would take actions that could discourage businesses from joining the regulated market.

“It makes people think, ‘Even if I do the right thing I’m going to be treated like a criminal,’” Neubert said. “It’s pretty devastating.”

At stake for Mendocino County is the trust of cannabis entrepreneurs, who are still confronting a federal government that views the industry as illegal, regardless of state laws. Tax dollars for local governments and livelihoods for growers are also at risk if more cultivators and businesses cannot be coaxed to join the regulated trade.

Case in point: If the seized cannabis from Old Kai’s truck is destroyed, it’s cultivators from a Covelo collective who’ll be primarily hit by the loss. No money had exchanged hands between the cultivators and Old Kai, according to Seymour and company co-founder Matthew Mandelker.

Supervisors pressed for action

Covelo pot farmer Joshua Artman, who had plants in the truck, and others in the local cannabis industry have pleaded with the county Board of Supervisors to look into the case. The board controls the Sheriff’s Office budget but has no authority over its operations, nor does it oversee the Major Crimes Task Force, which includes the Sheriff’s Office and local police departments.

Some supervisors have expressed concern law enforcement is undermining the county’s attempt to create a regulated local industry designed to reduce the negative impacts of the region’s thriving black market.

“It’s not the first time it’s come up where people who are in the cannabis industry feel they have met the requirements of the law only to find themselves on the wrong side of the law,” board Chairman Dan Hamburg said in an interview. He said he was troubled by the possibility that law enforcement didn’t recognize the validity of a county business license secured by Old Kai. He said he’s asked to meet with Allman to discuss it.

“Here in Mendocino, marijuana has been such a dominant topic and a lot of people including me wish it could be normalized and be part of the economy, like the wine industry,” Hamburg said. “And this (case) takes us further from that rather than closer to it.”

Old Kai’s business license, stamped with a county seal, did not stop law enforcement from taking the truck with its marijuana load during the Dec. 22 traffic stop, nine days before Jan. 1 when hundreds of companies, including Old Kai, received temporary California cannabis business licenses.

State licenses offer an entirely new certificate of legitimacy previously unavailable for businesses in California, which in 1996 became the first state in the nation to legalize marijuana’s use for medicinal reasons. Only now, more than two decades later, has the state begun to formulate regulations for all aspects of the industry, from seed to sale.

But traffic stop last month on the Old Kai truck came at a time of transition, when many cities and counties across the state were issuing local permits and licenses for medical marijuana businesses in advance of the state, including Santa Rosa which issued its first cannabis permit — for businesses other than dispensaries — in 2016.

Mendocino County began giving cultivators permits mid-2017 and began issuing permits and licenses for other types of businesses, such as distributors, after the Board of Supervisors passed its cannabis business ordinance in November.

Local license questioned

The case may hinge on whether Old Kai’s local license, dated Dec. 19, was in fact effective and whether they had all the proper documents showing they were operating as part of a collective with enough members for that amount of cannabis.

The CHP officer who pulled over the Old Kai box truck about 4:30 p.m. near North State Street and Pomo Lane said its running lights were off. The cannabis cargo was stuffed into garbage bags. The officer called for backup and officers with the Mendocino Major Crimes Task Force seized the truck and cannabis as evidence of suspected illegal drug activity.

A spokesman for the CHP’s Ukiah office, Officer Jake Slates, said at the time the agency took the position that no local permits or licenses were effective before Jan. 1, when the state’s licensing program went online.

The CHP has since referred all questions about the case to the Mendocino County District Attorney’s Office. A spokesman for the office, Mike Geniella said they have not received the completed reports on the case and have not decided whether to seek charges against the employees, a driver and passenger, who were cited for misdemeanor possession of cannabis for sale and unlawful transportation of cannabis.

Rogoway, Old Kai’s attorney, argues the county license was valid on the date it was issued — Dec. 19 — and the license didn’t put any limits to the amount of cannabis the company could transport. State cannabis bureau officials said local permit and licenses were valid prior to 2018 for medical marijuana entities.

“There’s an attempt to discredit the operations of a licensed entity in the wake of law enforcement making a terrible mistake when what they should do is apologize and find a way to compensate the company,” Rogoway said.

Plea deal in past conviction

Seymour’s past legal troubles have added another wrinkle in recent days. He was about halfway through a two-year probation term from the case in 2015 when he was arrested on suspicion of two felonies, possession of marijuana for sale and possession of more than $100,000 for the unlawful purchase of a controlled substance.

He claims he was double-crossed by a member of the collective who had arranged to sell marijuana to the group, with Seymour as the buying agent.

“Given the pressure of the case, it made it seem like I was going to be putting other innocent parties through too much to drag them into this case,” Seymour said. “With the gray area of the industry at the time, it seemed like the best resolution for all was to take the best deal offered.”

He was referring to the so-called “gray market” of medical marijuana prior to this year — an industry designed by state law to work outside regular market models and instead rely on closed-loop networks of collectives and cooperatives for medical marijuana’s production and sales.

At the time of his 2015 arrest, Seymour said he was working in a patient caregiver role in a collective, but the loose regulations of those entities exposed him to criminal prosecution.

The deal Seymour took involved pleading no contest to misdemeanor marijuana possession and paying $60,000 into the District Attorney’s Office controversial restitution program. The program, the only one like it in the state, allows prosecutors to give some defendants charged with certain marijuana-related felony crimes lighter punishments.

Defendants are charged $50 per plant, $500 per pound of processed marijuana and $100 per pound of shake. The funds go to law enforcement departments in the county, primarily the Sheriff’s Office. Since Eyster launched the program in 2011, it has brought in more than $8 million.

“They took all the money I brought on behalf of the collective, they drained my personal bank account, and the $60,000 was on top of all that,” Seymour said. “I borrowed it and I’m still paying that off.”

An unannounced visit

The second run-in with law enforcement for Old Kai came Jan. 8 — 17 days after the traffic stop — when five task force officers showed up unannounced to the company’s warehouse just outside Ukiah city limits and detained the company’s employees in a lobby for nearly two hours. They searched the bookkeeper’s desk and cabinets, and left with several boxes worth of the company’s financial documents, according to Rogoway.

Rogoway said the officers told warehouse staff they were not there to investigate the company but rather came under the direction of District Attorney Eyster because Seymour was on probation and had failed to complete his community service hours by a deadline. A $2,500 bench warrant was issued in September.

Rogoway said he believes the search of the business was another overreach by law enforcement because the office space searched by officers belonged to a bookkeeper. Seymour worked out of a different office elsewhere in Ukiah.

Lt. Darren Brewster, commander of the task force, which until about one year ago was overseen by the state Department of Justice, declined to comment on the investigation, referring all questions to the District Attorney’s Office.

Co-founder steps aside

According to court documents, Seymour was supposed to report the completion of 200 service hours to the court September. Seymour said he thought he had another year, and didn’t know he was in violation of his probation requirements. He said he was fingerprinted in November when applying for the county business license and was surprised he wasn’t alerted to the warrant then.

California law doesn’t bar a person with certain prior marijuana convictions from getting a license to do business, and gives the bureau discretion when evaluating a person’s eligibility to get do business in the state.

“It was an oversight on my part to not complete my community service hours,” Seymour said, sharing in an interview last week that he had decided to step away from his role Old Kai.

“It seems like while I have this probation hanging over my head, I should not be involved with the company because it might jeopardize the company,” he said.

His probation terms prohibited him from being in possession of marijuana beyond what’s allowed for personal use with a valid recommendation. The terms also state that marijuana or other contraband found in his possession will be “forfeited for destruction or other disposition by law enforcement.”

Rogoway said that prohibition doesn’t bar Seymour from running Old Kai because he was managing the company and employees handled the product.

“The terms of Lucas’ probation don’t transfer to the company,” Rogoway said.

Geniella, the District Attorney’s Office spokesman, said prosecutors are still waiting for additional reports about the investigation and haven’t determined whether any Old Kai executives or employees will face charges.

Old Kai driver Jason Steele and passenger Anthony Hernandez are scheduled to make their first court appearance on Monday.

Hernandez’s attorney, Evan Zelig, said his 25-year-old client was hired as a warehouse worker just two weeks before the traffic stop.

“My client was just the passenger in the vehicle,” Zelig said. “He was bringing marijuana from point A to point B within Mendocino County which the license allowed. They cited him with possession with intent to sell, but my client had no ability to sell. It wasn’t his to sell.”

Bracing for uncertainty

Old Kai is currently the only local medical marijuana distribution company licensed by the state with headquarters in Mendocino County.

Seymour and his co-founder, Mandelker, both longtime cultivators, launched the company in mid-2016 and have provided services for cultivators and dispensaries in collectives across the state.

Mandelker said they were concerned new regulations for cannabis would force many longtime Mendocino County cultivators out of business, bringing a potentially devastating economic blow to the region.

But until three weeks ago, the Old Kai owners thought they were among the few in the county with a clear path into the state’s new marketplace.

“It was our understanding we were transporting cannabis in compliance with existing Mendocino County ordinance,” Mandelker said. “It’s 2018 and we’re battling a ghost. We’re fighting a drug war that has been legislated out of existence.”

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