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Richmond Mayor and Sons Profiting from Cannabis Compliance Push

City officials have slowly worked to bring a massive illegal marijuana warehouse into compliance, and the mayor's family has a financial stake in its success.

Josh Slowiczek Sep 5, 2018 1:00 AM
The city red-tagged the illegal cannabis grow at 1170 Hensley Street, but it continued to operate.

Two years ago, Richmond decided to try to bring the dozens of illegal cannabis facilities in the city into compliance rather than shut them down. The policy — spearheaded by Richmond Mayor Tom Butt — was an effort to place the city at the forefront of the new cannabis market, repositioning the city's light industrial district as a cannabis cultivation and manufacturing center by allowing the issuance of an unlimited number of cannabis permits there.

"I've said consistently that we need to bring them into compliance," said Mayor Tom Butt, discussing the prevalence of illegal cannabis cultivators in the city. He said new revenue from Richmond's 5 percent cannabis tax could be used for public safety, transportation, and recreational purposes. It could also shore up Richmond's long-term budget deficit.

But the mayor himself and his sons have also profited from the push to make illegal cannabis grows in the city compliant.

In June 2017, an inspector with Richmond's Water Resource Recovery Department stumbled upon a large illegal cannabis grow in a warehouse on Hensley Street, in the city's light industrial district. The grow was unpermitted by the planning department, and none of the six businesses running the operation had cultivation licenses from the state.

In many cities, such a discovery would result in an immediate shut down and potentially fines against the operators and building owner. But in this case, a multi-departmental team of city officials worked to bring the grow into compliance while it was allowed to continue operating. And the mayor and his two sons helped in the process.

Daniel Butt, an attorney who is the mayor's son, and James Lee, the president of the Richmond Chamber of Commerce, worked to incorporate Great Farm Development, a company that was formed to help the Hensley Street cannabis growers seek permits from the city.

And last year, Great Farm Development hired Mayor Butt's architectural firm, Interactive Resources, to draft plans to help legalize the Hensley Street cannabis grow, and also to possibly expand it.

Andrew Butt, Daniel's brother, is vice-chair of the city's planning commission, which is in charge of approving cannabis grow warehouse applications in the city. (His father appointed him.) He also stands to financially benefit from the Hensley Street grow, as he is the vice president of Interactive Resources.

Tom Butt also received a large campaign contribution from the owner of the Hensley Street warehouse, Wang Brothers Investments, shortly after it was first identified by city inspectors as an unpermitted facility.

Mayor Butt said that he and his sons haven't done anything wrong by helping bring the grow operation into compliance. Instead, he said that the city as a whole stands to benefit from bringing unpermitted grows into compliance.

But the role of the mayor's family and James Lee in the Hensley Street warehouse raises questions about whether city officials should get personally and financially involved in the booming cannabis industry — an industry over which they have new policy-making and permitting powers. (With the passage of the Adult Use of Marijuana Act in 2016, cities were granted authority to regulate commercial cannabis as they saw fit, but the law made it clear that cultivation without a state license is illegal.)

It is uncertain how long the Hensley Street warehouse was used to grow cannabis, but records and sources familiar with the operation suggest that it had been running since at least 2016. By July 2017, the fire department had inspected the warehouse and identified multiple safety violations, according to fire inspection records. Hazards included open electrical junction boxes and dangerously strung extension cords. The building also lacked permits and business licenses for cannabis cultivation. As a result, the warehouse was red-tagged for closure.

On July 21, 2017, Eric Mendoza-Govan, a fire department inspector who is now Richmond's fire marshal, emailed the property's manager, Michael Yu, regarding the "illegal cultivation operation being conducted at 1170 Hensley." Mendoza-Govan explained that the city red-tagged the building and that growers had two days to remove the plants, according to city records obtained by the Express.

But they didn't. Mendoza-Govan found evidence of continued operation over three subsequent inspections. During an Oct. 26 visit, he not only discovered new plants being grown, but also ran into Lee, who, aside from running the city's chamber of commerce, also sits on the city's economic development commission. Lee was appointed to the economic development commission by Mayor Butt in 2016. According to Mendoza-Govan's notes, Lee told him that he was under the impression the city and the growers had "come to an agreement" that allowed for continuing operation.

In effect, Richmond's fire department was being ignored.

When approached for comment about this matter, the fire department directed the Express to the city attorney's office. The city attorney declined to comment.

Lee said in an interview that he was approached by the growers, whom he described as Chinese immigrants who couldn't speak English, after they had been "taken advantage of" by a previous master tenant who offered to help them through the CUP process. Despite having no previous experience in the cannabis permitting process, Lee said he offered to connect them to the right people in the city.

But Lee said he was never compensated for his role as the CEO of Great Farm Development. Lee said that Great Farm Development was a business "to make sure that [the growers] were taken care of," and that his role as a registered officer with the company was "an accident" in the paperwork.

According to city emails, after the building was red-tagged, Daniel Butt became the attorney for the cannabis growers to help them work with the city. In a recent interview, Daniel Butt said that while the city attorney "took a very hardline approach" in favor of shutting the facility down, he filed an appeal. According to Butt, this allowed the grow to continue "in flux."

But Mendoza-Govan's notes suggest that the code violations needed to be rectified before allowing operations to resume.

In November, five months after the illegal cannabis grow was first discovered, six separate businesses listing their address at 1170 Hensley submitted incomplete CUP applications to the planning department. The six applicants also needed to include blueprints and design plans. That's where the mayor and planning commissioner's architectural firm appears to have entered the scene.

Owned by Tom Butt and his son Andrew, Interactive Resources was hired by Great Farm Development to draft code compliant plans for the grow facility.

On Nov. 8, 2017, a day after the planning department received the six CUP applications to legalize the cannabis grow on Hensley Street, Wang Brothers Investments contributed $2,500 to the Tom Butt's mayoral campaign committee. It also donated more than $10,000 to the city's annual July 4 celebration.

City records show that Andrew Butt communicated about the Hensley Street cannabis grow with city staff before Great Farm Development was created. In June 2017, just as reports about the facility were coming in from the city's Water Resource Recovery Department, Lina Velasco, a project manager with the planning department, emailed Andrew to inquire about whether he was working on plans related to the property.

"That's the old newspaper printing facility owned by the Wang Brothers," Andrew responded. "We had talked to them a while back about helping them come into compliance and obtain a CUP for cannabis (which I understand has been an ongoing operation there for some time). Never went anywhere."

In an interview, Andrew, the listed architect for the CUP applications, said that Wang Brothers Investments initially approached him and his brother in 2016 to work on bringing the building into compliance.

"At that time, I can't remember if they had mentioned cannabis or not," he said. "I don't recall if it was specifically mentioned. It may have been alluded to."

But the plans fell through, Andrew said, until about a year later when the city red-tagged the building and Wang Brothers Investments returned to Interactive Resources for help.

"We're doing a lot of this cannabis work. It's actually been a really good niche for us that sort of just landed on the doorstep," Andrew said. "And since then we've decided to take an active approach."

Tom Butt reported receiving at least $10,000 in payment from Great Farm Development through his architecture firm, according to his 2017 economic conflict of interest forms filed with the city.

His son, Andrew, did not disclose any payments from Great Farm Development to Interactive Resources in 2017.

Andrew Butt did not attend the March 15, 2018, planning commission meeting where the cannabis grow facility's CUPs were approved. He told the Express that he sent an email to the city recusing himself from the session due to a conflict of interest. His brother Daniel appeared at the meeting alongside Kevin Wang of Wang Brothers Investments to advocate for the project's approval.

Tom Butt said he would recuse himself if anything having to do with the Hensley Street cannabis warehouse ever came before the city council. But he added, "if it's something general that affects everybody in the city, and that business, it's not a conflict."

"There's some discretion there," he added, "but I try to do what's right and what's legal."

Hana Callaghan, a government ethics expert with the University of Santa Clara, declined to discuss the specifics of the matter surrounding the Hensley property, but said that, generally speaking, government officials have an obligation to avoid even the appearance of any personal benefit that could come from acting in their official capacity and responsibility to the government. "They have to put the public's interest before their own personal interest," Callaghan said. "They also have a duty to preserve and maintain trust in government, because without trust, government fails."

Records maintained by the California Department of Food and Agriculture show that the six businesses' applications for commercial cultivation licenses were denied in May, two months after the city's planning commission conditionally approved the CUPs.

Wang Brothers Investments has been accused of allowing an illegal cannabis grow at one of its other properties. A building inspector performing a routine compliance check last year discovered the largest indoor illegal cannabis grow ever documented in West Sacramento warehouse, owned by Wang Brothers Investments. Local police found more than 11,500 cannabis plants and 300 pounds of dried product worth $18 million, according to court records.

In January of this year, the Yolo County District Attorney obtained a court injunction against Wang Brothers Investments after a judge considered the preliminary evidence indicating that the company knowingly rented the warehouse out for the illegal cannabis grow.

The case is still open and Wang Brothers Investments denies allegations made by the Yolo County District Attorney's office that it was involved.

In a recent interview with the Express, Mayor Butt said he was unaware of Wang Brothers Investments' ongoing case in Yolo County. Butt also said he never discussed his businesses' work on helping Great Farm Development obtain city approvals to operate the Hensley grow warehouse with anyone in city government.

"I've had no discussions with anybody about this project at all," he said.

The current status of the Hensley Street grow is unclear. Daniel Butt said the city attorney's office stopped operations there earlier this year.

But on May 29, 2018, Richmond's planning department received blueprints for a new facility on the Wang Brothers Investments' property, designed by Interactive Resources, for large-scale cannabis cultivation. Andrew Butt described the facility as "state of the art."

The application is currently under review by the city.