Colorado’s War on Black Market Weed

Legalizing marijuana in Colorado was supposed to obliterate the pot black market there. Instead, a loophole in medical marijuana laws has done exactly the opposite.

Photo Illustration by Lyne Lucien/The Daily Beast

DENVER—Neighbors had no idea that a multi-million dollar illegal weed business was allegedly operating behind the fancy front door of the mansion on the hill.

According to prosecutors, Michael Stonehouse’s black market pot business was as lucrative as that of any Mexican cartel, growing hundreds of pounds of pot and delivering it in duffel bags to at least five other states where marijuana remains illegal. In fact, according to to a recent grand jury indictment, Stonehouse’s clandestine marijuana business was raking in so much cash, it appears he and 15 employees were having a hard time finding a place to put it. The 37-page indictment says that money orders were deposited in five-figure chunks in seven different banks so that Stonehouse and Co. could purchase even more homes in all-American neighborhoods right under the noses of the cops.

Thursday, a judge set bond for Stonehouse, 53, at one million dollars.

Chris Decker, Stonehouse’s attorney, balked at the high bond, pointing out that Stonehouse is a family man and a former Marine who has had plenty of legal jobs, including one as a marijuana consultant and another as the owner of a food truck. Decker believes that Stonehouse is being used as an example in a high-stakes political climate as the Colorado legislature attempts to put the brakes on current medical marijuana laws. He told The Daily Beast that the drug sting involved SWAT teams, flash grenades and humvees.

“This arrest was an artificially militarized tactical field day,” said Decker.

The drug bust comes at a time when Colorado lawmakers are pushing hard for more stringent laws to regulate medical marijuana. Currently, residences are allowed to have up to 99 pot plants, which can be used for medical purposes; a proposed law would cut that number down to 12. It’s a move Colorado street cops are hoping for as they struggle to keep up with the 99 home-grown marijuana plant cap.

“This is a counting nightmare on the doorstep!” complained a frustrated Colorado police officer at the DEA press conference. Greenwood Village Police Chief John Jackson said “I hear all of the time ‘It’s not that bad.’ But more and more and more, I hear story after story.”

Shayne Heap has been Sheriff of Elbert County, Colorado for 15 years, which is almost as long as long as pot has been legal in the state, starting with medical marijuana in 2000: “I have 45 deputies, but I could use 10-12 more just to work the marijuana cases.” He’s seen his calls go up 180 percent since legalization. “Pot has killed us from the very beginning.” Elbert County is a bedroom community of Denver where many people move to get away from it all. The median income is just over $82,000.

“These criminals get to live in good neighborhoods where no one will suspect them…They’re hiding behind Colorado pot laws and getting away with it,” said Tom Gorman, director of the Rocky Mountain High Intensity Drug Trafficking Area program, an arm of the Office of National Drug Control Policy which follows the impact of marijuana legalization in Colorado.

The HIDTA has found that since Coloradans were first allowed to legally grow pot at home in 2013, drug seizures of marijuana found in U.S. mail have increased by 427 percent. This doesn’t include private carriers like FedEX, nor does it take into account pot actually driven in cars across state lines.

Gorman said that out-of-state sellers can’t wait to get their hands on the potent cannabis strains which are grown, packaged, and smuggled out of the Rocky Mountains, and Colorado growers are getting double the price. Said Gorman: “Instead of eliminating the black market, Colorado has become the black market.”

A story told by prosecutors at Stonehouse’s hearing appears to illustrate that point. During the investigation, Stonehouse allegedly confided to an undercover agent at a breakfast meeting that he’d considered starting up a legal marijuana business, but decided not to because his own business “was just too easy.”

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Last week, an Arapahoe County, Colorado grand jury indicted Stonehouse and 15 others for alleged crimes including distribution of marijuana, possession with intent to distribute marijuana concentrate (in this case, hash oil), and money laundering for incidents which dated back to March 2014.

The indictment reads like a juicy crime novel. It was the result of an investigation which started with a raid at a sprawling ranch off a dirt road in Elizabeth, Colorado, south of Denver. Here, investigators say they found five million dollars and 845 pot plants. The indictment says that 200 law enforcement officers found that Stonehouse’s operation was dealing 300 pounds of pot every month and physically driving the product to Arkansas, Illinois, Minnesota, Florida, Missouri, and New Mexico—all states where weed is still illegal and can fetch top dollar. The indictment claims an astounding amount of cash changed hands. For example, after one eight-duffel-bag-delivery from Denver to Alexander, Arkansas, DEA agents found that a dealer had just paid $300,000 in cash for 290 pounds of pot, but that he still had $150,000 of leftover money lying around the house.

To avoid being caught, the indictment stated that Stonehouse’s partners were using secret code language as they made deals by cellphone: the word “T-shirts” allegedly stood for packages of pot and a pot delivery trip to Arkansas was dubbed “razorback.” Product was allegedly exchanged in broad daylight at places like school and Starbucks parking lots. Sometimes, the indictment claims, cash was even disguised wrapped in birthday wrapping paper.

Colorado’s bipartisan bill to limit the number of home-grown medical marijuana plants for patients from a cap of 99 per household down to 12 hopes to curb black market operations such as these. It still needs full approval in the state senate, as well as the Governor’s signature, to become law.

Of the 28 states that currently allow medical marijuana, Colorado is the only one which allows patients to have more than 16 plants growing in their homes. State Representative Dan Pabon, a Democrat from Northwest Denver who supports the bill, calls the 99-plant cap “a complete relic of the Wild West days of medical marijuana.”

Gorman doesn’t have much faith that the bill will curb organized crime. And he believes it comes too late for a generation of children who will pay the price for Colorado’s pot experiment. “In five to ten years from now, we’re gonna look back and say, ‘My God, what did we do?’”

At his advisement, Stonehouse appeared to have regrets of his own. Looking defeated in a blue jumpsuit, handcuffs and ankle chains, he turned his head around to mouth a message to his distraught wife, “I’m so sorry.”