A new funding source in the illicit Cannabis industry: China

A new funding source in the illicit Cannabis industry: China

Multiple states in the West are seeing an increase in Chinese workers and funding at unlicensed cultivation operations.

A few days before Christmas, a joint law enforcement task force found nearly 9,000 pounds of cannabis worth almost $15 million during a raid in a suburban neighborhood in Antioch, Calif.

The California Department of Cannabis Control believes that the four houses searched in the bedroom community 45 minutes outside San Francisco were linked to China.

Mexican cartels have a long history of importing, growing and redistributing illicit cannabis in the United States. But Chinese investors, owners and workers have emerged in recent years as a new source of funding and labor for illegal marijuana production.

What is known — from interviews with state law enforcement officials, experts on the international drug trade, economists and lawmakers — is that the number of farms funded by sources traceable back to Chinese investors or owners has skyrocketed. Chinese owners and workers have become a larger presence at illegal grows in Oklahoma, California and Oregon, they say.

In Oklahoma, close to 3,000 of the state’s nearly 7,000 licensed marijuana farms have been flagged for suspicious activity by law enforcement over the last year. Those operations are now being investigated for obtaining their licenses fraudulently and/or for selling into the illicit market, according to Mark Woodward, spokesperson for the Oklahoma Bureau of Narcotics.

The agency believes that 2,000 of those farms have a Chinese connection — supplying workers, funding or both. Of the more than 800 farms the OBN has shut down in the last two years for operating illegally, Woodward said roughly 75 percent are linked to China.

“I would comfortably say over 600 of those we’ve linked to Chinese investors and Chinese organized crime; some sort of a nexus to back to China,” he said.

Law enforcement in southern Oregon in 2021 reported as many as 20 different nationalities linked to illegal grows. But the increasing amount of Chinese funding — and what lawmakers and some experts say is the potential influence of the Chinese Communist Party — has caught the attention of legislators and law enforcement alike.

“We’ve seen in recent weeks that the CCP’s malign influence knows no bounds and, unfortunately, the cannabis industry is not immune to these tactics,” Rep. David Joyce (R-Ohio), a co-chair of the Congressional Cannabis Caucus and former prosecutor said in a statement to POLITICO, referencing a Chinese surveillance balloon spotted in early February over Montana.

“Do we want to cultivate an environment in which [marijuana growing] happens with safeguards and oversight or continue to turn a blind eye and allow illicit operations like these to flourish?” he added.

Much is still unknown about Chinese-funded cannabis cultivation — including whether the money is coming from groups with connections to the Communist Party, and how much of the cannabis produced through Chinese-funded grows stays within the U.S. or leaves the country. It’s also not clear how deeply involved Chinese organized crime syndicates are in American cannabis cultivation.

The Chinese government has a complicated relationship with organized crime, said Vanda Felbab-Brown, a senior fellow at the Brookings Institution and director of the Initiative on Nonstate Armed Actors.

Despite the Chinese Communist Party’s strict stance on drugs, the triads — which run global crime networks distributing chemicals needed to manufacture methamphetamine and fentanyl, among other potentially dangerous substances — often curry favor with the CCP by functioning as extralegal enforcers for the government, Felbab-Brown said. The CCP in turn often allows them to continue their operations, though it does not control them.

Liu Pengyu, a spokesperson for the Chinese embassy in Washington, D.C., told POLITICO that the Chinese government “takes a ‘zero tolerance’ attitude to drugs,” and “has been rigorously combating drug production, trafficking and other kinds of drug crimes.” The Chinese government asks its citizens to “refrain from engaging in any illegal or criminal activities while they are abroad” Liu added.

Felbab-Brown cautioned that there is a lot that experts still do not know about Chinese triad involvement in cannabis production.

“There is a wide range of actors in China who are involved in drug trafficking,” she said, explaining that the same could be true for drug operations in the U.S., encompassing massive organized crime operations and mom and pop enterprises alike. “It’s really important to be very careful about what actually lies behind [these grows],” she added.

What’s clear about illicit cannabis production in the U.S. is that it’s booming.

Roughly 75 percent of the $100 billion cannabis market in the U.S. remains illegal, and roughly two thirds of that illicit weed is grown domestically, according to data from Whitney Economics, which analyzes the cannabis industry.

The U.S. Border Patrol has seen a sharp decline in the amount of marijuana crossing the nation’s borders: The agency seized 582,000 pounds of marijuana in 2020, but just 155,000 pounds in 2022.

Some Chinese workers find work at illegal grows in Oklahoma, California and elsewhere through Mandarin-language ads.

A 2022 NBC investigation spoke to laborers from China working at unlicensed cannabis grows in California who found their jobs through Mandarin-language websites in New York. A 2020 Searchlight New Mexico investigation found Chinese workers traveling to illegal grows in New Mexico from Los Angeles after seeing Mandarin-language ads run on WeChat, a social media app. Woodward said that similar ads have also been used to attract workers to Oklahoma.

In California, the Department of Cannabis Control says Chinese triads have been nominally involved in illegal cannabis production for decades, but that there’s been a recent increase in the number of actors and money that may have originated in China. The DCC also said that some — but not all — of the Chinese-funded grows they’ve encountered are operated by Chinese triads.

“This notion that you now have Chinese actual funding for illicit cannabis, it’s definitely new, and it cuts directly across the interests of Mexican drug trafficking groups,” said Felbab-Brown. “It’s interesting to see whether it continues growing, [and] how that’s going to affect relations between the Mexicans and the Chinese [criminal groups].”

Congress wants to put more scrutiny on Chinese ownership of farms, something that multiple senators of both parties suggested could help thwart the illicit cannabis problem.

At the beginning of February, Sens. Jon Tester (D-Mont.) and Mike Rounds (R-S.D.) introduced the PASS Act, a bill that would limit the ability of investors or owners from China, Russia, North Korea and Iran to acquire American agricultural land and agribusinesses. The bill has a total of nine cosponsors, of which Tester is the lone Democrat. The Chinese embassy in Washington told POLITICO they do not support the legislation and oppose any “abuse of state power to obstruct normal economic and trade relations with China.”

Tester said that his legislation would address many of the issues with Chinese investment in illicit cannabis farming, but also added that the method of sorting between Chinese investment and investment from Chinese Americans was something that the Committee on Foreign Investment in the United States — part of the Treasury Department — would need to determine.

“Look, it’s not going to be easy to enforce,” he said in an interview. “But it can be enforced.”

Sen. Kevin Cramer (R-N.D.), who sits on the Senate Armed Services Committee and is a cosponsor of the PASS Act, suggested requiring Chinese investors or owners interested in purchasing agricultural land or other agribusiness property to prove they are not linked to the Chinese Communist Party.

“It’s probably harder to prove that they’re not connected than to prove that they are, because of Chinese law itself,” Cramer said. The North Dakota senator says that the Committee on Foreign Investment in the United States already has the authority to hold a shipping container that comes to the U.S. from certain parts of China under the presumption that it may be associated with Uyghur forced labor. Similar determinations could be made by the agency in the case of agribusiness.

Cramer is not the only Republican senator drawing a connection between all Chinese business and the CCP.

“You don’t have Chinese business activity without the Chinese Communist Party either knowing about it, being involved in it, or looking the other way and ignoring it,” Republican Sen. James Lankford of Oklahoma also said.

Felbab-Brown says there no solutions right now to this problem because there are too many question marks lingering over Chinese funding and workers in the illicit cannabis industry. Answering questions about exactly what groups are funding illicit cannabis grows and where the cannabis is going is the key next step to knowing what the growing presence of Chinese investment in illicit cannabis cultivation means and how best to deal with it.

The function of illegal cannabis grows may pose a challenge for the PASS Act approach, since many are not on agricultural land. Sometimes, like in Antioch, they are in suburban homes or other buildings not intended for agribusiness. They are often also purchased or rented by a third party, keeping the true funding source far from the lease.

In Oklahoma, Woodward said many of the cultivation licenses deemed fraudulent by the OBN were fronted by locals posing as the primary license holder.

“These organizations — I can’t overstate how much effort they take to layer or protect their identity,” said Bill Jones, DCC’s chief of law enforcement, explaining that they do so through LCCs and straw ownership. “You don’t have heads of the Chinese or Mexican cartels buying these properties.”

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