MARIJUANA

Illegal pot shop bust in Phoenix raises question: How do you know if marijuana store is legit?

The Sheriff's Office says a south Phoenix business called Korporate Smoke as operating as an unlicensed marijuana dispensary.
Ryan Randazzo
Arizona Republic

Arizona marijuana dispensaries are planning to launch a new advertising campaign as early as next month to help consumers differentiate legal, licensed shops from illicit operations.

The Arizona Dispensaries Association has discussed the idea for months, but the announcement that the Maricopa County Sheriff's Department broke up an illegal marijuana shop in south Phoenix recently has made the need more urgent, said Ann Torrez, executive director of the trade group.

Arizona allows marijuana sales to anyone 21 or older. But unlike some other legal states, Arizona has a strict limit on the number of shops that are licensed to sell cannabis, with only about 130 legal shops operating in the state today.

Fake shops like the one found recently in Phoenix are uncommon in Arizona, but in neighboring California, it's almost impossible to determine which storefronts are selling cannabis legally and which are black market. It's estimated the illicit market in California is double the legal market.

"It's very concerning," Torrez said of the Phoenix shop. "That type of operation has been seen in other states. I point mostly to our friends in California where illegal dispensaries are on nearly every street throughout the state."

Officials have blamed the proliferation of unlicensed dispensaries in California on both the high tax rate in that state combined with other expenses that make running a legal shop unprofitable, as well as high demand and uneven access to legal shops due to bans in some communities.

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California regulators have set up a website for consumers to check the legality of dispensaries along with a link to report unlicensed businesses.

Torrez said the Arizona dispensaries group plans to have legal, licensed shops display a prominent logo at the storefront to indicate they are legitimate. She said the group hoped to work through the Department of Health Services but wants to get a program in place faster than that agency could act.

"There's still a misconception about what legal cannabis looks like in the state of Arizona," she said.

While three people running the illicit shop in south Phoenix were arrested, the Sheriff's Office did not arrest any customers. State law allows people to possess up to an ounce of marijuana, and more if they have a medical marijuana card, so illicit shops don't appear a legal concern for customers.

But they are a safety concern, Torrez said, and identifying legal operations is important for consumers to know that the products are produced, tested, labeled and packaged the way state law requires.

And certainly keeping the illicit market at bay is important to the licensed dispensaries in the state, which obtained their licenses by participating in high-stakes, expensive lotteries or by purchasing them from other businesses for millions of dollars. California's licensed dispensaries are undercut so badly by the illicit market, which avoids pesky things like taxes, that legal businesses struggle to compete. 

Korporate Smoke sold pot, mushrooms

The shop in Phoenix that the Sheriff's Department said it busted was at 1612 E. Southern Ave. and using the name Korporate Smoke.

Law enforcement seized 95 pounds of marijuana, 881 vape cartridges, four handguns and two ATM machines from the operation, along with a host of other items including cash and psilocybin mushrooms, which are not legal in Arizona, according to the Sheriff's Office.

Three suspects were booked with charges of controlling an illegal enterprise, sale of dangerous narcotics, sales of marijuana and fraud.

The Sheriff's Office says a south Phoenix business called Korporate Smoke was operating as an unlicensed marijuana dispensary.

The Sheriff’s Office learned of the operation through a tip sometime in June from the Department of Health Services, which issues licenses to legal marijuana shops, Det. Matthew Shay said.

Shay, who is part of a unit that spends much of its time investigating things like drug labs and fentanyl crimes, said he has seen several instances in Arizona where criminals will import large quantities of drugs from California and operate as a "pop-up shop" type delivery service, where they purport to be legal marijuana dispensaries. These enterprises advertise for delivery online.

And prior to recreational marijuana becoming legal, he said Arizona saw some illicit operations where people would sell medical marijuana illegally under the guise they were simply operating as treatment facilities.

But Korporate Smoke is the first full-blown, bricks and mortar, fake marijuana shop he is aware of in Arizona.

Shay said the department could have executed a search warrant immediately after getting the tip from DHS, but wanted to ensure they understood the full scope of the operation and also to make sure they caught those actually responsible for the illegal activity, not just low-level employees.

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Not only was the business violating the voter-approved laws for licensed marijuana sales, but because it was a cash business involving drugs, it presented a danger to the community, he said.

“When it comes to drug-related shootings and murders, most of them, the vast majority, are related to black market cannabis-psilocybin sales,” Shay said. “If a criminal element knew about this, and there were a robbery, those guys would not call law enforcement because it is an illegal operation, right?"

He said there were some things about the shop that clearly aren't in a legal, licensed dispensary, such as the packaging on the products and having mushrooms for sale.

“Most citizens probably don’t’ understand that because there is so much conflicting information online,” he said. “Customers may think psilocybin is fine.”

The Sheriff's Office set up surveillance of the business and three times sent undercover agents into the shop, where they purchased concentrated marijuana, marijuana flower, and candy bars that contained psilocybin, Shay said.

The suspects actually had set up a LLC for a clothing company, and documents that law enforcement collected when they made the arrests indicate the group might have attempted to legally obtain a dispensary license, Shay said.

But without a legal dispensary license, Shay said the clothing business was likely used to launder money brought in by the drug sales taking place in the back of the shop.

Shay said once they had the evidence they needed, the plan was to simply send officers to Korporate Smoke to knock on the door before it opened for business.

“We needed to make it go away, but what we don’t want to do is get tangled up on all the customers, employees,” he said. “The way they were operating some the employees may have thought they worked for a legal dispensary and customers may have thought it was a legal dispensary.”

But when officers arrived, the two men inside refused to answer the door. Officers broke down the door and sent in a dog, but still could not find the men. Eventually, they were found in a secret room hidden behind a bookshelf, Shay said.

“With that amount of work and damage, and the fact they were not going to cooperate, that brought it to level where they were going to have to see a judge,” he said.

The third suspect, a woman, was arrested at her home. Shay said she is believed to be the person responsible for running the operation, setting up the bank accounts and keeping the books, and her name was listed on the corporation paperwork filed with the state. 

How to check if a dispensary is legit

People who want to confirm a dispensary in Arizona is legal can check online at the Department of Health Services at azcarecheck.azdhs.gov/s/.

Torrez said that while the illicit dispensary posted a fake license number on social media, there were other red flags that the illegal business was not a licensed dispensary. For one, psilocybin mushrooms are not legal in Arizona. And products sold in Arizona all must be grown and produced in this state, so any labels indicating marijuana products were produced in California should tip off consumers that the operation is not legitimate, she said.

Arizona licensed dispensaries also are not allowed to sell edible marijuana products that are packaged to mimic mainstream consumer products like Oreo cookies or Frito chips, something the Attorney General's Office recently warned consumers to avoid in Arizona.

Reach reporter Ryan Randazzo at ryan.randazzo@arizonarepublic.com or 602-444-4331. Follow him on Twitter @UtilityReporter.