Legal Marijuana
10:57 am
Wed May 14, 2014

Wash. Pot Grower Says Black Market Can Survive Legalization

Scott Johnson is one of those natural-born salesmen. He used to own a restaurant on the 15th floor of the Bellingham Towers, the tallest building in Bellingham.

“At first it was called ‘Top of the Towers, and then after about five years, I changed it to ‘City View Grill,’” he said.

Now Johnson comes to Bellingham Towers to see his lawyer, whose office is also here. Johnson has been sentenced to five years behind bars for his role in a long-running marijuana production and distribution ring.

'I Was Part Of The 1 Percent'

Before the feds swept in, Johnson says, it was a lucrative line of business.

“I was part of the 1 percent,” he said.

There was a Lamborghini, a boat named “Liquid Assets,” jet skis and trips to Hawaii. Johnson ran a couple of grow operations. His business partners had a couple more. He would ship the marijuana — 70 to 80 pounds at a time — across the country.

“It was packaged very well," Johnson said. "Placed into a motor home, driven close to New York City and then it was transferred and delivered other ways.”

Johnson would fly to New York to meet the shipment and supervise the transaction.

“Put on a smiling face, put the suit and tie on and go to work,” he said. “Literally, the suit and tie.”

Marijuana legalization in Washington was sold to voters as a way to take money away from criminals and generate tax revenue for the state.

One of the TV ads for Initiative 502 back in 2012 said, “….we could tax it to fund schools and healthcare, free up police to go after violent crime instead.”

But will the end of pot prohibition really mean the end of the black market? Johnson says it wouldn’t have put him out of business.

'Legalization Wouldn't Have Put Me Out Of Business'

Credit Austin Jenkins

Johnson says in a good year, he could make upwards of a $1 million. His profit margin was 65 percent. Since he couldn’t pay taxes, he gave to charity. He kept his wife and twin daughters in the dark.

And then the feds came calling.

“I never believed that I’d see the feds sniffing around,” Johnson said.

The feds put Johnson out of business. But what if they hadn’t caught wind of his operation? Would pot legalization in Washington have got him instead?

“Legalization wouldn’t have put me out of business," Johnson said. "It’s not going to put anyone that’s been doing this for a while out of business.”

For the record, Johnson says he planned to become a licensed pot grower under Initiative 502.

“I don’t like lying to my family," he said. "I don’t like cheating the government.”

But Johnson says if he couldn’t get a license for some reason, “I definitely wouldn’t have folded. I mean I would have attempted to get the license, if that didn’t work I would have just continued on the mission.”

He also says that he would still have had a customer base and a business model that worked.

'Very Hard For An Illicit Market To Compete With A Licit Market'

Johnson says he already weathered one storm in the pot business: medical marijuana. It drove down the price so much that he started moving product to New York. He says to survive legalization, he might have had to expand his distribution to other states.

“He can certainly grow pot in Bellingham and send it to Oregon or Chicago, or New York," said UCLA’s Mark Kleiman, Washington’s marijuana consultant and literally co-authored the book on marijuana legalization.

But Kleiman does not believe illegal growers in Washington will continue to have a homegrown customer base.

“How many moonshiners are there in Washington?" Kleiman asked rhetorically. "How many illicit tobacco growers are there in Washington? [It’s] very hard for an illicit market to compete with a licit market. It’s just much cheaper to pay your taxes and do stuff above board.”

But Johnson isn’t convinced the new pot stores will immediately replace longstanding customer-dealer relationships.

“I think that the majority of people are going to be getting it from their buddy that they’ve been getting it from for decades,” he said.

‘I Think I Might Stick With My Dealer’

To test that theory, I went to Sylvester Park in downtown Olympia to conduct an informal survey. There, I found Baldwin, 20, and his friend Madison, who did not wish to share her last name. They were sitting in the sun eating Triscuits, pepperoni sticks and fruit leather. Both admitted to regularly smoking pot.

Chris Baldwin and his friend Madison in Olympia disagree over what will happen to the illicit marijuana market under legalization.
Credit Austin Jenkins

I asked if they had smoked pot that day.

“Yeah," said Madison. "Probably explain the food eating. I’m currently a little baked.”

I ask the pair if they plan to start buying their pot at the licensed stores when they open in Washington.

“I think I might stick with my dealer,” said Baldwin.

Both are skeptical they’ll get the quality and variety of marijuana they’re accustomed to. And Madison doesn’t want to be videotaped going into a marijuana retail store.

“There’s really no telling how they’re going to be classifying people who buy it,” she said.

So how much do they pay now for pot?

“Street prices on a gram would be like $10 normally,” said Madison.

But if the price in the stores gets down to $3 per gram — the price Mark Kleiman predicts within three years — that sparks a debate.

“Then all illegal grow ops will go out of business," said Baldwin. "I guarantee that. Those kinds of prices are unmatched."

“Only if it’s the same quality,” countered Madison. “Because I’m not going to spend $50 on weed that’s only going to get me and my friend high for a couple of days. Fifty bucks?”

As for Scott Johnson, he’s scheduled to check in to federal prison in June. The date was delayed so he could watch his twin daughters graduate from high school. So when he gets out of prison does he have any plans to get back into the pot trade?

“As far as the black market, absolutely not,” he said.

Johnson says he would consider participating in the legal trade, but as a convicted felon, he’s unlikely to get a license from the state.