Raids on Chinese-Linked Drug Operations Put Spotlight on China’s Ambitions in US Marijuana Market

Raids on Chinese-Linked Drug Operations Put Spotlight on China’s Ambitions in US Marijuana Market
A cannabis plant that is close to harvest grows in a grow room at the Greenleaf Medical Cannabis facility in Richmond, Va., on June 17, 2021. (Steve Helber/AP Photo)
Venus Upadhayaya
News Analysis

China is closely watching the increasing debate on the federal decriminalization of marijuana in the United States and the rapid growth in its market as it provides an overarching business opportunity.

However, experts say that unlike other international players in the U.S. marijuana market, the Chinese regime can bring in national security threats, social challenges, enhanced criminalization, and a direct threat to the market ethos of democracy.

The global legal marijuana market, including medical, recreational, and industrial, was valued at $13.2 billion in 2021; and out of this, the U.S. market share was $10.8 billion, according to Grand View Research statistics. This U.S. market is expected to grow at 14.9 percent in the next decade.
The increasing decriminalization or legalization of marijuana, increasing diversification in its use as a product matched by advancing research in the field, is driving the exponential growth in the global market that predominantly constitutes the United States. The 2020 election ballot played a major role in this trend as voters across the United States approved a series of statewide ballot proposals legalizing the use and distribution of marijuana.

"The 2020 [U.S. presidential] election was a victory for cannabis [users], with many states lifting their bans on the drug on election nights. This has turned out to be an excellent business opportunity for China," He Qinglian, a prominent Chinese author and economist, told The Epoch Times in an email.

"Many universities in the United States now offer courses on cannabis, and there are surely some Chinese students taking them. In a way, [the college courses] have become a way to understand the U.S. market [on cannabis]," she said.

Only seven countries in the world have legalized the recreational use of marijuana, while 44 countries have legalized its medical use. While campaigning in 2019, then-presidential candidate Joe Biden came out in favor of federal decriminalization that would prevent U.S. citizens from being imprisoned for possessing marijuana and obliterate prior criminal records for possession. In July, the president said he's working on his plan to fulfill his campaign promise.
The Chinese economy has an increasing interest here, according to attorney Jonathan Bench, a regular contributor to China Law Blog and Canna Law blog. He said China is "purposely competing" with the United States in every possible industry.

"China's 2015 plan called Made in China 2025 involved a lot of high tech industries, including agricultural high tech. And so I see China looking at cannabis and especially hemp because China does not allow marijuana in the country but has a thriving hemp industry," Bench told The Epoch Times.

"China's growth and research and China's reaching out to U.S. agricultural groups to develop relationships is all part of China's greater global plan to supplant the U.S. as the dominant economic player in the world. I see the cannabis market as one of those components."

An overview of the legal context of marijuana within the United States based on statistics from The Marijuana Policy Project. (The Epoch Times)
An overview of the legal context of marijuana within the United States based on statistics from The Marijuana Policy Project. (The Epoch Times)

'Great Green Rush'

The marijuana market in the United States is highly saturated. Thus, whenever a new market opens up to recreational marijuana, there's a massive influx of players. And if the state lacks sufficient regulation on the industry, confusion and challenges ensue for the domestic growers, the government, and the broader society, according to experts and domestic growers.
"Like, for instance, in Oklahoma, the state did not have certain safeguards, such as a limit on the total number of licenses. And we see a huge number of players pouring in with both U.S. domestic and international money. Anyone [who] can make money will do it because they see it as the Great Green Rush," said Bench, who is also the chair of Harris Bricken's corporate practice group and managing attorney of the firm's Salt Lake City office.

The players Bench is talking about are domestic and international investors who follow the legal framework. However, law enforcement gets to deal with many unlawful players as well. Both actors—lawful and unlawful investors—increase exponentially when the market opens, and both arenas have Chinese players.

Oklahoma licensed the use, sale, and growth of marijuana for medicinal purposes as a result of a 2018 ballot measure called the Oklahoma Question 788, the Oklahoma Medical Marijuana Legalization Initiative.

This brought in a sea change in the law in the state and created challenges for the Oklahoma Bureau of Narcotics and Dangerous Drugs Control (OBN), partners in public health, public safety, and the Oklahoma legislature, according to a white paper by OBN, published in May and peer-reviewed by 11 organizations and individuals, including the Association of Oklahoma Narcotic Enforcers and the President of Oklahoma District Attorneys Association.

Criminal enterprises are seeking to relocate to Oklahoma to take advantage of Oklahoma's medical marijuana laws, the paper said, citing OBN's law enforcement partners in other states.

"Furthermore, law enforcement in other areas have stated that Oklahoma is now clearly a source state for black market marijuana across the nation," said the white paper.

OBN has evidence of not only the domestic drug trafficking organization moving into Oklahoma to exploit the laws but foreign national crime syndicates from at least 12 countries on three continents operating in the state to traffic marijuana in the black market, according to the paper.

The narcotics bureau in the state is currently probing the connection between Chinese nationals ready to pay exorbitant prices for land in Oklahoma and then develop marijuana grow operations that channel large amounts of marijuana into the black market, reported South West Ledger.

The bureau is also probing links between Chinese nationals and black market marijuana after a large bust in Logan County on April 23 when 22 people, mostly Chinese nationals, were arrested after a two-month investigation by OBN agents, according to the media outlet.

Without naming any nationals, the bureau reported a similar bust-up on April 26 in Henryetta on its Facebook page. Its spokesperson refused to "confirm" the involvement of Chinese nationals to The Epoch Times but said that "we suspect them" and investigations are still ongoing. The Homeland Security investigators who attended the scene and conducted interviews didn't respond to a query from The Epoch Times.
A multi-agency investigation shut down criminal marijuana growing operation in Henryetta, Oklahoma, according to an OBN release on April 26, 2022. (Courtesy Oklahoma Bureau of Narcotics)
A multi-agency investigation shut down criminal marijuana growing operation in Henryetta, Oklahoma, according to an OBN release on April 26, 2022. (Courtesy Oklahoma Bureau of Narcotics)

These busts have happened while a bill that requires license holders to disclose any "foreign financial interest" in marijuana businesses is moving through the state legislature.

A couple founded one of Oklahoma's first cultivation licenses for medical purposes in 2018 in Shawnee, and their dispensary and grow operation began before mid-2019. In August 2020, a group of Chinese men procured an 80-acre farm and set up a huge marijuana farming compound in their neighborhood.

The couple told The Epoch Times on conditions of anonymity that they are overwhelmed by the influx of Chinese owners and workers in their neighborhood, particularly since the pandemic started. They argue that the state laws do not protect the interest of locals.

"The way the law was written, there was a gaping loophole allowing foreigners the opportunity to use their cash to lure rural landowners into selling property well over market value," the woman said in an email, calling it the "American Greed."

Oklahoma was entirely unprepared for the rush of licenses and the law stated that each facility should be inspected by the Oklahoma Medical Marijuana Authority (OMMA) twice, but that hasn't been happening, according to the woman.

"We opened our dispensary in May of 2019 and our grow operation began in June of 2019. Yet, we didn't have one OMMA inspection until July of 2021. Neither did most of the dispensaries in our area. We were aware of some sketchy business going on at a dispensary across from us. But only an inspector would be able to determine whether what they were doing was legal/illegal," she wrote.

OMMA Public Information Officer Porsha Riley told The Epoch Times in an email that earlier, the department was understaffed. Still, now with an increased number of "compliance inspectors on staff," the department should be able to inspect every marijuana facility at least once by the end of 2022. Riley added that state law requires OMMA to perform inspections twice a year.

"When Oklahoma voters authorized the state's medical marijuana program in 2018 with State Question 788, the Health Department was given very little time [60 days] to stand up to this new department. SQ 788 was also written in a way that created low barriers to entry into the market. Oklahoma is experiencing the type of early expansion challenges that other states have after the adoption of medical marijuana, including rapid market growth and illicit activity," said Riley.

The couple believes that this entire situation has left the rural areas in Oklahoma open to "invasion" by foreigners with "lots of cash," and while the state is still preparing to deal with the legal license holders, it's very unprepared to deal with the "loophole" ones that came in from other countries.

"Our county (Pottawatomie) has no zoning regulations, making it easy to put up whatever they wanted without restriction. There are hoop houses and grow houses covering hundreds of acres of farmland around us. When we were able to get inside one Chinese grow, we walked upon an open septic tank–someone had apparently driven over the top, and it broke. Raw sewage was full to the top–without any attempt to place even a temporary cover over," said the couple.

In other parts of the country, law enforcement has dismantled other Chinese-linked marijuana operations. One was involved in a two-year investigation leading to the arrest of five Chinese nationals in central Oregon in mid-June, resulting in the dismantling of an international operation tied to a Chinese cartel, according to a statement on June 14 by the Central Oregon Drug Enforcement (CODE) Team.

CODE said the investigation spanned over 18 months and involved detectives, special agents, and intelligence analysts "conducting hundreds of hours of physical and electronic surveillance on over twenty-three members of the organization, twenty properties, bank accounts, and Chinese-food restaurants around the pacific northwest and Asia."

Law enforcement was tipped-off through community complaints after the region surrounding the illegal operation began struggling with a severe drought.

The operation had "diverted or stolen significant water from nearby homes, commercial farms, or directly from pumps connected to underground sources in the arid central Oregon high desert," said the agency in its statement.

Sergeant Kent van der Kamp from CODE told The Epoch Times in an email that the case is "pending Grand Jury indictment and charges are now being considered by the U.S. Attorney's Office." Specific details about the location of the Chinese cartel weren't available, and the publication couldn't ascertain the Chinese cartel's exact whereabouts or global operations.

A multi-agency investigation shut down criminal marijuana growing operation in Henryetta, Oklahoma, according to an OBN release on April 26, 2022. (Courtesy Oklahoma Bureau of Narcotics)
A multi-agency investigation shut down criminal marijuana growing operation in Henryetta, Oklahoma, according to an OBN release on April 26, 2022. (Courtesy Oklahoma Bureau of Narcotics)

Is It Geopolitical?

Since the bilateral relations between the United States and China have been on a downslide, there have been apprehensions that hostile geopolitics might be involved in marijuana farmland deals and Chinese involvement in illegal operations. But experts told The Epoch Times that the Chinese regime is engaged in marijuana competition with the United States in the same way it's involved in competition with it in the other fields.

"This is not an international political issue. Rather, it is about competition caused by potential profits in the cannabis market. After the legalization of cannabis farms, it is said that most U.S. cannabis farmers face the problem of decreasing profits," said He Qinglian, the economist.

Oversaturated markets generally eliminate any sort of financial incentive one might have to enter legally, and there are reports in the media about the woes of the Marijuana growers who have complained about profit margins going too narrow.

"It happens that this [phenomenon] has occurred in the midst of deteriorating relationship between the U.S. and China. Consequently, there are those who seek to weaken their competitors in order to maintain their dominant position [in the market]," said He.

Bench said he's not sure if the Chinese regime's plans to expand its market share in global hemp operations can be linked to what's currently happening in the recreational marijuana market in the United States. Still, he certainly sees Chinese-origin players involved in the U.S. marijuana market.

He sees the competition in the marijuana market between the United States and China more as an agricultural-level competition than as one related to the illicit drug market because hemp is also used extensively as an industrial material in the textile industry. He said the competition between the two adversaries in this context would continue to increase.

"We'll see continued competition as China tries to develop stronger hemp strains that are more resilient in different geographical areas and different growth climates. I think we're going to assess that more as an agricultural level of competition rather than something that relates to the illicit drug market," said Bench.

With the busting of an illegal operation in Oklahoma early this year and the arrest of its owner, Dao Feng, who had recently moved from Colorado, authorities also disrupted a "ghost ownership" racket in Oklahoma. Feng farm's co-owner, a Tulsa resident, later surrendered 300 medical marijuana licenses. She was listed as a majority owner but wasn't entitled to any profits and was given yearly fees instead.

Attorney General John O'Connor filed charges on June 16 against Logan Jones, 56, and Eric Brown, 41 of the Jones Brown Law Firm for directing medical marijuana businesses to sign consulting agreements with Jones Brown employees, who would act as ghost owners of the company for people from out of state, according to an OBN statement.

Feng's farm's co-owner was a former Jones Brown Law firm employee, according to media reports. The ghost ownership arrangement met the in-residency requirements for businesses and agricultural operations.

The Epoch Times hasn't been able to ascertain if these ghost owners in Oklahoma included foreign or Chinese national owners. A report by Midwest Center for Investigative reporting has alleged that foreign-owned agricultural land is inaccurately tracked by the government and that ghost ownership has given secret access to foreigners, including Chinese nationals.
Candy bars laced with medical marijuana are displayed at the Alternative Herbal Health Services cannabis dispensary in San Francisco, Calif., on April 24, 2006. (Justin Sullivan/Getty Images)
Candy bars laced with medical marijuana are displayed at the Alternative Herbal Health Services cannabis dispensary in San Francisco, Calif., on April 24, 2006. (Justin Sullivan/Getty Images)

But He Qinglian said that resolving the problem of "ghost owners" is unlikely to ease the competition between the United States and China in the marijuana market. She said that to counter China's designs, the United States would have to take firmer actions to decouple economically from the communist regime.

Bench, meanwhile, believes the ghost ownership phenomenon indicates the entrepreneurial nature of Chinese owners because they are looking for a safe place to invest their money and grow their capital without much regard for the laws and regulations regarding ownership.

"Chinese people are always looking for safe places to invest their capital, to the extent that they can get money out of China, which is very difficult. They also don't want that money to go back to China. The U.S. is a much safer market," said Bench, adding that real estate, including agricultural land, is considered a very good investment option by Chinese nationals in the United States.

"This real estate influx is similar to what's happened in Canada in urban markets like Toronto and Vancouver, where Chinese purchasers have driven up prices to staggering levels," he said.

Bench said it's a matter of public policy regarding how much land in the United States should be in the hands of foreign owners since the country is looking at "food security" as an ongoing global security issue.

Venus Upadhayaya reports on wide range of issues. Her area of expertise is in Indian and South Asian geopolitics. She has reported from the very volatile India-Pakistan border and has contributed to mainstream print media in India for about a decade. Community media, sustainable development, and leadership remain her key areas of interest.