Jeff Kroll’s Decade-Long Cannabis Battle
How federal law overrides state power, creating bureaucratic roadblocks along the way
Jeff Kroll is the owner of Shangri-La Care Center, one of three Ojai-based cannabis dispensaries. Kroll first opened Shangri-La as a not-for-profit cooperative collective in 2010 and expanded into a recreational facility in 2018 after the passing of Prop. 64 with 70% approval. Since the start, Kroll has been facing pushback for his business on both a state and federal level.
Shangri-La Care Center, Located on Bryant St. in Ojai, California.
Kroll filed for a C-Corporation for-profit license allowing recreational selling, but the state wanted a full closure of his not-for-profit corporation before granting the license. According to Kroll, closure would result in the loss of Shangri-La’s legacy as well as added difficulties in establishing a credit line and applying for Small Business loans.
“I refused to do that,” said Kroll. “Eventually, the state did bend, and I still have the original corporation number, which means historically, we are going on our 12th year in 2022.”
Shortly after, Kroll’s personal property and Shangri-La were raided in 2015 and again in 2016.
“We had 11 search warrants issued while a seven-month long open investigation was going on,” said Kroll.
The raid resulted in a claimed loss of over $75 million in product, missing personal and professional equipment, and 44 felony counts against Kroll, as well as three against co-owner Jeff Hoffman and three against Shangri La driver Bill McNeil.
Business owner Jeff Kroll in front of Shangri-La
After 21 months, 18 court hearings, and thousands spent on litigation efforts and attorney fees, all 44 counts were dismissed. Kroll still suspects that a rival dispensary provided false information to the police which resulted in the raids.
“The sheriffs department was after cash,” said Kroll. “Somehow, they felt I had $3 million in cash, hidden, either in my house or in the business. We were a not-for-profit corporation, there was no $3 million dollars. We don’t know who told them that.”
While a certain amount of products were returned, most of the items were perishable and could no longer be sold or used to recoup lost profits.
“For two years, the sheriff’s department stalled on that request,” said Kroll in regards to his property being returned. “Even to this date, five years later, we, the membership of Shangri-La, have not received all of our property back.”
Kroll is now involved in a civil lawsuit to have the property returned. With all charges dropped against each individual, the group from Shangri-La is petitioning the appellate court to move forward with their civil suit.
The cannabis industry limits what expenses can be written off. This includes salaries, fees, advertising, phones, and a variety of other items normally considered a business expense. This stems from IRS code 280E, which denies deductions and credits for amounts paid or incurred in carrying on the trade or business of trafficking controlled substances in violation of federal or state law.
“It was really designed to take away assets and money from cartels,” said Kroll. “It was never designed to go after collectives and cooperatives. And yet, that’s a tool that’s been used against this industry.”
Kroll has been met with challenges on the federal level as well regarding banking and checking accounts.
“I just had my seventh bank account closed,” said Kroll. “All personal transactions. Nothing in my account was paid for, or used to pay for, any cannabis-related vendors or otherwise.”
The triggering of the closure, Kroll speculates, resulted from a tee shirt he wore during a recent Bank of America visit, signaling his association with the Shangri-La business.
The closures have affected both Kroll and his family.
Kroll recently underwent open heart surgery and prior to going under the knife, Kroll added his sister to his Bank of America account temporarily in the event of his passing.
Jeff Kroll outside of his home in Mira Monta.
“When she got home, 12 days later, there was an envelope from Bank of America requesting her to close her own personal account that she’s had since 1973,” said Kroll. “I, too, got a letter asking me to close my account.”
Bank of America does not have to provide a reason for requesting an account be closed.
As a result, Kroll does not currently have a bank account for his business. Instead, he is forced to use travelers checks, money orders, and primarily, cash. Kroll currently pays many vendors, advertisers, and for inclusion in the Ojai Valley directory phone book all in cash.
At one point, Kroll also paid his employee payroll tax in cash, which required him to drive to Sacramento armed with a bundle of cash. For most of these transactions, Kroll is also charged a fee for the time it takes to count the cash.
“It’s absolutely absurd. It does nothing but create more of a safety issues,” said Kroll. “Not only for me personally, but for my staff.”
The Ojai City Council recently opened its minds, and its policy, towards cannabis dispensaries.
“If you listen to last Tuesday’s City Council meeting, there has been a paradigm shift,” said Kroll. “The City and the City Council are entertaining revisiting the ordinance and possibly expanding some of the retail features.”
Ordinance revisions include expanding operational hours, allowing on-site consumption and lounges, the opportunity to sell seedlings, and allowing businesses to move from the M1 and MPD industrial zones to other commercial sections throughout the City.
Jeff Kroll residing in his Mira Monte home in Ojai
“We’ve seen economic benefit, we’ve seen jobs created, we’ve seen really good proprietors who are good members of our community,” said Councilmember Ryan Blatz. “So I think it’s time to reward you for that and open things up a little bit further.”
The support is in part due to the financial help provided by the dispensaries to the City during the pandemic. The City has made $187,000 off of cannabis tax this year and collects an average $30,000 a month collectively from the three dispensaries. The 3% tax rate is currently being used to replenish the City’s emergency fund, which dropped drastically during the pandemic.
“I completely respect the lack of banking ability and credit card use,” said Blatz. “All of these things are still making it really hard to do your job and yet, you’ve succeeded…Next to operating a hotel in town, you pay the most taxes. You help this city the most.”
The County of Ventura has 5 pending permits for additional dispensaries this year, with Oxnard hoping to open 16 within the coming year as well.
“City’s are starting to wake up,” said Kroll.
Kroll has recently been advocating for the pro-rating of licensing fees, which would help a variety of newly-established businesses during their opening process.
Kroll is hoping to expand his dispensary into a micro, which would make him only one of three dispensaries undergoing this type of upgrade. Becoming a micro would give Kroll manufacturing and distributing rights under his own brand and label, providing significant cost savings.
“I could go to any cultivator, look at their lab report, and determine whether I feel the product is quality or not,” said Kroll, who has a laboratory background in testing cannabis. “We’ve been testing all of our consumable products, including flower, since 2010. I’m a big advocate of testing.”
The fear surrounding assumptions like upticks in crime associated with the opening of dispensaries has proved futile, while Kroll noting cannabis-based businesses have demonstrated the opposite, increasing safety for the community.
“Crime goes down when there’s a dispensary in a strip mall because of the enhanced security of cameras and guards in that location,” said Kroll. “The green mile in Port Hueneme is now considered one of the safest zones inside of the city because of the enhanced security features.”
The demographics for Shangri-La continue to be older residents within the valley.
“I serve the seniors, retirees” said Kroll. “Our average age of people walking in our doors are 40 and above.”
Kroll is now requesting the help of the city and community in order to continue his business.
“There are lots of things on the table for the public to get involved in,” said Kroll. “What would help is any creative ideas that the public would like to have in discussion. Write to the City Manager any concept or idea, and it will be on the table for discussion.”
A change in County Sheriff might also provide new benefits for the business.
“I support [James] Fryhoff,” said Kroll when asked about the upcoming election. “In the three years that he was Chief of Police here, he had no problem with the three dispensaries. He is now a convert and supports the regulated state program…He, in my mind, is the most progressive candidate currently on the roster to be sheriff.”
With support on the rise from the community, Council, and a potential progressive sheriff, Kroll is seeing the smoke finally starting to clear.