A marijuana company bought this California town to become tourist attraction, but it's illegal to sell there

American Green, an Arizona-based firm developing several marijuana-related businesses, made a national splash Aug. 3 when it announced it was purchasing the entire town of Nipton, a Mojave Desert hamlet with a permanent population of about 18 people.

Escrow closed Sept. 15. American Green now owns Nipton.

Next, the company will undertake the renovation of the town, which currently consists of an empty cafe, a general store, a five-room hotel and a dozen RVs.

They'll also have to develop a relationship with San Bernardino County, which currently prohibits commercial cannabis activity on the unincorporated land where Nipton sits.

In August, American Green consultant Stephen Shearin described his vision for Nipton: A boutique cannabis destination where visitors could eat cannabis-infused food in the cafe, take mineral baths in CBD water and smoke on the hotel porch without fear of arrest. It's an "idea whose time has come," Shearin said.

CATCH UP: A marijuana company is trying to buy a tiny Mojave Desert town

The company's first step was partnering with Las Vegas-based cannabis hospitality firm Munch & Company to design the town's aesthetic and programming.

Munch's claim to fame is its cannabis-focused parties in Aspen, Colo., during the X Games. Wyatt said the company also helped create Kushella, an April event that sought to draw festival-goers to Coachella for marijuana use. (Kushella was shuttered after its first weekend because it didn't get enough traffic, organizers said.)

American Green is best known for its vending machine technology, which can verify customers' IDs. A prototype was unveiled earlier this year. The company is also building a cannabis cultivation facility in Arizona.

"What we’re trying to prove here (in Nipton) is cannabis hospitality," said Munch & Company CEO Freddie Wyatt. "We have a lot of markets that have cannabis tourism, but there really is no safe place for people to go consume. That’s the key to this entire industry for the future — to make sure that the people you’re selling product to, the end user, have a safe place to use it."

READ MORE: A California police chief wanted to 'squash' a marijuana grower. Two years later, they have to work together.

But they can't sell cannabis products in Nipton.

County spokesperson David Wert confirmed Monday that commercial cannabis activity is not allowed on unincorporated San Bernardino County land. That includes cultivation, sales of marijuana products at dispensaries, use of marijuana delivery services and the consumption of CBD.

County counsel informed American Green of the regulations in an August letter, after learning about the company's plans from media reports. Wert said the company has not yet reached out to the county to talk about compliance or cooperation. And he said the county hasn't discussed changing its rules, largely because no residents have asked.

Nipton could bypass county rules by incorporating. But state incorporation guidelines require would-be towns to prove the viability of their tax bases. Nipton, with fewer than 20 residents, "would not come close," Wert said.

READ MORE:Neighboring Riverside County might allow marijuana dispensaries and cultivators on unincorporated land

Munch's Wyatt said events in Nipton will be "BYOC" — bring your own cannabis — until local rules change.

"We may have come at it initially thinking grow and dispensaries and that, but the more time we spend out here, the more we realize while it’s something we still want to pursue, it’s not going to happen right here in the town," said American Green's vice president of marketing, Mike Rosati.

Instead of highlighting cannabis-centric entertainment, Rosati pointed to Nipton's other options: the neighboring Mojave National Preserve, stargazing, mountain biking and exploring old mines. He said American Green hopes to build a "moderate concert venue." They're also interested in bottling Nipton's water, and eventually infusing it with CBD.

Consuming marijuana will still be part of Nipton's pitch to tourists. Visitors just won't be able to buy it there.

"The town will be more of a destination, entertainment, eco-tourism and just enjoying the beauty of the desert, and being in a space where you can enjoy your fondness for the plant to medicate without fear of something going down," Rosati said.

American Green estimates rehabbing the town will cost between $2 million and $3 million.

When American Green announced the purchase of Nipton — a deal totaling $5 million — industry-watchers raised eyebrows online. How could a company that took in less than $40,000 in revenue in the 2017 fiscal year make this purchase?

American Green's 2016-2017 annual report — which the company publishes with OTC Markets Group, a platform for buying and trading over-the-counter stocks, but does not file with the Securities and Exchange Commission — shows $39,335 in revenue, compared to $1.857 million in operating expenses. The company had nearly $316,000 in cash on hand and assets totaling $2.49 million.

READ MORE: These Marines trained together in the California desert. Now they're back to grow marijuana.

"We have other partners," Rosati said. "When they say, 'they’ve only got X in the bank, how did they buy something for $5 million?' — it’s not all us, there’s others involved that makes it happen."

Rosati declined to name the company's capital partners.

On Aug. 2, the day before American Green announced the purchase of Nipton, shares closed at $0.0012, just over a tenth of a penny. The same day, it authorized about 11 billion new shares. By Aug. 7, the share price had more than tripled, to $0.0037.

American Green is what's known as a "penny stock company," said John Nofsinger, a finance professor at the University of Alaska. He said companies that sell shares at low prices like this — which marijuana companies do fairly often, since their banking and lending options are extremely limited — often struggle to raise capital on an ongoing basis. Few succeed long-term.

Financial records show that American Green has often raised money by issuing millions of shares in the company, each worth little individually, and using those issues to pay off debts, pay directors and acquire other companies.

READ MORE: Meet the two guys using armored cars to move money and marijuana across California – legally

Both Nofsinger and Larry Harris, a finance professor at the University of Southern California who spoke to The Desert Sun, emphasized that they have no direct knowledge of American Green's business dealings.

"People buy lottery tickets all the time," Harris said. "People buy these things and they feel really good about it, and they hope it's going to work out. Like lottery tickets, they may even know that almost all the time it won't work out. But maybe, just maybe, these guys are going to be successful."

That's Bill Meshel's bet.

Meshel, a retired emergency room doctor from El Paso, has invested in several penny stock companies and lost money on most of them. He bought about 4 million shares of American Green stock in July, spending about $12,000.

"I think there's some brilliance in some of the things they've done," Meshel said. "Can they overcome their debt and the ridiculous number of shares? How can you overcome that? .... But all this media all over the world talking about the marijuana company that bought a town, that's brilliant. It's incredible what they did.

"Most (penny stock companies) are going to be phony," Meshel added, explaining that by "phony," he meant unable to deliver on their promises. "But if you get one that's real, you're going to be rich."

Rosalie Murphy covers real estate and business at The Desert Sun. Reach her at rosalie.murphy@desertsun.com or on Twitter at @rozmurph.

