La Puente Councilmember David Argudo personally transported hundreds of marijuana plants between farms in Humboldt County before his Northern California cannabis distribution company could legally operate, according to an audit.
Auditors working on behalf of the city of West Sacramento found Argudo’s company, Gold Mountain Distribution, did not pay any taxes to the city during a yearlong period when it operated without a local business license. The company also is accused of vastly under-reporting its revenues to city tax collectors.
Argudo handled 40 of 182 transportation jobs that occurred before the company obtained a certificate of occupancy, one of the final steps in the permitting process, from West Sacramento in July 2021.
In an interview, Argudo acknowledged the transports, saying he mistakenly believed Gold Mountain, which had received a state license at the time, could move cannabis from site to site as long as it did not store anything in its West Sacramento warehouse.
“These transactions were one licensed farm to another licensed farm,” he said. “I went up there, I took the van and we literally transported 100 feet from one property to another.”
The transfers helped out a friend and investor, he said.
Misinformed about requirements?
Argudo, a longtime cannabis advocate and a member of the California Distribution Association’s board of directors, alleges he was misinformed about the requirements by a former business partner, Michael Ramirez, who recently sued Argudo in Yolo County.
California has a “dual licensing structure” for cannabis that requires a licensee to meet all state and local regulations to operate legally, according to the Department of Cannabis Control.
All 182 of the improper transports from May 2020 to July 2021 were logged, as required, in METRC, a track-and-trace platform used by the state’s cannabis industry. Auditors have questioned the accuracy of a small portion of those manifests, including one shipment of 500 immature plants, handled by Argudo, that supposedly took 35 days to travel 1.5 miles. State regulations require the shipments to be logged no later than 24 hours after being accepted by a licensee.
The logs show that about 14 of the transports were performed by Ramirez. Most were handled by two employees who do not appear to have ownership stakes. Auditors found at least 19 instances where it appeared cannabis was stored in the West Sacramento warehouse before it should have been.
Argudo alleges he did not know how many transports had occurred until the audit, as he had been told that only a few had taken place to “keep the license alive.” He did not manage the business day to day because he lives in La Puente, he said.
Gold Mountain’s business license became active on July 27, 2021, just days after Argudo’s last transport. He was listed as the company’s chief financial officer on state business filings at the time.
Taxes grossly underpaid
West Sacramento discovered the transport jobs and the unreported revenues after auditing Gold Mountain for compliance last year. The company is required to make quarterly payments equal to 2.5% of its gross receipts.
Gold Mountain paid only $439.60 in taxes prior to September 2022, roughly 20 times less than it should have, according to a staff report.
Argudo believes errors made by auditors overinflated the company’s revenues and said he is working with the city to correct the figures in hopes of reducing the amount Gold Mountain owes to the city.
He alleges Ramirez, who lives in Northern California, controlled the company at the time. HdL Companies, the auditors hired by the city for the compliance check, however, stated that Argudo “assumed legal responsibility of Gold Mountain Distribution” following an agreement with Ramirez in July 2019, according to their report.
Argudo said the transfer of ownership from Ramirez dragged out for two years. He questioned whether HdL would have a conflict of interest as La Puente also contracts with the company on cannabis-related matters.
Gold Mountain requested that West Sacramento recognize a transfer of ownership to Argudo in 2022, but the city has not done so yet.
Ariana Tibbets, who co-founded Gold Mountain with Ramirez in 2017, is listed as the owner in the city’s records, according to HdL’s report. When the city threatened to terminate Gold Mountain’s license in September, Tibbets and Argudo presented the company as a “female-owned” business and pushed for leniency in light of the city’s efforts to promote equity in the cannabis industry.
The City Council, in response, opted to give Gold Mountain until the end of 2023 to pay $31,619 owed in back taxes and fees. The company missed that deadline, but has since agreed to a payment plan of $5,269 per month that will start in February, a city spokesperson said.
If those payments are missed, the license could be terminated.
Argudo appears to be a majority owner of Gold Mountain through another LLC. In April 2022, he and Tibbets entered into a share exchange agreement that transferred 100% of Gold Mountain’s shares to a publicly traded company called Ladybug Resource Group, according to financial disclosures.
Argudo received twice as many shares as Tibbets in the deal and became the chairman of Ladybug’s board as a result.
While he led Ladybug’s board, Gold Mountain was touted as having an “addressable market size” of $5.2 billion and was slated to “expand to other states in late 2023” after it completed its buildout in California. Ladybug, however, rescinded the share exchange in the summer of 2023 — about the time the audit concluded — and returned Gold Mountain to Argudo and Tibbets’ control.
A disclosure cited “severe economic changes” in the cannabis industry as the reason for the reversal.
Breach of contract
Since then, Ramirez and Argudo have each accused the other of breach of contract. Ramirez filed a lawsuit in the Yolo County Superior Court in December, alleging Argudo failed to pay him $200,000 owed for initially setting up the business in West Sacramento.
Argudo, in response, says he plans to counter Ramirez’s lawsuit, alleging that Ramirez never fulfilled his end of the agreement.
Ramirez’s lawsuit states that Argudo paid $300,000 to Ramirez for his stake in the company in 2019 and was supposed to pay him another $200,000 once the business received its certificate of occupancy from West Sacramento, which occurred in July 2021.
Ramirez alleges his credit has been harmed because Argudo failed to take over the lease for two vans purchased for the company. Both vehicles have since gone into default and Ford now is attempting to repossess the vans, one of which has “sustained considerable damage” and the other of which is in Humboldt County, according to Ramirez.
Both sides lay the blame for the failings in West Sacramento on the other.
In Southern California, cities typically have taken a stricter stance against illegally operating cannabis businesses. Locally, Baldwin Park, following a raid by a neighbor police department, revoked its agreements with a grower who began operating before its permit was approved. Federal investigators later learned the company’s owner had allegedly bribed city officials to secure its initial approval.
El Monte, meanwhile, opted to start a program that sued illegal operators for their ill-gotten gains and ended up making nearly as much as it did from taxing legal cannabis businesses.
Argudo, a La Puente councilmember for more than a decade, faced scrutiny last year when the Los Angeles County District Attorney’s Office requested, and received, approval to sue him for allegedly holding an incompatible seat on the La Puente Valley County Water District board. The DA’s Office, despite being given the go-ahead from the state attorney general last January, never filed the lawsuit and has declined to answer questions about the matter since.
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