Fraud and extortion allegations unravel Palm Springs cannabis empire as lawsuits mount

What began as California's largest cannabis cultivation operation has collapsed into a tangled web of fraud allegations, extortion claims, and multi-million dollar lawsuits. Kings Garden, once hailed as a pioneering force in Palm Springs' cannabis industry, ceased operations amid accusations that millions in investment funds were misappropriated through inflated construction invoices and family betrayal. The fallout has ensnared a real estate investment trust, a local construction firm, and two brothers whose partnership dissolved into acrimonious court battles.

Background and Context

Kings Garden entered Palm Springs in 2017, converting a former FedEx facility into a cannabis cultivation site after the city designated specific zones for cannabis businesses to boost tax revenue. The operation initially occupied 37,787 square feet, but by 2021, the company sought to expand dramatically, planning two additional cultivation buildings totaling 87,120 square feet each, plus a 5,650-square-foot office. The Planning Commission approved the expansion, which would have increased the business footprint to 9.4 acres. Cannabis media outlets profiled the company's success, with CannaCribs producing videos showcasing CEO Michael King's journey from Soviet Union immigrant to cannabis entrepreneur.

Key Figures and Entities

The litigation centers on several key actors. Michael King, who co-founded Kings Garden after emigrating from the Soviet Union, built the company into what cannabis media called "California's predominant cannabis cultivator." His brother, Paul King, served as CEO of another cannabis company, Cannafornia, until a family schism led to explosive lawsuits. Innovative Industrial Properties Inc. (IIP), a San Diego-based real estate investment trust, purchased the property for $17.5 million in 2020 and entered into financing arrangements with Kings Garden. Orr Builders, a Palm Desert-based subcontractor, was hired to construct the expansion but now faces fraud allegations from IIP despite having no direct contractual relationship with the property owner.

Legal and Financial Mechanisms

The financial structure that enabled Kings Garden's growth ultimately contributed to its collapse. IIP purchased the property and entered into a triple-net lease with Kings Garden, wherein the tenant covers all property expenses. As part of this arrangement, IIP agreed to reimburse up to $51.4 million in approved improvement costs. Kings Garden then subcontracted Orr Builders for the $36.7 million expansion project. According to IIP's lawsuit against Orr Builders, this arrangement created opportunities for fraud through inflated invoices. The lawsuit alleges Orr Builders falsely claimed $9.5 million in steel purchases when actual purchases totaled less than $1 million, with other allegedly fraudulent expenses reaching millions more. Despite Orr Builders' contention that they never had a business relationship with IIP, the construction firm lost a motion to dismiss the case, with the judge allowing the lawsuit to proceed toward trial.

Implications and Oversight Challenges

The Kings Garden collapse highlights vulnerabilities in the rapidly expanding cannabis industry, where regulatory oversight struggles to keep pace with sophisticated financial arrangements. The case demonstrates how triple-net lease structures, common in cannabis real estate financing, can create accountability gaps when subcontracts obscure direct relationships between property owners and contractors. Family businesses like Kings Garden face additional risks when personal relationships complicate corporate governance. The ongoing litigation has already affected investors, with IIP facing a class-action lawsuit from shareholders concerned about project oversight, though that case was dismissed. The Riverside County court proceedings continue to unravel how allegedly fraudulent expenses passed through multiple layers of contractors without detection, raising questions about due diligence processes throughout the cannabis investment ecosystem.

Sources

This report draws on court filings in Riverside County and Florida, corporate disclosures from Innovative Industrial Properties Inc., permits and meeting minutes from the City of Palm Springs Planning Commission, and reporting by The Desert Sun. Information about the cannabis industry's expansion in Palm Springs comes from public planning documents and cannabis media coverage. All legal allegations are attributed to specific court records or attorney statements, with Orr Builders and IIP both declining to provide detailed comment due to pending litigation.