The Fake-Pot Industry Is Coming Down From a Three-Year High

For months, Lila Steinhoff wondered what was going on in the middle bay of the peach-colored warehouse across from her home. When the wind came out of the north or northeast, the pungent stench of nail-polish remover wafted from the small commercial site onto her quiet side street in West Palm Beach. And unlike the other 9-to-5 businesses in the warehouse, the middle bay kept its employees working erratic hours.

"People came and went in the night. It had the strange odor," says Steinhoff, a plump 64-year-old with short silver hair and bifocal glasses. "You live and let live in this neighborhood. But it was a concern enough."

At a quarter past 5 p.m. Monday, May 21, a deafening explosion roared over Steinhoff's head. The walls of her house expanded and contracted, like they had taken a deep breath and let out a sigh of relief that they were still standing.

Thirty yards away, a fury of fire spewed from the warehouse. The metal garage door of the middle bay blasted off its hinges and soared 75 feet before crashing down on a neighbor's roof. Dense waves of noxious black smoke poured into the late-afternoon sky.

Steinhoff grabbed her phone, called the fire department, and turned on her camera to document the mayhem. Mixed in with the firefighters and police officers was a small unit from the Drug Enforcement Administration working a first-of-its-kind case.

Inside the poorly ventilated space were at least five gallons of acetone — its fumes had fueled the blast — seven industrial cement mixers, and thousands of packets of Mr. Nice Guy herbal incense.

Over the past three years, manufacturers and retailers of so-called herbal incenses have popped up in all 50 states. It quickly became a multibillion-dollar industry built on products that had names like Crazy Eyes, Cowboy Kush, and Skull Killa. Although manufacturers were usually careful to stamp warning labels on the products to avoid liability, users understood that smoking these substances would result in a high because the stuff was soaked with synthetic cannabinoids — man-made chemicals meant to mimic the effects of tetrahydrocannabinol, or THC, the psychoactive component of marijuana.

Until two months ago, many of these herbal incenses remained legal because state and federal lawmakers couldn't keep up with the onslaught of new chemicals being churned out by overseas labs and imported by herbal-incense manufacturers. Whenever the government banned one synthetic cannabinoid, chemists simply tweaked their formulations to concoct new, legal replacements that still got people stoned.

Within this dubious industry, Palm Beach's Mr. Nice Guy earned a reputation as one of the best manufacturers. In just a few hours, it could conjure 15,000 ounces of unnatural intoxication, individually bagged and ready to go. The company offered to ship bulk orders across the country and even trademarked its logo, a yellow smiley face with X's for eyes. Stamped on each package was the ubiquitous but disingenuous boilerplate: "Not for Human Consumption."

At the time of the explosion, the DEA had been collecting Mr. Nice Guy packets from around the nation while trying to piece together a case. It was unclear how the smoldering warehouse at the corner of Georgia Avenue and Wilmot Street was going to affect the ongoing investigation. But with enormous profits at stake and customers across the country clamoring for a legal high, it was a safe bet that whoever was at the controls of Mr. Nice Guy had no plans of slowing down.

Dylan Harrison and John Shealy made a unique entrepreneurial duo.

Harrison, a barrel-chested 31-year-old with a snide grin, co-owned Kavasutra. The Lake Worth hangout specialized in drinks made from the root of a kava plant, which is purported to have a relaxing effect.

Shealy, short and stocky, with lots of tattoos and a trim haircut, grew up in South Carolina. His biological father blew town when he was a kid. From age 10, Shealy was raised by his stepfather, a well-off man who's now a vice president at Johnson Controls, a $22 billion corporation that makes batteries and car parts and employs 140,000 people across six continents. At age 19, Shealy moved to Florida to enter alcohol rehab and hasn't had a drink in the past decade, according to court documents. Now 39, Shealy has owned a few businesses himself, including Serenity Spa and Palm Beach Massage, described by one federal prosecutor as "not therapeutic massage businesses."

In December 2010, Shealy and Harrison established Kratom Labs, the front company for Mr. Nice Guy. The two pushed into the herbal-incense industry at the perfect time. Overhead was low, demand was high, the market hadn't been entirely saturated, and there were few if any laws regulating herbal incense.

To set themselves apart and appear professional, Shealy and Harrison took to clever branding: the smiley-face logo on every foil package, a name made famous by the stoner classic Half Baked, and even a marketing poster that read, "The DEA Wants You to Buy Mr. Nice Guy."

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Chris Sweeney