Troublesome Carp Grower Hits Bankruptcy; $9 Million in the Red, Legal Questions Galore

The owners of Island Breeze Farms face an uncertain future, amid unpaid creditors, unhappy neighbors and a judge citing federal law prohibitions on cannabis

By Melinda Burns

The property owners at Island Breeze Farms, a controversial cannabis greenhouse operation across from the Polo Condos, are embroiled in bankruptcy proceedings, having declared $9.6 million in debts, $6.4 million in real estate assets and $3,400 in the bank, according to records at the U.S. Bankruptcy Court in Santa Barbara.

Island Breeze has been a persistent hot spot for the “skunky” smell of pot in the western Carpinteria Valley, and a target of complaints from nearby residents, who urged the county to shut it down.

None of the odor complaints was ever enforced.

Now, however, it appears the economic laws of supply and demand, added to the owners’ difficulties in obtaining a county zoning permit, have forced Island Breeze to shut down. The news comes years after the neighbors first started imploring the county and former First District Supervisor Das Williams through emails, phone calls, formal complaints and in-person meetings to do something about the pungent smell of pot that was wafting into their homes at all hours.

“It’s taxing to live under that smell; it’s not fun,” said Robyn Geddes, a Polo Club homeowners’ association board member, adding that he would often get headaches because of the odor. “A lot of people just gave up calling in to the county. They’d make the complaint and nothing would happen.”

The bankruptcy filing. The state cultivation licenses for Island Breeze, on two acres of the nine-acre property at 3376 Foothill Rd., have expired, and a recent inspection by county Planning & Development has confirmed that cannabis is no longer being grown or processed there.

The Island View Ranch LLC is owned and managed by Lois Von Morganroth of Ventura and Robyn Whatley of Thousand Oaks; they hold a 75 percent and 25 percent interest in the property, respectively, court records show. Besides Island Breeze, they lease the property to the Island View Nursery and several other tenants.

The Island View Ranch went into foreclosure last July. On Dec. 11, moments before it was scheduled to be auctioned off to the highest bidder by the previous owners, who are also the mortgage lenders, Whatley filed for Chapter 11 bankruptcy on behalf of the Island View Ranch LLC, records show.

Whatley also is CEO of the Island Breeze Farms LLC, with a 90 percent interest in the business, according to court records dated Feb. 11. Dylan Hyde of Ventura holds 10 percent. (Records dated Jan. 21 state that Whatley held a 75 percent interest in the cannabis business and Von Morganroth held 15 percent.) In a court filing, Whatley stated that Island Breeze was shut down before the bankruptcy filing.

The financial problems of the Island View Ranch owners are just the latest setback in the long-running saga of the embattled cannabis operation on the property.

Our story to date. The Island Breeze greenhouses lie just 50 feet from the entrance to the Polo Condos, a luxury complex where more than 300 people live at the Santa Barbara Polo & Racquet Club. Commercial cannabis has been under cultivation at Island Breeze since at least 2017, replacing a former flower and orchids operation.

Because there are two other, much larger cannabis greenhouse operations on Foothill within a quarter mile of the Polo Condos, it has been difficult to prove which one was to blame for the smell. In court filings, Whatley states that an expert hired by Island Breeze last year found that the smell that was detectable at the Polo Club was in fact coming from another nearby property.

Now, the neighbors of Island Breeze are uncertain about what happens next.

As recently as last November, the owners had been seeking a zoning permit to expand their operation to all 13 greenhouses on the property, with five harvests yearly. That effort is now on hold. In the past, Island Breeze had been cultivating pot in five greenhouses.

“It’s unclear what the road ahead will be, but we will stand fast with our opposition, no matter what happens,” said Mark Brickley, treasurer of the homeowners’ association. “Our association has always believed that having a cannabis grower across the street from our 140-unit was inappropriate.”

Von Morganroth declined to comment on the bankruptcy filing on Tuesday, and Whatley could not be reached for comment. John Rounds, their Ventura-based attorney, did not return a reporter’s call.

The next hearing in the case is scheduled for 1 p.m. on April 9 in Judge Ronald Clifford’s courtroom at the bankruptcy court, 1415 State St.

Permit woes. Since mid-2018, the county has approved 27 cannabis greenhouse operations on 138 acres from Foothill to Gobernador Canyon Rd., just outside the city limits of Carpinteria. Island Breeze is one of a handful that have not yet been issued a zoning permit or business license.

In 2021, in a rare court action against a grower, the county sued Island Breeze, alleging that the owners had not “diligently pursued” getting a permit and had been engaged in “unfair competition” by operating without one. Then, in 2023, the county Planning & Development director issued an over-the-counter permit to Island Breeze and the county dropped its lawsuit.

Last November, in a departure from business as usual, the county Planning Commission denied a permit for Island Breeze on appeal, saying there was no guarantee that the owners’ odor control plan would prevent the smell from “being experienced in residential zones.”

Yet the plan included carbon filtration systems called scrubbers, which county supervisors say they will soon require across-the-board in all valley greenhouses.

Whatley promptly appealed the commission’s decision to the board, citing “error and abuse of discretion” and “a lack of a fair and impartial hearing.”

In court papers, Whatley said the owners’ business plan had been to increase the value of their property by obtaining a permanent license to grow cannabis at Island Breeze, and then attract investors to pay off their loans.

“Unfortunately,” she stated, “Santa Barbara County ruled contrary to their licensing guidelines, leaving Tenant Island Breeze in a dire financial situation.”

In order to obtain a county business license for Island Breeze, the owners would first need a zoning permit. And according to county Planning & Development, their appeal to the board is now on hold, pending the payment of $6,900 in permit processing fees.

If the Island View Ranch property is sold, planning officials said, a new owner could go forward with the appeal, provided that nothing in court documents prohibited him or her from doing so. Alternatively, the current owners could withdraw their permit application and the new owner could file a new one, starting from zero.

Court arguments. In bankruptcy court, Whatley and Von Morganroth are trying to prevent a return to foreclosure.

They seek to file a Chapter 11 reorganization plan, get a higher price for the sale of the Island View Ranch than foreclosure would provide, and use the money to pay off creditors. They say they have a buyer who has made a “full price purchase offer” for the property at $6.9 million.

In turn, the previous owners of Island View, Irwin and Yolanda Overbach of Ventura, who are also the mortgage lenders, allege that the current owners have no equity in the property. According to court records, the Overbachs’ appraiser has set the property value at $4.7 million. The Overbachs are asking the court to dismiss the case so that the Island View Ranch can be sold in foreclosure and they can recoup their loan with interest — $4.3 million in all.

Another two dozen creditors, primarily investors who provided loans, bring the total claims against the Island View Ranch owners to $9.6 million, court records show.

Among the creditors is the Santa Barbara County Treasurer-Tax Collector, claiming $446,000 in delinquent property taxes and penalties owed by Island View Ranch, dating back to 2018. A property tax payment of $35,335 for 2024-25 fiscal year taxes is due on April 10.

“Controlled substance.” In another twist in the case, Judge Clifford has recently ordered the Island View Ranch owners to “show cause why the case should not be dismissed due to the Debtor’s possible violation of federal law.”

Under federal law, it is illegal to “lease, rent, use or maintain any place … for the purpose of manufacturing, distributing, or using any controlled substance” such as marijuana.

The Overbachs allege that the current property owners cannot reorganize under Chapter 11 because they were “participating in possession and distribution of cannabis” as of their Dec. 11 filing for bankruptcy.

In response, the Island View Ranch owners argue that since Island Breeze has been shut down and is no longer engaging in cannabis-related activities, they are not in violation of federal law and should be allowed to reorganize their business under Chapter 11. Besides, they note, Congress “did not adopt a ‘zero tolerance’ policy” requiring the dismissal of any bankruptcy case involving violations of criminal law.

“By selling the property and distributing the proceeds, the Debtor aims to provide substantial distributions to Creditors, which would not be possible outside of bankruptcy,” Whatley states in a Feb. 26 court filing.

Brian Fittipaldi, the U.S. bankruptcy trustee, has also weighed in, saying he didn’t know whether the Island View Ranch property owners were to be considered “too close and connected to a cannabis business to be eligible for Chapter 11.”

California and other states, Fittipaldi noted, have legalized marijuana for medicinal or recreational purposes, but the federal government’s designation of marijuana as a controlled substance “supersedes contrary state law.” He asked the court for more time to consider the question.

Melinda Burns is an investigative journalist with 40 years of experience covering immigration, water, science and the environment. As a community service, she offers her reports to multiple publications in Santa Barbara County, at the same time, for free.

Image: Aerial photo shows Island Breeze cannabis greenhouses, in the left corner, and the Polo Condos, above tennis courts (Google Earth).