Water from the Colorado River diverted through the Central Arizona Project fills an irrigation canal.Matt York / AP Images

One of the biggest battles over Colorado River water is being staged in one of the west’s smallest rural enclaves.

Tucked into the bends of the lower Colorado River, Cibola, Arizona, is a community of about 200 people. Maybe 300, if you count the weekenders who come to boat and hunt. Dusty shrublands run into sleepy residential streets, which run into neat fields of cotton and alfalfa.

Nearly a decade ago, Greenstone Resource Partners LLC, a private company backed by global investors, bought almost 500 acres of agricultural land here in Cibola. In a first-of-its-kind deal, the company recently sold the water rights tied to the land to the town of Queen Creek, a suburb of Phoenix, for a $14 million gross profit. More than 2,000 acre-feet of water from the Colorado River that was once used to irrigate farmland is now flowing, through a canal system, to the taps of homes more than 200 miles away.

A Guardian investigation into the unprecedented water transfer, and how it took shape, reveals that Greenstone strategically purchased land and influence to advance the deal. The company was able to do so by exploiting the arcane water policies governing the Colorado River.

Experts expect that such transfers will become more common as thirsty towns across the west seek increasingly scarce water. The climate crisis and chronic overuse have sapped the Colorado River watershed, leaving cities and farmers alike to contend with shortages. Amid a deepening drought and declines in the river’s reservoirs, Greenstone and firms like it have been discreetly acquiring thousands of acres of farmland.

As US states negotiate how they will divide up the river’s dwindling supplies, officials challenging the Greenstone transfer in court fear it will open the floodgates to many more private water sales, allowing investors to profit from scarcity. The purchases have alarmed local residents, who worry that water speculators scavenging agricultural land for valuable water rights will leave rural communities like Cibola in the dust.

“Here we are in the middle of a drought and trying to preserve the Colorado River, and we’re allowing water to be transferred off of the river,” said Regina Cobb, a former Republican state representative who has tried to limit transfers. “And in the process, we’re picking winners and losers.”

In February, a federal judge ruled that the Cibola-Queen Creek transfer was done without proper environmental review, ordering the federal Bureau of Reclamation to complete a more thorough evaluation. The Department of Justice, which is representing the bureau in the legal proceeding, declined to comment on whether the bureau would be appealing the decision.

Meanwhile, Greenstone—which appears to be the first water brokerage firm to sell rights to the Colorado River—could help chart the course of how the resource can be bought and sold in the west.

Greenstone first arrived in Cibola a decade ago—though few here knew anything of the company at the time. Through a subsidiary called GSC Farm LLC, the company purchased 485 acres of land in the Cibola valley in 2013 and 2014, for about $9.8 million. Hardly anyone in town took notice.

“Why would we?” said Holly Irwin, a supervisor for La Paz county, which encompasses Cibola.

Initially, Greenstone leased that land back to farmers, who planted fields of alfalfa and rows of puffball cotton.

Then, in 2018, the company sold the water tied to that farmland to Queen Creek, a fast-growing sprawl of gated communities on the outskirts of Arizona’s capital. The city’s government agreed to pay the company $24 million for the annual entitlement to 2,033 acre-feet of Colorado River water.

In July of last year, amid continuing legal challenges and national scrutiny, that water was finally diverted. The alfalfa and cotton fields were fallowed—reduced to dry brush and cracked earth. Many in town were blindsided. “We were all just like: ‘What the heck?’” Irwin recalled.

GSC Farm, she realized, wasn’t really a farm at all—it was part of a water investment firm that had brokered water transfer deals all across the south-west.

GSC Farm is one of at least 25 subsidiaries and affiliates of Greenstone, registered in Arizona and other states. Business registration records, deeds, loan documents and tax records show that these companies share the same executives. To local residents, including elected officials such as Irwin, it was initially unclear that the business—which had been acquiring thousands of acres of farmland not only in Cibola but across Arizona—went by so many names.

Greenstone’s executives and lawyers did not respond to the Guardian’s questions about the company’s corporate structure, its business model, and how it initiated the Queen Creek deal.

Public records revealed that Greenstone’s financial backers include the global investment firm MassMutual and its subsidiary Barings, as well as public pension funds. At least one of its acquisitions appears to be financed by Rabo AgriFinance, a subsidiary of the Dutch multinational banking and financial services company Rabobank.

On its website, Greenstone describes itself as “a water company” and as “a developer and owner of reliable, sustainable water supplies,” Its CEO, Mike Schlehuber, previously worked for Vidler Water Company—another firm that essentially brokers water supply—as well as Summit Global Management, a company that invests in water suppliers and water rights.

Greenstone’s managing director and........

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