Yet another installment from Cheech and Chong, two stoners who seem to have the knack for finding trouble and getting out of it without trying for either. This film finds the boys selling ice cream from a truck labeled Happy Herb's nice Dreams, but it turns out to be a front for selling pot that they get by stealing it from their friend they call Weird Jimmy. Jimmy grows his pot on a plantation hidden under a large tarp made to look like a swimming pool from above in case any police helicopters happen by. They easily steal the weed from Weird Jimmy since he does not really seem to be aware of much of what is going on around him at any given time.
While Cheech and Chong make a fortune selling pot, they are planning to buy an island and set themselves up as Sun Kings and live the good life with lots of weed, women and wine. The police have been watching them, and plan out a raid on Weird Jimmy's growing operation that takes place just after the two boys leave with a truckload of pot. Weird Jimmy is arrested and evidence is taken by Sgt. Stedenko, who tests it himself, and in turn becomes a stoner as well.
Unknown to Cheech, Chong and the Sgt. the pot has a side effect of slowly turning smokers into lizards, which begins to happen to the police Sergeant as he continues to test the pot in his office. His two underling officers are noticing the changes, but are too afraid and inept to really do anything about it.
Cheech and Chong, meanwhile, take some of their money and go out for a fancy meal. While there they encounter a recording manager who mistakes Chong for Jerry Garcia, and Cheech's old flame, Donna. After being joined by them, they are also joined by Howie, whom they call the Hamburger Dude. After doing drugs under the table, Chong is tricked into giving the Hamburger Dude all their cash in exchange for a check.
Once the two figure out they can't cash the check they go to the address on it, which turns out to be a mental hospital. They are mistaken for patients, drugged and locked up for the night. The next day a nurse wakes them and sets them free after giving back their cash and making Howie apologize. The pair leave, and the police who were tailing them arrive to bust the nurse and Howie, who confesses to being Mr. Big.
Now that their free supply of pot is gone, the two are billing themselves as the Sun Kings as make exotic dancers in the Island Paradise club.