"Santa Claus and His Old Lady" did not appear on the duo's eponymous debut album, although the B-side, "Dave," did. It has since received continued airplay on radio stations during the Christmas season, particularly those that switch to temporary all-Christmas music formats.

The sketch begins with Cheech at the piano attempting to write a parody of “¿Dónde Está Santa Claus?” (Spanish for Where is Santa Claus?) a Christmas song by Augie Rios from 1958, to little success. Chong enters, at which point he reveals that he has never heard of Santa Claus (Chong repeatedly mistakes Santa Claus for a musician).

Cheech then explains the story of Santa Claus, but from an unusual perspective. Santa and his wife began in the projects, after which, in no small part due to a combination of excessive noise from "pounding and hammering all night" and the cannabis-infused brownies Mrs. Claus became known for, they were driven out and formed a commune at the North Pole with a large group of midgets. Cheech explains that the reason Santa's sleigh can fly is because he "took the freeway" and liberally used "magic dust" and that uncomfortable experiences with Border Patrol and Southerners who threatened to cut off his hair and beard prompted him to go underground. According to Cheech, Santa Claus now works undercover as a Salvation Army bell-ringer, at which point Chong once again, and more certainly this time, asserts he really had played music with Santa Claus.

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Wikipedia