Business
Lawsuit accuses California cannabis grower Glass House of illicit activity
More brash attention-seeking behavior?
Or is Catalyst Cannabis Co.’s Elliot Lewis the first cannabis CEO willing to voice what’s been said in private – and actually name names, in court?
The audacious lawsuit filed last week that accuses California cannabis mega-grower Glass House Brands of being “one of the largest, if not the largest, black marketers of cannabis in the State of California, if not the country” could be both.
But if the recent past is any indication, it could be a long time before anything changes – if anything does at all.
In a complaint filed June 6 in Los Angeles County Superior Court, 562 Discount Med, which does business as Catalyst, alleged that Glass House “knowingly is entering into illicit sales – both inside and outside California.”
Glass House does this, the suit alleges, by selling marijuana in the legal market as well as via a “network” of so-called “burner distros” – licensed distributors set up to be briefly used as conduits for legally grown cannabis to enter the illicit market.
Those distributors then send legally grown flower to illicit markets “as far away as New York and New Jersey,” where illegal marijuana sales are rampant and where many illicit shops do sell cannabis in packaging featuring California branding, the suit alleges.
Reached late Monday, a spokesperson for Glass House Brands said the company was unaware of the lawsuit.
Kyle Kazan, Glass House’s founder and CEO – as well as a former Torrance, California, police officer – did not respond to an email from MJBizDaily seeking comment.
The suit by Southern California-based Catalyst alleges unlawful and unfair business practices and seeks an injunction from a judge.
No hearings are currently scheduled in the case, according to court records. There is also no record of Glass House being served with the suit.
Observers generally reacted one of two ways to the suit: quietly agreeing with Lewis’ argument, or publicly dismissing this latest outburst as a self-centered gimmick.
Critics point out that if Catalyst has any concrete evidence of Glass House’s alleged illicit-market dealing, nothing was offered in the suit beyond circumstantial arithmetic.
“It’s all attention-seeking,” Aaron Edelheit, CEO of Santa Barbara, California-based investment firm Mindset Capital, told MJBizDaily.
“If Glass House was flooding the black market, it wouldn’t be sold in California.”
Axe to grind
Catalyst’s Lewis, first accused Long Beach, California-based Glass House Brands of allegedly engaging in illicit-market activity in a LinkedIn post last month.
Lewis anchored that argument on white-board arithmetic, claiming that – based on Glass House’s reported production and sales, compared to statewide recorded sales – only 25% of the company’s product is sold legally.
“They are the f****** problem,” he said. “The cartel is Glass House. Allegedly.”
That same math appeared in the lawsuit.
Lewis who also filed suit against California’s Department of Cannabis Control in 2021, alleging that regulators were aware of the “burner distro” situation but have been unable or unwilling to curtail it.
That suit was initially dismissed by a judge before it could go to discovery but is currently on appeal, according to court filings.
The current lawsuit, to prove its case, seeks both internal Glass House documents as well as state track-and-trace data via the discovery process.
Familiar complaints
Lewis’ public crusade against Glass House echoes what’s become conventional wisdom in most cannabis executive circles: At least some licensed cultivators, retailers or distributors are selling cannabis on the illicit market – be it out of greed or necessity, with the badly needed profits available on the tax-free illicit market used to meet payroll or pay taxes.
And it tracks with other, more oblique accusations that do not identify alleged malefactors by name.
In a talk hosted on Twitter Spaces in late May, Boris Jordan, the chair of Massachusetts-based multistate operator Curaleaf Holdings – which recently announced the shuttering of its California operations – also repeated the commonly held belief that legally grown marijuana is ending up on the illicit market via “burner distros.”
“It’s interesting,” Jordan said. “Without naming names, a lot of the legal players are turning to the illicit market by basically saying, ‘OK, we’re selling to legal distros, and the fact that the product is going across the country – that doesn’t bother us, because the counter party we’re selling to is legal, even though they know they’re never entering that product into the Metrc system and they’re selling it across the country and bankrupting that distribution company and setting up a new one.’”
Jordan did not identify any companies or operators by name, and a Curaleaf spokesperson did not respond to MJBizDaily requests for comment on Jordan’s statement.
Whipping boy
Glass House has become a favorite target of many frustrated legal-market operators in California for its ambitious efforts to become one of the largest cannabis producers in the country.
The vertically integrated company opened a 5.5 million-square-foot cultivation complex in Southern California last year.
The company borrowed up to $100 million to retrofit that greenhouse complex suitably for marijuana.
And in addition to distributing cannabis to other licensed retailers, Glass House also operates nine retail locations, three of which it acquired last year in a $22.6 million deal.
Glass House shares trade as GLAS on Canada’s NEO Exchange and as GLASF on U.S. over-the-counter markets.
The company reduced its reported quarterly losses to $100,000 in the first quarter of 2023 on $29 million in sales, down from a $2.6 million loss in the last quarter of 2022, according to its most recent earnings report.
Part of the reason is that Glass House continues to cultivate an immense amount of cannabis even as other cultivators go out of business.
In its most recent earnings report, Glass House estimated licensed cultivation space in California dropped by 21% since last June, a figure based on state data.
In that same time frame, Glass House has continued to grow marijuana and also find higher margins.
The company plans to grow 310,000 pounds of cannabis in 2023, at a cost $140 per pound.
The company also claimed to have sold marijuana at an “average selling price” of $325 per pound in the past quarter.
These low prices and relatively high margins are reflected in Glass House’s average retail prices, with eighths available for as little as $26.50, according to online menus.
“What we think we can do is, we can beat the illicit market just on price,” Kazan said during a recent interview on Cannabis Talk 101.
“We believe very, very soon we’ll be able we’ll be able to provide legal weed at illegal prices.”
Source: https://mjbizdaily.com/catalyst-cannabis-lawsuit-accuses-glass-house-brands-of-illicit-activity/
Business
New Mexico cannabis operator fined, loses license for alleged BioTrack fraud
New Mexico regulators fined a cannabis operator nearly $300,000 and revoked its license after the company allegedly created fake reports in the state’s traceability software.
The New Mexico Cannabis Control Division (CCD) accused marijuana manufacturer and retailer Golden Roots of 11 violations, according to Albuquerque Business First.
Golden Roots operates the The Cannabis Revolution Dispensary.
The majority of the violations are related to the Albuquerque company’s improper use of BioTrack, which has been New Mexico’s track-and-trace vendor since 2015.
The CCD alleges Golden Roots reported marijuana production only two months after it had received its vertically integrated license, according to Albuquerque Business First.
Because cannabis takes longer than two months to be cultivated, the CCD was suspicious of the report.
After inspecting the company’s premises, the CCD alleged Golden Roots reported cultivation, transportation and sales in BioTrack but wasn’t able to provide officers who inspected the site evidence that the operator was cultivating cannabis.
In April, the CCD revoked Golden Roots’ license and issued a $10,000 fine, according to the news outlet.
The company requested a hearing, which the regulator scheduled for Sept. 1.
At the hearing, the CCD testified that the company’s dried-cannabis weights in BioTrack were suspicious because they didn’t seem to accurately reflect how much weight marijuana loses as it dries.
Company employees also poorly accounted for why they were making adjustments in the system of up to 24 pounds of cannabis, making comments such as “bad” or “mistake” in the software, Albuquerque Business First reported.
Golden Roots was fined $298,972.05 – the amount regulators allege the company made selling products that weren’t properly accounted for in BioTrack.
The CCD has been cracking down on cannabis operators accused of selling products procured from out-of-state or not grown legally:
- Regulators alleged in August that Albuquerque dispensary Sawmill Sweet Leaf sold out-of-state products and didn’t have a license for extraction.
- Paradise Exotics Distro lost its license in July after regulators alleged the company sold products made in California.
Golden Roots was the first alleged rulebreaker in New Mexico to be asked to pay a large fine.
Source: https://mjbizdaily.com/new-mexico-cannabis-operator-fined-loses-license-for-alleged-biotrack-fraud/
Business
Marijuana companies suing US attorney general in federal prohibition challenge
Four marijuana companies, including a multistate operator, have filed a lawsuit against U.S. Attorney General Merrick Garland in which they allege the federal MJ prohibition under the Controlled Substances Act is no longer constitutional.
According to the complaint, filed Thursday in U.S. District Court in Massachusetts, retailer Canna Provisions, Treevit delivery service CEO Gyasi Sellers, cultivator Wiseacre Farm and MSO Verano Holdings Corp. are all harmed by “the federal government’s unconstitutional ban on cultivating, manufacturing, distributing, or possessing intrastate marijuana.”
Verano is headquartered in Chicago but has operations in Massachusetts; the other three operators are based in Massachusetts.
The lawsuit seeks a ruling that the “Controlled Substances Act is unconstitutional as applied to the intrastate cultivation, manufacture, possession, and distribution of marijuana pursuant to state law.”
The companies want the case to go before the U.S. Supreme Court.
They hired prominent law firm Boies Schiller Flexner to represent them.
The New York-based firm’s principal is David Boies, whose former clients include Microsoft, former presidential candidate Al Gore and Elizabeth Holmes’ disgraced startup Theranos.
Similar challenges to the federal Controlled Substances Act (CSA) have failed.
One such challenge led to a landmark Supreme Court decision in 2005.
In Gonzalez vs. Raich, the highest court in the United States ruled in a 6-3 decision that the commerce clause of the U.S. Constitution gave Congress the power to outlaw marijuana federally, even though state laws allow the cultivation and sale of cannabis.
In the 18 years since that ruling, 23 states and the District of Columbia have legalized adult-use marijuana and the federal government has allowed a multibillion-dollar cannabis industry to thrive.
Since both Congress and the U.S. Department of Justice, currently headed by Garland, have declined to intervene in state-licensed marijuana markets, the key facts that led to the Supreme Court’s 2005 ruling “no longer apply,” Boies said in a statement Thursday.
“The Supreme Court has since made clear that the federal government lacks the authority to regulate purely intrastate commerce,” Boies said.
“Moreover, the facts on which those precedents are based are no longer true.”
Verano President Darren Weiss said in a statement the company is “prepared to bring this case all the way to the Supreme Court in order to align federal law with how Congress has acted for years.”
While the Biden administration’s push to reschedule marijuana would help solve marijuana operators’ federal tax woes, neither rescheduling nor modest Congressional reforms such as the SAFER Banking Act “solve the fundamental issue,” Weiss added.
“The application of the CSA to lawful state-run cannabis business is an unconstitutional overreach on state sovereignty that has led to decades of harm, failed businesses, lost jobs, and unsafe working conditions.”
Business
Alabama to make another attempt Dec. 1 to award medical cannabis licenses
Alabama regulators are targeting Dec. 1 to award the first batch of medical cannabis business licenses after the agency’s first two attempts were scrapped because of scoring errors and litigation.
The first licenses will be awarded to individual cultivators, delivery providers, processors, dispensaries and state testing labs, according to the Alabama Medical Cannabis Commission (AMCC).
Then, on Dec. 12, the AMCC will award licenses for vertically integrated operations, a designation set primarily for multistate operators.
Licenses are expected to be handed out 28 days after they have been awarded, so MMJ production could begin in early January, according to the Alabama Daily News.
That means MMJ products could be available for patients around early March, an AMCC spokesperson told the media outlet.
Regulators initially awarded 21 business licenses in June, only to void them after applicants alleged inconsistencies with how the applications were scored.
Then, in August, the state awarded 24 different licenses – 19 went to June recipients – only to reverse themselves again and scratch those licenses after spurned applicants filed lawsuits.
A state judge dismissed a lawsuit filed by Chicago-based MSO Verano Holdings Corp., but another lawsuit is pending.
Source: https://mjbizdaily.com/alabama-plans-to-award-medical-cannabis-licenses-dec-1/
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