Elliot Lewis, CEO of Catalyst Cannabis Company in Long Beach, filed a lawsuit against the Department of Cannabis Control over a scheme involving illicit smugglers that Lewis claims the DCC knew about. If his case succeeds, the court could issue an injunction to shut down illegal cannabis distributors.
From the outside, the California cannabis industry appears to be secure and highly regulated. However, cannabis products change hands many times between the farm and consumer, leaving the product vulnerable.
Despite the track-and-trace system, large amounts of cannabis simply fall off the map and go to places unknown to regulators. This is a challenge for growers who are committed to following the rules.
Legal growers and sellers have to file detailed permits and get licenses to operate their businesses. These licenses often cost money, but not having them could cost the owner their entire operation. Taxes on marijuana are incredibly high, and many cannabis sellers struggle to pay the taxes, keep up with permits, and make a profit.
High taxes and excessive growth make the cannabis industry the perfect vehicle for illicit market activity. Taxes make more competitive prices a must, while excess weed presents a unique opportunity to ‘dispose of extra resources.’
What About Regulation?
Elliot Lewis and other local growers in California are frustrated at the lack of interference from regulatory agencies. The issue with current regulations is that while there are more strict rules regarding business formation and operations, getting a distribution license is relatively easy.
So, while legitimate business owners toil under harsh regulations, burner distributors can operate somewhat freely under the guise of legality. Theoretically, regulators could find these illicit distributors through the track-and-trace system, but if they do, it could be a smear on the reputation of the DCC; if their system is a failure, why would anyone follow the rules?
How It Works
When marijuana leaves the grower, it’s vulnerable to burner distributers. They may buy the product and pay state taxes, but not the excise taxes, and sell legal cannabis on the illegal market. These distributors can sell the product at a much lower price than legitimate distributors, which makes buying from a burner more desirable to the consumer.
Cities like NYC, where the ‘good kush’ is harder to come by, spin Cali cannabis as a high-end product at a fair price when in reality, they are buying cannabis from a middleman with no intention of paying the grower.
Many cannabis business owners agree with Lewis that these fake distributors are a huge problem in the industry. They are disappointed by the DCC’s ambivalence and frustrated with the system that allows these practices to continue.
The DCC has called for everyone to keep an eye open for burner operations. Still, Lewis and his faction see this as another way to divert responsibility from the regulators to the people. This approach also begs the question: do regulators get something out of these backroom deals? Is that why they aren’t taking action?
On the other hand, the DCC says that the community is the best resource for tracking and stopping illegal sales. A spokesperson for the DCC urges legislators and constituents alike to report unlawful activity when they see it, but to fulfill this call to action, individuals need evidence – something that’s hard to come by in these cases.
So, what happens now?
Lewis put the legal responsibility at the feet of the state and filed the lawsuit to push regulators to take action against harmful distribution practices. Burner operations hurt local sales, and small businesses suffer the most.
Should the lawsuit end in Lewis’ favor, the DCC may have to come to terms with errors in their tracking system and own up to knowing about illegal distribution. If that happens, there may be a push to overhaul the new system to fix these issues.