California’s state government was handed an embarrassing court loss Tuesday after an Orange County judge ruled that the Department of Cannabis Control, or DCC, failed to comply with its own laws designed to stop illegal cannabis from leaving the state.
California’s legal cannabis regulator has been accused for years of looking the other way while legal cannabis farms illegally ship billions of dollars of cannabis out of the legal system and across the world. Tuesday’s ruling agreed that the DCC has not met its legal responsibility to run a tracking system that can stop the illicit cannabis trafficking.
RELATED: Deadly Trump admin raid on Calif. pot farm cost company $26 million
Jordan Traverso, a spokesperson for the DCC, said in an emailed statement that the agency is reviewing the court’s decision but is also looking forward to strengthening its tracking system, “which has already driven a significant surge in compliance and enforcement actions.”
“DCC is proud of its work to strengthen the legal market in partnership with licensees and the cannabis community, including through the track-and-trace system,” Traverso said.
Hirsh Jain, an attorney and cannabis consultant based in Los Angeles, called Tuesday’s ruling “an extraordinary development.”
“This goes far beyond an administrative misstep. It calls into question the integrity of California’s entire regulatory strategy for suppressing the illicit market, which continues to dwarf the legal market despite billions invested in compliance and licensing,” Jain said in an emailed statement.
Operators in California’s legal market have struggled to survive as they face expensive regulations and high taxes while wholesale prices have simultaneously plummeted. Meanwhile, illicit sales are still larger than legal sales in the state.
Tuesday’s ruling is a rebuke of the work of Gov. Gavin Newsom’s cannabis regulators and a major vindication for Elliot Lewis, the outspoken CEO of the Catalyst Cannabis Co. Lewis has become infamous for his expletive-laden social media critiques of the state government. He filed the lawsuit in 2021 through Catalyst’s parent company. It accused DCC officials of allowing intermediary companies with “burner distribution licenses” to legally purchase cannabis from farms and then illegally divert the cannabis out of the state.
The lawsuit argued that the DCC should be automatically flagging the fraudulent activity in the state’s cannabis tracking system, an elaborate and cumbersome digital database that the state has spent over $100 million on. Lewis said DCC could easily set up a flagging system that would immediately notify regulators when there’s suspicious activity at cannabis businesses, but instead the officials failed to act.
The DCC argued in court that its staff were manually generating reports that flagged for irregular activity, but in Tuesday’s ruling, Judge Lee Gabriel wrote that the state’s database “fails to comply” with the requirement to flag irregularities. The court set a Feb. 6 hearing to discuss how the DCC can bring the database into compliance.
Lewis told SFGATE on Tuesday night it was “outrageous” that the state regulator is spending over $100 million of taxpayer money on a tracking system that does not work. He said he offered to settle the case with the DCC if officials agreed to a few minor tweaks to the traceability system, but the agency refused.
“I hope that the state is humbled, and I don’t say that in a braggadocious way, and that they now have to take the reform of the current program seriously,” Lewis said.
The CEO of the chain, which owns over 30 retail stores across California, also said he expects retribution from state regulators.
“My whole experience with the state has been one retribution after another,” Lewis said. “Every time we call them out they counteract us with meaningless inspections and write-ups. At this point they know we’re clean, but I expect there will be some negative consequences and harassment because of our victory.”
*This article first appeared on SFGATE and is reposted with permission.