For years, people in the cannabis industry have raised concerns about Metrc, the company responsible for California’s cannabis track-and-trace system, and the state’s Department of Cannabis Control (DCC). Allegations of enabling illegal cannabis diversion into the Illicit market have persisted, met consistently with denials from both sides. However, a recent whistleblower has brought these issues to the forefront, demanding accountability and systemic change.
METRC Whistleblower
Marcus Estes, a former executive vice president at Metrc, has filed a federal whistleblower lawsuit alleging that the company actively enabled the illegal diversion of cannabis into the illicit markets, particularly in California. Estes claims that Metrc’s RFID tracking system fails to flag irregularities in cannabis distribution—a fundamental requirement under California law. He further alleges that the company conspired with California regulators to provide cover for “burner distros,” entities that exploit legitimate licenses to purchase cannabis legally and then divert it into illicit channels, often across state lines.
Estes said that his efforts to address these compliance issues internally led to his termination, which he views as retaliatory. His lawsuit shows the systemic failures within Metrc and the California DCC, highlighting a culture of complicity and denial that has persisted for years.
The issues raised by Estes are not new. In 2021, Catalyst Cannabis Co. filed a lawsuit against the DCC, alleging that the agency failed to perform its mandatory duties under the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA). The lawsuit claimed that the DCC did not enforce proper oversight to flag irregularities in its track-and-trace system, allowing for significant market diversion.
Despite these allegations, both Metrc and the DCC have consistently denied any wrongdoing. Metrc has maintained that its system is effective, while the DCC has insisted that it enforces all regulations diligently. However, the persistence of these issues suggests a deeper, systemic problem that cannot be ignored.
Maine’s Regulatory Entanglements
The implications of these allegations extend beyond California. In Maine, John Hudak, the Executive Director of the Office of Cannabis Policy (OCP), is under scrutiny for his prior business relationship with a Metrc executive and his involvement in negotiating substantial contract amendments between the OCP and Metrc. This relationship has prompted Maine’s Government Oversight Committee to launch an investigation into potential conflicts of interest.
We have previously highlighted concerns regarding Hudak’s connections to Metrc, in two articles written by Derek Shirley in which he detailed how Hudak’s past affiliations could compromise the integrity of Maine’s cannabis regulatory framework.
Maine OCP Under Investigation for Appearance of Conflict of Interest with Metrc
A Pattern of Regulatory Shortcomings
The allegations against Metrc and the DCC are part of a larger pattern of regulatory shortcomings. In 2023, a former senior official with the DCC accused the agency of retaliating against her after she raised concerns about corruption and toxic products being sold in the legal cannabis market. The official claimed that the DCC was aware of reports of contaminated products and labs illegally manipulating test results but failed to act.
These examples highlight a troubling trend of regulatory agencies failing to enforce their own rules and retaliating against those who attempt to hold them accountable. Such behavior undermines the integrity of the legal cannabis market and erodes public trust.
Cannabis Industry Demands Accountability
The unfolding situation shows the critical need for oversight and accountability within the cannabis industry. As the cannabis industry continues to evolve, ensuring that regulatory bodies and their partners operate with integrity is paramount. The allegations against Metrc and the DCC serve as a reminder of the challenges that persist in transitioning from a legacy of prohibition to a framework of legalization and regulation.
As this case progresses, it will no doubt shed light on the complexities and growing pains of an industry striving to establish its legitimacy. The outcomes may well set precedents that influence regulatory approaches and corporate behaviors in the cannabis industry for years to come.
