California-based Catalyst Cannabis launched a lawsuit in the Los Angeles County Superior Court against Glass House Brands Inc last week. The lawsuit claims that the cannabis company has become one of the largest, if not the largest, black marketers of cannabis in the state.
The allegations stem from an estimation report from Glass House in May predicting an increase in sales of up to $160 million for 2023. This prompted Catalyst CEO Elliot Lewis to take to social media and make similar claims about Glass House being “the biggest black marketeer … in the history of the United States”.
Elliot Lewis first made his claims on his Social Media platforms with his whiteboard in the background. Watch his Instagram post below.
The lawsuit Catalyst filed alleges violations of California’s Business & Professions Code. It details how Glass House has intentionally structured its business operations to capitalize on the black market. The lawsuit is seeking to preliminarily and permanently enjoin these activities.
This marks a significant legal battle between two of California’s leading cannabis companies. Catalyst seeks justice for what it believes are illegal activities being conducted by Glass House Brands Inc.
Details of the Allegations
Catalyst contends that before this report, Glass House had indicated that cannabis cultivation capacity in California had dropped 21%, flower prices fell over 20%, and there are 1,200 fewer active cultivation licenses. This predicts such a significant increase even more suspect to Catalyst, leading them to file this lawsuit.
The lawsuit further alleges that Glass House is using separate and distinct distribution channels to handle its illicit black market sales of cannabis. Catalyst believes that by using this information, it can be determined that in the fourth quarter of 2022 “upwards of 75%” of Glass House’s sales during the reporting period “were outside the legal market.”
Moreover, Catalyst claims to have received information indicating that Glass House employees seek out and make deals directly with black marketers in California and other states. The lawsuit also details “burner distros” which are companies licensed by the state but evade payment of state taxation, as well as various safety and other regulations in order to sell cannabis on the black market.
The lawsuit filed by Catalyst against Glass House Brands Inc. is claiming that the cannabis company has specifically structured its business operations in order to maximize its profits from illicit activities. This includes a claimed separation of their legal and illegal operations, with the illicit side being handled through burner distros while their legitimate sales are made through licensed distributors.
To further substantiate these claims, Catalyst believes that there has been an evident decline in prices for cannabis flower due to an increase in black market activity. This is corroborated by the decrease in active cultivation licenses and reports of oversupply on the legal market which have occurred since Glass House’s May 15th report was released.
Additionally, Catalyst cites multiple news stories from reputable sources indicating that Glass House has been involved in activities of “diversion, diversionary pricing, and illegal distribution” which would support its claims that the company is actively participating in black market activity.
In an email to Ganjapreneur, Lewis said he had three objectives for filing the lawsuit: “overall state tax reform,” forcing Glass House “to stop flooding the black market with their product,” and to “keep diversity of product or craft farmers in the marketplace without giving what should be a clearly broken business model the ability to kill off small farmers…by using the black market as a piggy bank.”
“I think glasshouse is super unique case and I have wrestled with the filing of the litigation internally in my head quite a bit. And even today I continue to wrestle with it, and even more so, the ‘landing of the plane,’” Lewis wrote in the email. “Take off is much easier. Sometimes intention and outcome aren’t the same thing. We strive to play it day to day and try to make it so there is good outcome from all. If [Glass House] took reasonable measures to stop flooding the Black Market today, I would happily drop the lawsuit.”
Overall, the lawsuit accuses Glass House Brands Inc. of unlawfully profiting from the black market and sets out to enjoin these activities through a court order if found guilty.
Other cannabis companies across California will closely watch the outcome of this case as it could set a legal precedent for cannabis businesses operating on the state’s legal markets.