“Million Pounds” of Legal Weed Diverted to Underground Market in California – Guess who seems to be turning a blind eye?

By Nicolas Jose Rodriguez

A lawsuit filed in a state court last week by a California retail chain against the Department of Cannabis Control (DCC) alleges that criminals have legally purchased an unknown number of cannabis distribution licenses, MJBizDaily reported.

The DCC is responsible, among other things, for setting up, implementing, maintaining and enforcing a track-and-trace program for reporting the movement of cannabis products along the distribution chain.

Photo by Viviana Rishe via Unsplash

Through this lawsuit, HNHPC, Inc., a state / locally licensed pharmacy in Santa Ana, seeks to do that DCC to fulfill its legal obligations.

According to the HNHPC, the DCC’s failure to comply with its legal obligation to implement systems to properly track and flag off questionable transactions has resulted in an exponential increase in “Burner distributions,” which Concealing and laundering government-grown cannabis for delivery to unregulated markets without paying significant statutory taxes.

According to the lawsuit, operators (usually legal cannabis operators) are buying or acquiring distribution licenses in various local jurisdictions, often where growers predominate and / or where such licenses are relatively easy to acquire. They do this by using a number of different “frontmen” who agree to attach their names to the licenses.

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Once licensed, the Burner Distros will purchase large quantities of cannabis from growers within the state. According to the law, Burner Distros are responsible for paying all mandatory taxes, although they may or may not “pay them,” claimed the plaintiff.

HNHPC is informed and believes in the system implemented by the DCC, called “METRC”, can be redesigned to identify burner distributions, but that would require the state to change its current agreement with the developer of METRC.

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In addition, the lawsuit alleges that the DCC and the state deliberately ignored illegal burner distros to keep excess cultivation tax dollars on the river.

“This leads to two inevitable and ultimately devastating consequences,” the lawsuit said.

• Cheaper cannabis on the illegal market first and foremost undercuts the legal industry.
• A huge impact on the state’s tax revenue, which the lawsuit estimates could amount to “hundreds of millions of dollars”.

The practical result: The legal market has supported the illegal market instead of replacing it, said Elliot Lewis, CEO of Catalyst Cannabis Co., a California retail chain that operates six stores. Catalyst’s parent company, HNHPC, is the plaintiff in the lawsuit, according to MJBiz.

Photo by Matthew Karila via Unsplash

“More legal products are being brought out of the state than are being legally sold in the state,” added Lewis. “The only question is, is it twice, three times, four times?”

Industry executives say the lawsuit is important because it exposes an issue that government regulators and lawmakers need to address.

“I’m really glad that this lawsuit is coming to light because it is forcing the state to act,” said Vince Ning, CEO of Oakland-based marijuana distributor Nabis.

Others in the industry seem to agree that the lawsuit exposes a grave regulatory flaw that is “cutting the financial legs from under the legal market,” MJBiz Daily wrote.

This article originally appeared on Benzinga and was republished with permission.