California Judge Says Cannabis Regulators Failed to Prevent Product Diversion

A California judge has ruled that the Department of Cannabis Control (DCC) is failing to prevent the diversion of state-licensed cannabis into the unregulated market, according to an SF Gate report.

The ruling comes from a 2021 lawsuit filed by Catalyst Cannabis Co., a licensed California cannabis retail chain, alleging that regulatory flaws have allowed bad actors in the state to divert “untold millions of pounds” of cannabis to the illicit market — and that officials with the DCC are aware of the issue but have refused to take steps to address it.

California cannabis companies face some of the highest tax rates in the country, while the unlicensed market continues to thrive, placing pressure directly on state-licensed operators.

Judge Lee Gabriel of the Orange County Superior Court wrote in his Tuesday decision that the DCC’s digital database for tracking cannabis products “fails to comply” with state law, which charges regulators with preventing product diversion. The ruling is also a rebuke of the Newsom Administration’s efforts to curb the illegal cannabis market. The court scheduled a follow-up hearing on February 6 to discuss bringing the DCC database into compliance.

A DCC spokesperson told SF Gate that the agency is reviewing the judge’s decision and looks forward to improving its track-and-trace system.

In an Instagram post on Wednesday, Catalyst CEO Elliot Lewis said that he didn’t enjoy battling the state, and that he offered “about a hundred times” to drop the case in exchange for some adjustments to the agency’s database.

“I would like to see the DCC and the Attorney General’s office be openminded that their system is broken, and maybe some solutions might help,” Lewis said in the the post.

“Hopefully [the ruling] will send a little motivation over there.”