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.”