California Regulator Says Illegal Cannabis Business Should Pay $128 Million

The agency is seeking the sum from the defendants for making and selling unlicensed products in the state for more than a year.

California’s cannabis regulation authority wants a group of business owners to pay $128 million in collective penalties for manufacturing and selling unlicensed products in the state for more than a year.

According to Law360, the Department of Cannabis Control (DCC) asked a state judge on Wednesday to grant the summary judgement award, arguing that the evidence was indisputable and that the seven defendants – four businesses and three owners – effectively admitted to breaking the law in court.

“Both the admissions of the defendants and independent evidence gathered by the DCC support that the seven defendants ‘engaged in unlicensed commercial cannabis activity’ in the State of California for 527 days,” the agency wrote. “There is no triable issue as to this fact when determining the civil penalty that should be assessed in this case.”

California-DCC-case-20CHCV00560

Two years ago, the state public health department’s Manufactured Cannabis Safety Branch (CDPH) sent a cease-and-desist letter to Ruben Kachian in March 2018 after it received a complaint that his company, Vertical Bliss, was engaged in the unlicensed manufacturing of cannabis edibles and vape cartridges.

CDPH met with Kachian the following August to help his company apply for a provisional license to operate in the legal market, which was eventually applied for in December and issued by June 2019.

By October 2019, the Department of Consumer Affairs’ Division of Investigation executed a search warrant at two locations operated by Kachian and the other owners named in the case.

Authorities found cannabis concentrate, gummies, vapes and various manufacturing equipment, as well as records showing that the unlicensed production had occurred since April 2018 – a month after Kachian received the desist letter.

The agencies alleged that Vertical Bliss had manufactured more than 3 million pounds of Kushy Push brand cannabis gummies and accused the company of pushing $64 million worth of unlicensed product into the market through licensed facilities.

Furthermore, investigators found that the company had been making 20-milligram edibles, which would be unlawful even if the factory was licensed due to the existing 10 milligram per serving cap for THC edibles.

DCC also wrote that the unlicensed commercial cannabis activity occurred over the span of 18 months and “was done knowingly, purposefully and in total disregard of the law, therefore the maximum allowable civil penalties are warranted.”

The $128 million figure equals three times the $81,000 licensing fee ($75,000 for illegal manufacturing profits plus $6,000 for illegal distribution) multiplied by 527 for each day of violations over the 18-month span.

Adam Jackson

Adam Jackson covers the cannabis industry for The Green Market Report. He previously covered the Missouri statehouse for The Columbia Missourian and freelanced for The Missouri Independent. He most recently covered retail, restaurants, and other consumer companies for Bloomberg Business News. You can find him on Twitter @adam_sjackson and email him at adam.jackson@crain.com.


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