Glass House, Catalyst Still Locked in Court Fight Over Illicit Market Allegations

Three lawsuits filed by the Catalyst Cannabis CEO are still pending.

A crusade launched more than two years ago by Elliot Lewis to level the playing field in the California cannabis industry is still raging.

Although the state remains the largest marijuana market in the world, it’s a very troubled one, having endured years of dysfunction that reportedly led many legal players to keep one foot in the illicit market in order to turn some sort of profit and remain open for business. That narrative is at the heart of Lewis’ legal battles.

The first lawsuit filed by the CEO of Long Beach-based retail chain Catalyst Cannabis Co. aimed to force the state to reform its own marijuana industry oversight and to crack down on so-called “burner distributors” that had been allegedly funneling millions of pounds of cannabis products illegally to the underground market for years.

That legal fight – along with a second one he picked last summer – is still ongoing, with potentially major ramifications for the rest of California cannabis.

Lawsuits

Lewis maintains that his goal has always been simple: to even the California cannabis playing field between rulebreakers and those who play by the book. To do so, he contends, the state has to both reduce taxes and – this is where lawsuits enter the equation – enforce its own rules, which Lewis argues it has not done to date.

In July, Lewis doubled down on his first legal action, filing suit against one of his licensed competitors, publicly traded Glass House Brands. The new lawsuit accused the company of being “one of the largest” illicit market suppliers in the state.

It also earned Lewis a defamation lawsuit filed just days later by Glass House.

All three lawsuits are still pending. A non-jury trial has been scheduled for Oct. 25 in the Catalyst suit targeting Glass House. A trial is also on the calendar for the defamation suit against Catalyst, slated to begin Nov. 4.

The 2021 burner distribution lawsuit against the state is also still active, with a case management conference scheduled for Feb. 26, according to court records.

If Lewis is successful in either of the two suits he filed, it could be transformative for the California industry. First, it could cut off the burner distribution lifeline that Lewis acknowledges many legal cannabis companies still rely on, and second, it could deal a major blow to one of the biggest publicly traded marijuana businesses in the state.

“The (Department of Cannabis Control) case has always been about the burners. And then Kyle (Kazan) was just kind of the perfect personification,” Lewis said, referring to the Glass House CEO. “What the state is allowing to happen is for Glass House to eliminate every small farmer by having a backdoor… But because they’re friends of (Gov.) Gavin (Newsom), they’re just going to let them survive for the next five years until (marijuana is) federally legal.”

During an interview in November, Lewis asserted that – based on reported production numbers from one state agency and his own calculations – Glass House must still be “backdooring” between 70%-90% of the cannabis grown at the company’s immense greenhouses in Santa Barbara County.

Glass House’s Kazan, when asked about the claims, declined to comment, citing advice of counsel and the fact that the companies are still at odds in court.

“I can’t litigate this in (the press). We’ve been advised by counsel to be very careful,” Kazan said. “What I would say is, there’s a reason why we sued him for defamation.”

When asked about Lewis’s accusations that a sizable majority of Glass House product was being sold illicitly, Kazan replied, “I look forward to his proving that.”

Missing Data

The situation has even roped in Florida-based Metrc, which is trying to fight a subpoena it was issued in Catalyst lawsuit, WeedWeek reported.

Part of the reason for that – and for the argument over Glass House’s production and where it goes – is because the state keeps all cannabis production totals, Metrc track-and-trace information, and related information completely confidential. That means the only source of data on how much marijuana the legal California market produces is anecdotal, extrapolations based on circumstantial numbers, instead of actual raw intel reported by Metrc.

Those production numbers may be a key piece of the puzzle, and it’s part of the ongoing discovery fight in both of Lewis’ lawsuits with the state and Glass House.

Lewis said it’s currently “trench warfare,” with both sides filing and rebutting motion after motion, but that he hopes to have the entire case resolved in another 12 months or so.

“They won’t even give us a list of distributors,” Lewis said. “Even if we win the motions, we’re gonna have to file more motions until, unless eventually, hopefully, we get to discovery.”

But, he predicted, if Catalyst can force Glass House to turn over all the documents it’s requesting through the discovery process, “We get to discovery, it’s over.”

Lewis said that the question Kazan needs to answer is whether he believes any of Glass House’s product ends up on the illicit market, one of the questions Kazan declined to answer to Green Market Report, citing advice of counsel.

Kazan noted, however, that so far Catalyst’s entire legal case rests on mathematical extrapolations based on market production numbers reported through mid-2022 by the California Department of Tax and Fee Administration, as opposed to tangible evidence or witnesses claiming wrongdoing by Glass House.

Lewis, however, said the defamation suit response from Glass House “never ever really actually attacks the math in the complaint, right? Just calls it baseless. Doesn’t say it’s wrong.”

Business as Usual

Glass House, meanwhile, is still on track to expand its cultivation capacity in the coming year, with several more greenhouses being built out with ultimately six million square feet of canopy that will be capable of producing six harvests per year.

As of November, only two out of six greenhouses at a property near Camarillo that Glass House is still retrofitting were growing cannabis. Once the entire facility is converted to marijuana cultivation, it will be “the nuclear aircraft of growing great weed,” company President Graham Farrar said. And that’s only one of three cannabis farms the company owns.

Farrar also said that for Glass House, business has been quite good.

“We’re selling faster than our reps can get restocked,” he said. “Faster than we can grow it.”

Farrar said Glass House, as of November, controlled roughly 2%-3% of all cultivation licenses in the state, giving the company a roughly corresponding market share.

That number is likely to go up, however, as contraction continues in the California marijuana farming sector. Scores of small farms have been steadily dropping out each month, Farrar said, as wholesale prices have remained depressed and red tape in the state has made finding profits quite difficult since the market launched in 2018.

John Schroyer

John Schroyer has been a reporter since 2006, initially with a focus on politics, and covered the 2012 Colorado campaign to legalize marijuana. He has written about the cannabis industry specifically since 2014, after being on hand for the first-ever legal cannabis sales on New Year’s Day that year in Denver. John has covered subsequent marijuana market launches in California and Illinois, has written about every aspect of the marijuana trade, and was part of the team that built the cannabis industry’s first-ever trade show, MJBizCon. He joined Green Market Report in 2022.


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