California Cannabis Co. Accused Of Illegally Shipping Marijuana Strikes Back With Countersuit

A California cannabis company that has been accused of transporting and shipping cannabis across state lines on airplanes is striking back.

What Happened

The Long Beach-based 562 Discount Med Inc., which is doing business as Catalyst, initially filed a suit against Glass House Brands Inc. GLASF GHBWF in Los Angeles County Superior Court on June 6, accusing them of profiting from the illicit cannabis market in California and thus undercutting the legal market and those complying with regulations.

The suit claimed Glass House is "one of the largest, if not the largest, black marketers of cannabis in the State of California, if not the country," building on videos posted on Instagram and LinkedIn by Elliot Lewis, the CEO of Catalyst in May.

On June 20, Glass House filed a suit in the same court accusing Catalyst, Lewis and Lewis' co-founder, Damian Martin of pursuing a "systemic defamatory social media campaign" that "falsely" compares Glass House "to a Mexican drug cartel," reported Marijuana Business Moment.

Glass House's suit, backed by Glass House's founders, CEO Kyle Kazan and president Graham Farrar as plaintiffs, said that state and local regulators never gave them a warning for possible violations or imposed penalties due to a lack of adherence. It also touts Catalyst as its "direct competitor."

Lewis told MJBizDaily on Wednesday that if the California Department of Cannabis Control's data become public in court, it would verify his initial claims.

"If Glasshouse thinks that a defamation lawsuit will invoke fear in or cause retreat from Catalyst and myself, they are mistaken," he said in an email.

Catalyst's Lawsuit

Glass House was initially accused of using a combination of both legal and illegal distributors to send cannabis nationwide.

According to a lawsuit filed by Catalyst, the company allegedly collaborated with companies that utilize a "burner distros" approach. The phenomenon usually implies legal cannabis operators that purchase or obtain distribution licenses in various local jurisdictions, often where cultivation operations are prevalent and/or where such licenses are relatively easy to acquire.

They do this by using an array of different frontmen who agree to attach their names to the licenses. Once licensed, the burner distros purchase large quantities of cannabis from cultivators within the state, which in return look the other way to keep excess cultivation tax money flowing in. The suit alleges these burner distros have been supplying lawfully made cannabis to the black market across the country.

What's Next

The Glass House legal action requests an injunction that would force Catalyst to remove any defamatory posts, plus additional monetary damage awards, including punitive damages and covering any legal costs.

Photo: Courtesy of JRByron, WilliamCho by Pixabay