BELCOSTA LABS v CALIFORNIA DEPARTMENT OF CANNABISCONTROL

Dale Schafer Esq.

Original High At 9 News Story

05-07-2025

On Monday May 5, 2025 (Cinco de Mayo) a hearing was held in

Sacramento Superior Court on BelCosta Lab’s (BelCosta) Application for a

Temporary Restraining Order (TRO), halting the DCC’s suspension of

Belcosta’s Provisional cannabis lab testing license. What started out as a

straight forward TRO hearing quickly deteriorated when it was revealed that

the DCC had denied BelCosta’s application for an annual license and that

the Provisional license had lapsed. The DCC is taking the position that the

Court lacks jurisdiction because the Provisional license can no longer be

“reinstated” and the denial of the Annual license had Administrative Appeal

rights that must be exhausted before the Court has jurisdiction over the

BelCosta license.

It seems that the DCC had raised the lack of jurisdiction argument in their

Response to the TRO application, after the denial of the Annual license and

the expiration of the Provisional license. BelCosta did not have an

opportunity to respond to the jurisdictional issue so the Court continued the

hearing until May 23, 2025 to allow the parties to brief the jurisdictional

issue. Stand by because the war is just starting between BelCosta and the

DCC.

The underlying issue involves due process, or a lack thereof. The basics of

due process are notice and an opportunity to be heard. For some context

on the due process issue, a short history lesson seems in order.

California passed its adult and medical cannabis laws in 2017, after the

voters approved Prop 64, the Adult Use of Marijuana Act. Because licenses

were set to be issued beginning 1/1/18, the initial license was called a

“Temporary” license designed to last for 3 months. The next level of license

was a Provisional license that was to last for 1 year, before an Annual

license was issued. The Temporary and Provisional licenses were not

“vested” rights subject to due process available to an Annual license.

However, the Provisional license was extended several times before there

was a sunset on 1/1/26 and no more Provisional licenses would be issued

in 2025. What had started out as a short term solution to rapid onboarding

of licensees in 2018 turned into a multiyear odyssey of building expensive

businesses in the cannabis industry WITHOUT the due process rights

afforded to the Annual license, or other similar “Permanent” licenses issued

by the State of California.

BelCosta has a history of being issued a Temporary Testing Lab license in

May of 2018 and their first Provisional license in May of 2019. BelCosta

applied for, and was issued, multiple Provisional licenses thereafter as

basically ministerial acts. During this stage of seeking an Annual license,

protected by due process rights, BelCosta invested millions of dollars into

equipment as it built a successful lab testing business. In 2024, BelCosta

applied for their Annual license yet again with the understanding that an

Annual license was now required to operate after 2025. All seemed good

until an article came out in the LA Times about testing labs manipulating

results to meet customer demand. Because of the article, the shit had

literally hit the fan. To counter the criticism about testing manipulation, the

DCC began their hamfisted campaign.

BelCosta requested all information they needed to obtain their Annual

license and fulfilled the DCC’s requests on a timely basis. BelCosta, and

other state licensed cannabis labs, were sued first in Federal Court for an

alleged conspiracy to alter testing results. That case was dismissed, but

refiled in essentially the same form in LA Superior Court. BelCosta objected

to the involvement in the investigation of a former principal at a company

suing them. In September of 2024, the DCC sent BelCosta a notice that

their Provisional license was under review. In October the DCC held a

surprise inspection of BelCosta and in November the DCC issued a citation

and fine for 10 samples the DCC alleged were inaccurate for potency.

BelCosta attempted to obtain the underlying information relied on by the

DCC only to be told the information was not subject to disclosure. An

informal hearing was held in December but the DCC refused to produce the

information relied upon (typically this is mandated discovery), had no

neutral hearing officer, and BelCosta was not given an appeal hearing, all

of which are normal parts of Administrative hearings. BelCosta requested a

formal hearing but did not receive one. On December 30, 2024, the DCC

responded by sustaining the citation and associated fine.

With their license due to expire on April 30, 2025, Belcosta made numerous

inquiries of the DCC about the status of their Annual license, without

response other than it is under review. On April 10, 2025, the DCC sent

notice to BelCosta that their Provisional license was suspended for 5

batches of tests done in July of 2024 that showed Aspergillus on

subsequent testing. BelCosta was not given any hearing before suspension

which should have afforded them the opportunity to challenge the test

results and defend themselves.

On April 18, 2025, BelCosta filed a Petition for a Writ of Mandamus in

Sacramento Superior Court seeking a stay of the suspension of the

Provisional license and ordering a hearing for BelCosta to defend its

license. With the Annual license deadline rapidly approaching, BelCosta

filed for a TRO to halt suspension of the Provisional license and maintain

the status quo until a hearing could be held. While waiting for the hearing

set for 5/5/25, the DCC denied BelCosta’s application for an annual license

and raised the issue of jurisdiction because the Provisional license expired

on April 30, 2025. With an expired Provisional license, the suspension

could no longer be ordered to be stayed because the court lacked

jurisdiction. Further, the denial of the Annual license has appeal rights so

the court has no jurisdiction until BelCosta exhausts its Administrative

Remedies.

The court was not happy at the last minute tactics of the DCC, but had to

admit their argument about the court lacking jurisdiction could have merit.

However, Judge Jennifer Rockwell stated she was very concerned that a

business that had multiple years of renewed licenses and had invested

millions of dollars in good faith reliance on the process, could be effectively

shut down without even the basics of due process. The Judge wants further

briefing on the jurisdiction issue prior to the next hearing set for May 23,

2025 at 10 am. Stay tuned because the battle over due process has only

just begun.