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Calif. Pot Co. Glass House Seeks Toss Of Competition Suit

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Law360 (March 26, 2024, 9:01 PM EDT) -- Cannabis company Glass House Brands Inc. urged a Los Angeles County court to toss a competitor's lawsuit accusing it of intentionally peddling most of its goods to retailers who sell on the illicit market, arguing that the court shouldn't step on the toes of the state's cannabis authority.

Glass House rejected claims made by 562 Discount Med Inc., which operates a dispensary under the name Catalyst, that it is flouting state law by allegedly selling to "burner distributors" or other retailers who sell its products on the black market.

But even if Glass House were doing this, it's the job of the California Department of Cannabis Control, or DCC, to enforce state regulations, not the job of the superior court. The court should not attempt to interfere. Furthermore, the cannabis industry is far too complex for the court to attempt to regulate, Glass House said, urging the court not to impose an "unmanageable" or "impossible" to enforce injunction on the company.

562 "wants to escape the complex legislative and regulatory structure and have this Court try to fix the problem of the illicit market through injunctive relief against just one cultivator," Glass House said. "Only the DCC — not this Court — is in a position to weigh and decide the complicated issues relating to cannabis licensing, investigation and enforcement, discipline of licensees, and the track and trace system."

Glass House's motion, filed March 20, specifically asks the state court to dismiss the case with prejudice by finding that 562's lawsuit had not stated a claim that the court could remedy.

562 filed suit in June 2023, claiming that Glass House is intentionally selling a portion of its cannabis products to "black market distributors and retailers." The suit claims that three-fourths of the company's sales in the last quarter of 2022 were to these shady businesses. 

The lawsuit claims that 60% to 80% of cannabis sales in the state are conducted outside of legal channels, and the DCC is "ineffectual" at dealing with the problem, despite that being one of their primary jobs.

But Glass House said that these facts in the complaint undercuts 562's civil litigation. The company acknowledges that it is DCC that is responsible for dealing with this problem. In fact, an affiliate of 562, HNHPC Inc., already filed an action against state cannabis regulators seeking a court order that would force the DCC to do its job, Glass House said in its filing.

"At its core, 562's problem is with the illicit cannabis market," Glass House said. "562, however, wants to escape the complex legislative and regulatory structure and have this Court try to fix the problem of the illicit market through injunctive relief against just one cultivator."

Glass House argues that the doctrine of equitable abstention requires the court not to interfere in this litigation. The DCC should be the body that attempts to correct the alleged lawbreaking of Glass House, adding that it would be basically "impossible" for the court to fix the black market if it tried.

"The DCC has been designated specifically to control and regulate cannabis, and specifically within its purview are matters related to licensing, enforcement, investigation, tracking cannabis, and the reduction of illicit market activity," Glass House said. "For this Court to grant the injunctive relief sought by plaintiff would interfere with the functions of the DCC (and other agencies), and would be unnecessarily burdensome on the Court, if not impossible to carry out."



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