.Dank Money

Pure greed costs the cannabis industry in too many ways

One tends to think of California’s legal and illicit cannabis markets as two distinct entities at odds with each other. And in most ways, they are, but there is also a fair amount of overlap, possibly much more than anybody knows.

Most legal operators are dead-set on defeating the illicit market, but for some others, “legal” and “illegal” are mere technicalities. And if they can find ways to serve both markets and get away with it, they will. Some licensed farmers grow cannabis for both markets. Some licensed dispensaries sell illicitly produced weed. Some wholesalers ship both legal and illegal products.

The full extent of these practices is unknown. In some ways, it’s perhaps understandable: The legal market is so overtaxed and overburdened with regulation that for some businesspeople (particularly growers, who at times must also deal with the fact that prices for their crops are low and falling), serving the illicit market is the only way they can stay in business.

But of course, nobody has a right to stay in business, and a lot of this kind of stuff stems from pure greed.

Last week, a Los Angeles judge levied a $128 million fine against a company, Vertical Bliss, and its executives for manufacturing millions of dollars of cannabis products, mostly gummies, at an unlicensed facility. It is by all accounts the largest fine ever imposed on a cannabis company in the state, and possibly in the country.

The gummies were—and in fact still are—among the most popular on the market: the award-winning Kushy Punch brand. Despite the dark legal cloud surrounding the brand, another, unrelated company, Vavaro, now sells the gummies under that name.

The state revoked Vertical Bliss’ license in November 2019 and filed its civil lawsuit the following September. The Los Angeles judge awarded the full amount the state had sought.

According to the complaint, Vertical Bliss operated a licensed facility in the Chatsworth neighborhood of Los Angeles. At the same time, it operated an unlicensed one in the bordering neighborhood of Canoga Park, and shipped the illicit products from there to Chatsworth to be sold to legal dispensaries. 

In October 2019, an anonymous tip led to a raid on the Canoga Park location where, the state says, about $21 million worth of illicit products were found, including 7,200 vape cartridges, according to a press announcement from the Bureau of Cannabis Control (which has since been merged into the California Department of Cannabis Control, also known the as DCC).

The presence of illicit vapes was especially worrisome at the time because illegally manufactured cannabis vaping products were suspected to be responsible for a large outbreak of illnesses across the country that resulted in the hospitalization of several thousand people and the deaths of at least 68.  

In all, according to state authorities, the Canoga Park facility illegally produced about $64 million worth of illegal products for about a year until the bust.

“This ruling sends a strong message that the illegal cannabis market will not be tolerated in California,” said DCC Director Nicole Elliott in a statement. “DCC and our partners will do everything in our power to protect consumers and maintain the integrity of California’s legal cannabis market. We applaud the Court for its commitment to enforcing the rule of law in California’s cannabis industry.”

Nobody from Vertical Bliss could be reached for comment.

In applauding the judgment, the DCC called it “a significant legal victory against participants in the illegal cannabis market.” Well, against one of them, anyway. There are still plenty of others: California’s illicit market is estimated to be worth more than $8 billion a year. 

While the situation has improved somewhat, the illicit market continues to dwarf the legal market, which in 2021 brought in about $5.3 billion. How much of that illegal weed is being sold by people and companies that also operate in the legal market is unknown, but a $128 million fine is sure to get those people’s attention. 

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