John Schroyer
California-based Glass House Brands Inc. (NEO: GLAS.A.U) (OTCQX: GLASF) is “one of the largest, if not the largest, black marketers of cannabis in the State of California, if not the country,” and has been shipping cannabis across state lines on airplanes, according to a new lawsuit filed by one of the company’s retail competitors.
The suit, filed by Long Beach-based 562 Discount Med Inc., which does business as retailer Catalyst, contends that Glass House Brands has been capitalizing on the illicit cannabis trade in California, and in doing so is undercutting the legal market and those trying to operate by the book.
Glass House relies on both legal distributors and also so-called “burner distros,” an industry term for licensed distributors that channel legally produced cannabis to the underground market nationwide, the suit alleges. The method allows Glass House to sell marijuana to both the legal and illegal markets, effectively propping up its balance sheet, the suit asserts.
“By specifically choosing to deal with Burner Distros and others to channel its cannabis to the black market, GHB is supporting a flourishing black market that pays no taxes – a market that permits GHB to sell ‘excess capacity’ that it could not otherwise sell in the legal market without substantially affecting the legal price of cannabis – and by doing so has been able to sell a veritable mountain of illegal cannabis at high margins,” the suit claims.
“This in turn has allowed them to ‘cook the books,’ to make its operations look better than they actually are, to obtain substantial investment and/or financing, and to grow in competitive strength and market power – something legal cultivators are unable to do,” the suit claims. “That in turn permits unlicensed dispensaries to sell GHB’s cannabis at prices that legal dispensaries such as Catalyst cannot match, leading to lower sales and profits.”
The suit further alleges that publicly available information can be used to prove Glass House’s culpability and charged that in the fourth quarter of 2022 alone that “upwards of 75% of GHB’s Q4 2022 sales were outside the legal market.”
Selling into the underground market, the suit alleges, is the only viable way that Glass House could justify opening a 5.5 million-square-foot cultivation facility last year, with plans to ramp up production by 62% this year.
“The dual channel structure it has employed is a huge ‘win-win’ for GHB, but a huge loss for Catalyst and other legal operators who lose sales to illegal dispensaries and are required to actually pay the mandated taxes that are not paid in black market transactions,” the suit claims.
“Enough is enough,” the suit claims. “Via this action, Catalyst seeks to put an end to GHB’s illegal, fraudulent and unfair business practices, and hopefully help bring about what actually was envisioned when California first legalized cannabis – a regulated market where black marketeers do not reign supreme.”
The suit was filed in Los Angeles County Superior Court on June 6 and has not yet been scheduled for any hearings. It requests a preliminary and permanent injunction against Glass House.
Catalyst CEO Elliot Lewis took Glass House to task on social media last month and made many of the same allegations in a video.
Representatives for Glass House did not immediately respond to a request for comment Monday.
Glass House Brands posted a $36.2 million net loss in 2022.
Catalyst has tried taking on the issue of burner distros in the past with a lawsuit against the state in 2021, and though the case was dismissed, the new suit against Glass House refers to it as currently on appeal.
14 comments
KP
June 13, 2023 at 10:52 am
“Selling into the underground market, the suit alleges, is the only viable way that Glass House could justify opening a 5.5 million-square-foot cultivation facility last year, with plans to ramp up production by 62% this year.”
If this is the only evidence then it will be dismissed, again.
Glass House Brands posted a $36.2 million net loss in 2022.
Kevin Adelstein
June 13, 2023 at 10:28 pm
GHB is run by the most honorable management team imaginable. They have paid every dollar due in taxes and they have been open and honest about all their business operations. This is a case of a wannabe David who thinks he can sling a bunch of random stones at a successful industry leader and maybe justify his mistakes and misfortunes in this business if anyone believes his contrived facts.
Micah
June 16, 2023 at 1:45 am
The Glasshouse business model is suspect. They produce more weed than can be sold in CA and have no interest in becoming a MSO. Law Enforcement doesn’t recognize marijuana violations as important enough to go after because it’s just weed and doesn’t hurt anyone. Sounds like they found and exploited the loophole in the system. Keep your base of ops in one spot and divert the product to every market you can. Nobody cares except the smaller operators who still obey the regs and are suffering because the system is bankrupting them. The regs need to change and that won’t happen as long as these bad actors keep pretending that it’s possible to make a profit if you follow the regs. The companies who claim to profit under this system are liars who have an unfair advantage by diverting their products to other markets. Kudos to Catalyst for exposing the posers!
bruce banner
June 16, 2023 at 10:57 am
Exactly! Good stuff Micah. The news is out now the state needs to step in and pull all there licences and SHUT THEM DOWN!
We should of seen this coming when they boght the Natrual Healing Centers.P.s look into detective Anthony Hernandez from slo coubty sherrfis department. Hes involved with Healing Center Scandol from back then!!!!
tim dion
June 21, 2023 at 4:43 pm
Glass House Farm had a larger than allowed cultivation and through law pays no cultivation tax, and was able to combine several small licenses into one , state affiliated and unethical
Michael K
June 13, 2023 at 10:40 pm
Elliott Lewis is an irresponsible loose cannon. I hope Glasshouse management sues him for liable. He runs his business into the ground and then stomps his feet like a child and then spends his time filing a frivolous lawsuit. The lawsuit states no facts or evidence to back up anything he claims just a lot of mudslinging. Ironic he targeted the most reputable management team in the Cannabis space.
Micah
June 16, 2023 at 1:58 am
Sounds to me like he is on his way to proving you wrong. The discovery process will uncover the facts. I give him credit for putting himself out there and fighting corrupt practices.
LAURA WILKINSON
July 7, 2023 at 6:41 pm
The city of Chula Vista made those same allegations when I sued the city. And I won in the Appellate Court, no less. Unanimously.
See CV Amalgamated versus City of Chula Vista
Elliot Lewis is entitled to his day in court, as I was. The discovery phase is where the truth comes out, not legal posturing or half-truths. Our legal system is not perfect, but when they deliver justice, we regain faith in the system.
justcie for cannabis
June 16, 2023 at 10:48 am
first of all dont buy weed from cops. second ex cop sells to black market. third they spent tons of money to kill the retailer in california buy pushing excise tax on retailers from distrobustions and spent tons of money to eliminate cannbis cultivation tax. all this makes burner distros able to operate black market with out reporting excise tax. This creates a inflated market driving up cost on legal market for raw material eventully putting white lable brands out of busimness. We the people against Glass house they are single handly killing our culture.
Lock up glass house CEO. this is a fedral case. Feds were you at. im sure they have eyes on this by now. IRS should come though too.
Justice for cannabis reatilers that operate by the book. To all our weed smokers Glass house is the reason why you as a custmer pays so much in taxes. Stand up boycott there stores and there brand. We dont Work with COPS!!!!
tim dion
June 21, 2023 at 4:44 pm
Spot on my friend
bruce banner
June 16, 2023 at 10:59 am
Elliot Lewis was strong enough to stand up against goliath in this space. Too much curropt people involved. NO Ex cops in the cannabis space. it should be illegal. just how felons cant own niether should ex police should be able to own!
Nigel
July 11, 2023 at 1:54 pm
Almost seems like a personal vendetta vs going after fraudulent / unfair / corrupt business practices. Whistleblowers have come forward to provide evidence on a few major brands’ diverting products to the illegal market. Mr. Lewis could have filed a suit against the DCC for negligence as it seems they brushed it under the rug. He could have also sued the major brands which were exposed for their knowledge and involvement in the unfair business practices. He could also sue the known entities (distros) which were brokering the deals and diverting the product. Yet, the path chosen was to file a suit in order to hopefully obtain evidence related to the illegal activity with this particular operator. Plenty of options were on the table at the time the suit was filed and all those options had a legal path with less resistance. Really makes you question the motive behind the suit.
Larry
July 11, 2023 at 4:38 pm
I suspect everything Glass House is doing is legal. The burner distros are the ones breaking the law. Tons of product is funneled through burners. The burners distros are being utilized by many cultivators (big and small). They don’t ask where it goes and don’t care. I’m Surprised the plaintiff makes this claim. They must know the real truth.
Adam
July 12, 2023 at 4:23 am
You’re describing plausible deniability and that is exactly what these execs are allegedly hiding behind. I can assure you that these brands know their buyers very well, not to mention the market trends. When a distro pops up out of nowhere and is moving so much product that they are outselling the biggest companies on the legal market, they can no longer turn a blind eye to their involvement. At that point you’re not complicit but actively involved in illegal diversion. Normalizing this practice is detrimental to a fragile framework of legal operators which has to obey regulatory standards meant to protect consumers and employees. The motivation behind it is greed and these decisions have an impact on the entire system over time.
As far as damages and why a claim was filed.. Unfair competition is defined as using illegal, deceptive, and fraudulent selling practices that harm consumers or other businesses to gain a competitive advantage in the market. Federal and state laws fight against these issues.
If glasshouse is knowingly selling to a burner distro or was negligent (did not take reasonable steps to ensure they are not supplying illicit dealers), then Mr. Lewis has incurred damages that he has a right to recover.
With that said, glasshouse has a presumption of innocence. The burden of proof is on Mr. Lewis. Time will tell but I’m certainly interested to see how this goes.