Tentative court ruling dismisses lawsuit alleging illicit market dealings by Glass House

A lawsuit filed last summer alleging that Glass House Brands (CBOE CA: GLAS.A.U) (OTCQX: GLASF) is “one of the largest” illegal marijuana businesses in California is poised to be dismissed this week, according to a tentative ruling released on Friday.

The Los Angeles Superior Court judge hearing the case found that a requested court order to halt the alleged illegal sales was “overly burdensome.”

The ruling, posted in advance of a hearing scheduled for Tuesday, seems to indicate that the case is done for, said Elliot Lewis, the CEO of Long Beach-based Catalyst Cannabis Co., the company that bankrolled the lawsuit. Lewis indicated he wasn’t likely to appeal the dismissal, but said his fight isn’t over.

Lewis, who has for years been running a legal crusade against so-called “burner distributors” and their allies, alleged in the suit that Glass House was knowingly dealing with such companies, which funnel legally produced marijuana from California to the underground market nationwide.

Judge: DCC responsible for oversight

A year ago, Lewis sued Glass House via one of Catalyst’s subsidiaries, a business entity called 562 Discount Med, and alleged violations of “unfair business practices” by Glass House that he said gives the publicly traded company an illegal leg up on the competition.

In the tentative ruling, the judge decided that enforcing the court order requested by Catalyst, in order to stop Glass House from selling to distributors that then resell its cannabis illegally, would be impossible  for the court to enforce. Instead he noted that it is the job of state regulators at the Department of Cannabis Control to oversee such compliance.

“The crux of the business practices detailed is that Defendant sells to licensed distributors, but does so knowing (and conspiring to ensure) that the distributors will distribute to black market buyers who then sell the product downstream for prices that Plaintiff cannot compete with. The Court does not know how it would even begin to supervise such an injunction, if issued,” the ruling states.

“This problem is compounded by the fact that the (state Department of Cannabis Control) is already charged with investigating and enforcing illegal cannabis distributors and buyers,” the ruling continued. It concluded without issuing any finding on the underlying merits of the lawsuit, namely that Glass House knowingly deals with illicit “burner distros.”

Lewis noted that the ruling could still be reversed after a hearing scheduled for Tuesday regarding a motion filed by Glass House.

His attorney, Jeff Augustini, wrote in an email to Green Market Report that he believes the ruling is “flawed” and that the judge should “adjudicate this matter on the merits rather than simply ‘buying’ GH’s argument it that it would be too hard and burdensome for the court to order it to stop engaging in unfairly competitive conduct.”

But Lewis said he wasn’t holding out much hope for a reversal, and that the case is likely over.

“The court is refusing to rule. The ruling is, ‘We’re refusing to rule,’” said Lewis, reached Monday morning. “The court, it’s easier for them to punt it back to the DCC than rule on it. So it’s not totally nonsensical. I think there are some other ways to skin this cat.”

Representatives of Glass House didn’t immediately respond to a request for comment Monday morning from Green Market Report.

But the company has vehemently denied Lewis’s allegations and even initially filed a defamation suit against him. That case was ultimately dropped in May, in part because Glass House did its level best to avoid disclosing the names of distributors to whom it sells its cannabis. That was a key dispute between the sides in both lawsuits, Lewis said.

“Had we made it through this, we would have been back to where we were in the defamation case, which was getting their list of distributors, which is clearly what they don’t want to give up and why they dismissed the (defamation lawsuit),” Lewis said.

DCC lawsuit ongoing

The judge overseeing Lewis’ case against Glass House seemed to also indicate that his other pending lawsuit – against the DCC over what Lewis alleged is negligence in industry oversight, which has allowed the burner distros to flourish – is the proper channel for his quest, as opposed to targeting Glass House directly.

“Notably, Defendant provides judicially noticeable documents showing that an entity in some way related to Plaintiff currently has proceedings against the DCC pending in Orange County Superior Court seeking to compel the DCC to enforce the statutory scheme,” the ruling asserted.

That lawsuit, which was filed all the way back in 2021, is scheduled to go to trial next year on April 1 in Orange County Superior Court, according to court records.

“That seems to have played into their decision making, which is, ‘Hey, you’re already going after the DCC, just handle it with them,’” Lewis said.

Lewis added that the immediate practical problem with the court’s decision is that from his standpoint, the DCC has barely done any serious industry oversight, which was the entire reason for the first lawsuit he filed against the agency three years ago. That suit accused the DCC of turning a “blind eye” to the problem of burner distros and legal cannabis being shipped illegally out of state.

“Our position is always, the DCC doesn’t really do anything,” Lewis said. “Their report card is an F.”

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