Cannabis Industry Giant Glass House Faces Lawsuit Alleging Illicit Market Activities

LOS ANGELES– In a daring move that has caught the attention of the cannabis industry, Catalyst Cannabis Co.’s CEO, Elliot Lewis, has taken legal action against Glass House Brands, one of California’s leading cannabis mega-growers. Lewis’s audacious lawsuit, filed last week in Los Angeles County Superior Court, accuses Glass House of being a significant player in the illicit cannabis market, potentially one of the largest in California or even the entire country.

According to the complaint, Glass House knowingly engages in illegal sales, both within and outside of California. The lawsuit claims that the company utilizes a network of “burner distros” – licensed distributors that serve as temporary conduits for legally grown cannabis to enter the illicit market. These distributors allegedly facilitate the transfer of legally grown flower to illicit markets as far-reaching as New York and New Jersey, where the illegal sale of cannabis is rampant. The suit further alleges that illicit shops in these areas even sell cannabis packaged with California branding.

Glass House Brands, founded and led by Kyle Kazan, has not yet responded to the lawsuit, and the company claims to be unaware of its existence. Critics have raised skepticism, suggesting that Catalyst has provided no concrete evidence of Glass House’s involvement in the illicit market beyond circumstantial calculations. Aaron Edelheit, CEO of Mindset Capital, a Santa Barbara-based investment firm, dismissed the lawsuit as attention-seeking, arguing that if Glass House were indeed flooding the black market, its products would not be sold legally in California.

This recent legal action is not the first time Catalyst’s Elliot Lewis has made headlines. Lewis previously accused Glass House of engaging in illicit-market activities in a LinkedIn post last month, using arithmetic calculations to support his claims. He also filed a lawsuit against California’s Department of Cannabis Control in 2021, alleging their knowledge of the “burner distro” situation but failure to address it. Although that suit was initially dismissed, it is currently under appeal.

Lewis’s crusade against Glass House reflects a commonly held belief within the cannabis industry that licensed cultivators, retailers, or distributors are involved in selling cannabis on the illicit market. The practice may arise from greed or necessity, as some operators seek tax-free profits to meet financial obligations. Boris Jordan, Chair of Curaleaf Holdings, a Massachusetts-based multistate operator, alluded to this issue without naming specific companies during a Twitter Spaces talk. Jordan expressed concern that legally grown marijuana is reaching the illicit market through “burner distros” and undermining the regulated system.

Glass House has become a prime target for criticism from legal-market operators in California due to its ambitious plans to become one of the largest cannabis producers in the country. With a massive cultivation complex spanning 5.5 million square feet, the vertically integrated company aims to dominate the industry. Glass House operates nine retail locations, acquired three more last year, and continues to cultivate a substantial amount of cannabis while other cultivators struggle.

The lawsuit against Glass House seeks to shed light on the company’s alleged illicit activities and calls for an injunction. However, it remains to be seen how the legal proceedings will unfold and whether any substantial changes will result from this bold move. As the cannabis industry grapples with illicit market challenges, Catalyst’s lawsuit against Glass House serves as a stark reminder of the ongoing tensions within the sector.