A group of San Diego County cannabis companies is suing rival dispensaries and manufacturers for allegedly selling chemically synthesized marijuana products that do not comply with state laws.
The plaintiffs accuse the defendants of deliberately circumventing California cannabis rules by engineering hemp-based products that contain more delta-9 THC — or tetrahydrocannabinol, the main psychoactive component in pot that is responsible for the high — than is permitted.
The unfair business practices lawsuit asks a San Diego Superior Court judge to do what it says state and federal regulators and prosecutors have not done: put illegal operators out of business so licensed cannabis retailers are no longer threatened by rogue sellers.
The money at stake is immense.
Legal cannabis sales in California reached $5.8 billion in 2021, generating almost $1.4 billion in various state tax revenues, the Department of Tax and Fee Administration reported.
But the numbers have declined since then, with $5.3 billion in legal cannabis sales last year that raised $1.1 billion in state tax revenue. The first six months of this year generated $2.6 billion in legal sales, state records show.
“There is a direct correlation between the explosion of illegal designer drugs that are flooding California communities from defendants and other bad actors, and the downward spiral of the nascent legal cannabis industry,” the complaint alleges.
The synthesized drugs are popular because users often believe they are legal and relatively safe, the U.S. Centers for Disease Control and Prevention says.
“However, the hundreds of known synthetic cannabinoid chemicals and THC are different chemicals,” the CDC website states. “In fact, synthetic cannabinoids may affect the brain in different and unpredictable ways compared to marijuana.”
The lawsuit was filed last month by a host of companies related to March and Ash, the well-known dispensary brand that operates throughout San Diego and Imperial counties.
The plaintiffs also include CVCC Retail, a company that operates the Pacabol pot shop in Chula Vista; Kind House, a licensed cannabis distribution firm; and CRFT Manufacturing, which manufactures legal cannabis products sold across California.
Named defendants in the case include 10 separate companies that allegedly make or sell pot products that do not meet state or federal guidelines.
They have yet to respond to the San Diego Superior Court allegations, and none have lawyers listed in the court file. Several did not return messages seeking comment on the allegations; others could not be immediately reached.
Three of the defendants are companies that were organized in Wyoming but do business in Southern California. The civil lawsuit also cites up to 1,000 unnamed defendants that it says may be profiting illegally under violations of state law.
“Defendants have brazenly flooded the California marketplace with these highly intoxicating and chemically synthesized illegal designer drugs with the intention to evade and undermine California’s comprehensive system to control and regulate cannabis products,” the suit states.
At the heart of the complaint is an interpretation of language that is included in the most recently enacted U.S. farm bill, formally known as the Agriculture Improvement Act of 2018.
The federal legislation, an omnibus piece of legislation generally reauthorized by Congress every five years, legalized the growth and sale of hemp, which was defined as Cannabis sativa L.
That law says the use of “any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids” and other elements with a delta-9 THC concentration of up to 0.3 percent on a dry-weight basis may be permitted by states.
The idea was to allow farmers to promote commercial uses of hemp without relying on the psychoactive parts of the plant.
But since 2018, manufacturers have relied on certain language in the legislation to synthesize delta-8 THC, which is contained in the Cannabis sativa L. plant but isn’t mentioned.
That interpretation has been used to manufacture high-concentration gummies, vaping cartridges and other products synthesized from delta-8 THC — legally, according to the drugmakers.
Federal officials have largely left regulating the chemically designed products to states.
The 2023 farm bill now being negotiated may close the loophole. The U.S. Drug Enforcement Administration also is studying regulations that would govern products with the delta-8 THC compound synthesized with other chemicals.
Licensed pot companies that market delta-9 THC products like March and Ash say ambiguity in federal law has caused an uneven playing field.
“Defendants have exploited this perceived ‘loophole’ with increasing aggression and blatant disregard for laws, regulations and public health,” the lawsuit alleges.
The chief executive of one defendant “recently testified on record in a legal proceeding that if heroin could be synthesized from hemp (as defined in the Farm Bill) that such heroin would be legal,” the complaint states.
In California, synthetic THC is regulated by the Department of Public Health — not the recently created Department of Cannabis Control, which licenses the companies that manufacture, distribute and sell legal marijuana and THC-laced products.
The Department of Public Health declined to comment on the San Diego lawsuit filed by the March and Ash cannabis shops.
Prosecutors have brought a number of cases against some so-called designer drugmakers, although the enforcement has been scattered from state to state and county to county. Perhaps more important, the cases have largely been civil claims rather than criminal.
Last month, California Attorney General Rob Bonta announced a civil complaint against nine companies for allegedly selling illegal hemp products.
“I want to be clear: The sales of industrial hemp products that do not comply with California law, and the illegal sale of inhalable hemp in California will not be tolerated,” Bonta said in a news release. “The dangers of these products must be communicated for sale to the public.”
But the Alameda County Superior Court case is not seeking jail time for owners of the companies named in the complaint. Instead, the lawsuit asks a judge to block future sales of the illegal products and “for many millions of dollars in civil penalties and fines.”
Bonta’s office did not respond to a request for comment on the San Diego Superior Court case, which was filed weeks after the Bay Area claim.
The San Diego lawsuit cites several websites that sell synthesized THC products online. It also references two storefronts that offer the allegedly illegal products for sale to customers. One is on India Street just east of Interstate 5; the other is on Adams Avenue in Normal Heights.
A spokesperson for District Attorney Summer Stephan said it would be inappropriate to comment on the March and Ash lawsuit.
But spokesperson Steve Walker said the office has previously prosecuted — and is currently prosecuting — shops that sell products as hemp that in fact contain a THC percentage higher than the 0.3 percent that is permitted.
“We frequently prosecute investigations submitted by the Department of Cannabis Control and local law enforcement agencies like the San Diego Police Department and the San Diego County Sheriff’s Department,” Walker said.
“However, the investigations are labor intensive and require significant scientific resources,” he added. “Law enforcement resources remain impacted.”
Defendants in the March and Ash case include Savage Enterprises, Cali Extrax, Delta Extrax, Hazy Extrax, 3C, Tre Wellness, Cookies Creative Consulting & Promotions, Binoid, Canably, Cutleaf Stores and up to 1,000 others.
The San Diego Superior Court lawsuit has been assigned to Judge Matthew Braner. A case-management conference is scheduled for April 12.
