California Court Fines Cannabis Businesses $128 Million for Illegal Operations

Four marijuana businesses and three individual owners in Southern California were fined $128 million on December 5th after admitting to operating illegally in court, according to a summary judgment ruling.

Judge Stephen Pfahler of the Los Angeles County Superior Court has made a ruling based on an investigation conducted by California authorities in 2019 and 2020 at Kanoga Park in California. The defendant admitted to engaging in unlicensed commercial manufacturing and distribution of marijuana in 527 separate locations.

In particular, a survey revealed that unauthorized activities were related to Vertical Bliss Inc., one of four entities named, according to the California Bureau of Cannabis Control, which had a commercial cannabis manufacturing and distribution license in the state at the time.

In July 2021, the DCC, formerly a state agency, was established by merging three previous organizations. Following an investigation in November 2019, Vertical Bliss' license was swiftly revoked. At that time, the state's Bureau of Cannabis Control and the Department of Public Health conducted a search of an unlicensed facility in Canoga Park, seizing illegal products worth $21 million, including 7,200 vaping pods.

In September 2020, the agency and CDPH filed a lawsuit seeking civil penalties against Vertical Bliss. At the time of filing, state regulators also announced that seized records allegedly showed Vertical Bliss produced over 3.3 million Kushy Punch Inc. brand products in 18 months, estimated to be worth $64 million.

After the defendant failed to appear in court for the second time, Pfahler issued a civil penalty order this week.

This ruling sends a strong message that California will not tolerate the illegal marijuana market," stated Nicole Elliott, Director of the Department of Cannabis Control (DCC), in a press release. "The DCC and our partners will work tirelessly to protect consumers and maintain the integrity of California's legal marijuana market. We commend the court for upholding the rule of law in the California cannabis industry.

Apart from Vertical Bliss and Kushy Punch Inc., Conglomerate Marketing LLC and More Agency Inc. have been named as corporate defendants in this case. They have each admitted to earning over $10 million and $1 million respectively annually from unlicensed commercial marijuana manufacturing and distribution.

As for the individual defendants, each of them engaged in illegal commercial marijuana activities through their recognized ownership, ownership interests, control, and management of the commercial entities being charged," stated the order.

The fine of $128 million was calculated by multiplying a licensing fee of $81,000 by 527, as outlined by the state's commercial and occupational codes, for each day of violation. These regulations state that individuals engaging in unlicensed marijuana activity "shall be subject to a civil fine of up to three times the amount of the licensing fee for each violation.

According to a statement released by the department, DCC officials are continuing to seek "a fair and appropriate resolution for one remaining defendant" in addition to the seven defendants included in Pfahler's ruling.

According to a summary by Pfahler, the fourth individual defendant failed to appear in court on December 5th and the final verdict for the case will be announced on January 5, 2023, at the Chatsworth Court in the civil department.

2FIRSTS will continue to track and report on this topic, with updates available on the 2FIRSTS APP. Scan the QR code below to download the app.