A group of four cannabis business entities and three individual owners in Southern California were issued $128 million in civil penalties Dec. 5 after admitting to illicit operations in court, according to a summary judgement ruling.
The ruling by Judge Stephen Pfahler in the Superior Court of California, County of Los Angeles, stems from 2019 and 2020 investigations conducted by state authorities in Canoga Park, Calif. The defendants admitted to engaging in unlicensed commercial manufacturing and distributor cannabis activity on 527 separate days, according to the court ruling.
Specifically, the investigations revealed that the unlicensed activity was tied to Vertical Bliss Inc., one of the four named entities, which had held licenses for commercial cannabis manufacturing and distribution in the state at that time, according to the California Department of Cannabis Control (DCC).
State authorities from DCC’s predecessors—the DCC was formed in July 2021 by consolidating three former agencies—revoked Vertical Bliss’ licenses “swiftly” following investigations in November 2019. At the time, the state’s Bureau of Cannabis Control and Department of Public Health (CDPH) announced a search of the unlicensed location in Canoga Park resulted in seizure of $21 million in illicit products, including 7,200 vape cartridges.
In September 2020, the Bureau and CDPH filed a complaint seeking civil penalties from Vertical Bliss. With that filing, the state regulatory bodies also announced that seized records allegedly documented Vertical Bliss’ production of more than 3.3 million Kushy Punch Inc. brand gummies during an 18-month period, with an estimated value of $64 million.
Pfahler’s order for the civil penalties this week came after the defendants’ second consecutive failure to appear in court.
“This ruling sends a strong message that the illegal cannabis market will not be tolerated in California,” DCC Director Nicole Elliott said in a press release. “DCC and our partners will do everything in our power to protect consumers and maintain the integrity of California’s legal cannabis market. We applaud the court for its commitment to enforcing the rule of law in California’s cannabis industry.”
In addition to Vertical Bliss and Kushy Punch Inc., Conglomerate Marketing LLC and More Agency Inc. were named as business entity defendants in the case, which each admitted they received gross revenue exceeding $10 million and $1 million annually from unlicensed commercial cannabis manufacturing and distributor activities, respectively, during the relevant period, according to Pfahler’s Dec. 5 ruling.
“As to the individual defendants, they each engaged in illegal commercial cannabis activity by virtue of their admitted ownership of, ownership interest in, and/or control and managing power over, the business entity defendants,” the order read.
The $128 million in penalties were calculated based on three licensing fees of $81,000 multiplied by 527, once for each day of the violations, as outlined in the state’s Business and Professions Code. The code states that a person engaged in unlicensed cannabis activity is “subject to civil penalties of up to three times the amount of the license fee for each violation.”
In addition to the seven defendants covered in Pfahler’s ruling, DCC officials continue to “pursue a just and appropriate resolution against one remaining defendant,” according to the department’s release.
That fourth individual defendant, who failed to appear in court on Dec. 5, is scheduled to appear in the Civil Division’s Chatsworth Courthouse on Jan. 5, 2023, before a final judgement is entered into the case, according to Pfahler’s summary.