Licensed Pot Shops Take On Illegal Sellers for a Fair Market

In Santa Ana, licensed marijuana dispensaries say their greatest nemesis isn’t a federal prosecutor or local police or even criminals seeking to rob their cash-based operations. Today, the greatest challenge they face at the moment are unsanctioned marijuana shops that dot the city. 

These unlicensed, unregulated operations are snapping up black market business by selling the drug at a lower cost – made possible because those other shops aren’t following the stringent guidelines as expected by state regulators. They ignore city safety codes and guidelines, which means they can undercut licensed dispensaries on price. Licensed regulators have responded by suing a number of these operations.

You may recall back in 2014, Santa Ana city officials approved a city initiative called Measure BB. This gave the green light to about 20 medical marijuana dispensary licenses in the city, to be chosen via a lottery system. However, despite efforts to carefully regulate the legal marijuana system, the number of licensed dispensaries in the city soon became overwhelmed by the number of unlicensed shops. 

A report from the Orange County Register last March revealed that seven months after the city started licensing medical marijuana dispensaries, there were twice as many unlicensed marijuana retailers as licensed ones. One store owner noted he and his staff were “stoked” to have a legitimate operation, to be doing everything on the up-and-up. But the “rogue sellers” had begun to make that increasingly tough.

However, the unlicensed sellers have been arguing that the city’s law violates the Compassionate Use Act, which legalized medical marijuana almost two decades ago. As of that writing, police had been successful in shuttering about 90 of the nearly 110 unlicensed shops that were open. However, getting the remaining ones to close their doors had proven difficult because, for starters, police reported there was a lack of information about who actually owned those facilities. And there were also ongoing legal questions about whether the government had the right to shutter the gray retail market that had largely gone unregulated in the state since the original marijuana legalization measure passed in 1998.

Now, the licensed marijuana dispensaries are taking matters into their own hands. They note that they are required to undergo a series of costly measures to operate legally in the city, including ensure their employees have undergone background checks, provide proper on-site ventilation and pay city taxes. The regulated marijuana dispensaries are seeking an injunction that would close up unlicensed medical marijuana providers and also result in an unspecified amount of damages suffered due to business lost as a result of these operations.

Meanwhile, attorneys representing the unlicensed facilities say they plan to fight back. They allege the city’s lottery was not in fact fair. Rather than being random, they allege, individuals and dispensaries that made political donations to certain local politicians were given preference for a sanctioned slot.

At this point, there haven’t been any hearings scheduled in the litigation.

Meanwhile, one of those unlicensed facilities has filed its own marijuana lawsuit against the city and its police department for relentless, ongoing raids. One of those became national news when city police officers were seen on camera consuming snacks from the business in the midst of one of those raids. Plaintiffs in that case are seeking $650,000 in damages.

The Los Angeles CANNABIS LAW Group represents growers, dispensaries, collectives, patients and those facing marijuana charges. Call us at 949-375-4734.

Additional Resources:

Legal vs. illegal pot shops: Lawsuit alleges one can put the other out of business, Jan. 27, 2017, By Sean Emery, Orange County Register

More Blog Entries:

Marijuana for PTSD Still Controversial in Colorado, Feb. 11, 2017, L.A. Marijuana Lawyer Blog