John SchroyerSometimes, the juice isn’t worth the squeeze.
That’s the reasoning California-based Glass House Brands Inc. (CBOE: GLAS.A.U) (OTC: GLASF) gave on Monday for dropping its defamation lawsuit filed last year against the owners of Long Beach-based Catalyst Cannabis Co., particularly the high-profile CEO Elliot Lewis.
The suit was initially filed last summer after Lewis first sued Glass House alleging that the public company engaged in unfair business practices and was selling marijuana directly into the illicit market via so-called “burner distributors” that traffic legal California cannabis illegally out of state.
Lewis alleged that Glass House was “one of the largest, if not the largest, black marketers of cannabis in the state of California.” That suit against Glass House remains active, according to court records, and a non-jury trial is scheduled for Oct. 25.
‘Moral victory’ not enough
In a phone interview with Green Market Report, Glass House CEO Kyle Kazan and President Graham Farrar explained that they believe they would have won the defamation case, but the costs outweighed the potential returns. The likelihood of collecting on a multimillion-dollar court victory over Lewis and his co-defendant, Damian Martin, were limited, primarily because the two appear to be in dire financial straits, Kazan and Farrar said.
“A moral victory is not really worth much. That’s sort of what was on the table,” Kazan said.
Farrar added that Catalyst may also wind up owing the state of California $10 million-$15 million if it loses a separate lawsuit it filed earlier this year against California’s primary tax collection agency, and he said there are other signs that Catalyst may be seriously struggling.
“Catalyst in particular, their number one store, their baby in Long Beach, they’re closing at the end of this month. They’re liquidating everything at blowout prices. Clearly, you’re not closing winners. So you can see some cracks,” Farrar said.
Lewis recently announced that the Long Beach store would be closing temporarily for remodeling.
Kazan and Farrar said another major reason they dropped the case was they didn’t want to disclose their list of wholesale distributor clients, which they contended could open their business partners to “harassment” from Lewis.
“We gave him everything he needed to conclusively see that we never sold a pound of weed that didn’t go through Metrc,” Farrar said, referring to the California cannabis track-and-trace system. “Here’s total pounds of production we had, here’s the summary of everything that was sold through Metrc, the numbers match. That wasn’t good enough for him. What he really wanted was our customer names, because he then wanted to go harass our customers, and that was something we didn’t want any part of.”
‘Goliath took a knee to David’
Lewis said he was surprised by the news that the defamation case had been dropped, but said he felt “vindicated” – and now he’ll pursue obtaining the list of Glass House’s distributor clients with his original lawsuit.
“Goliath just took a knee to David,” Lewis crowed. “This is a clear vindication that what we’ve been saying is true, and that Glass House has spun it in the best way possible in order to fucking put a happy hat on it, but at the end of the day, they knew we were about to prove our case.”
“They didn’t want to comply with a court order to hand over their list of distributors, which would have checkmated their ass, so they dropped the defamation (suit), and we’ll have to get it in the other case,” Lewis said.
It’s not clear whether that will happen or not, however, and Kazan said that Glass House’s attorneys have suggested that the company may not have to turn over the list of distributors during the discovery process in Lewis’s lawsuit.
“We think it may be a much different bar when we’re being attacked for unfair business practices. Our lawyers feel it’s a different standard, that we likely won’t have to do anything like that,” Kazan said. “We are not planning under really any circumstance on giving him that, that list, in the other case. Here, we literally had no choice if we wanted to proceed.”
Farrar added that Lewis’s stated goal – trying to correct an imbalanced system that has allowed untold “millions of pounds” of legal cannabis to be sold illegally by burner distros – isn’t really feasible anyway with his lawsuit against Glass House, because it presumes that companies have a responsibility to police what their customers do with their federally illegal cannabis once it’s been purchased.
“If someone walks into a Catalyst store, and they buy a half pound of (marijuana flower), are we going to now follow them and see if they put it in a bag and fly it to New York?” Farrar said. “That’s not the way the system works.”
Lewis also denied that Catalyst was having a hard time financially, though he admitted that Catalyst did have a round of terminations this year related to streamlining operations. He added that the Long Beach shop will reopen in the near future, and the company is planning to open at least three more stores in the near future.
Lewis also noted that Glass House’s defamation case named him and Martin personally, meaning it wasn’t just Catalyst that could have been on the hook financially if Glass House prevailed in the defamation case. He said that undercuts the entire reason given by Kazan and Farrar for dropping the lawsuit.
“Keep in mind, I own assets outside of Catalyst, and I was named personally,” Lewis said. “They sued me personally, to scare me. … It’s obvious what happened. We won.”
Lewis has another lawsuit regarding burner distributors still active against the California Department of Cannabis Control, which alleges the state has actively ignored the diversion of legal marijuana to the underground market. That case is scheduled for a trial on April 1 next year.
The Catalyst lawsuit against the California Department of Tax and Fee Administration is also slated for a change of venue hearing on May 23.
