A Failure to Comply: Marijuana Retail Horror Stories (Part 2)

Part Two looks at what happens when cannabusinesses blatantly engage in highly illegal activity

In Part One of “A Failure to Comply”, different scenarios of compliance violations were presented along with common penalties. Part Two looks at what happens when cannabusinesses blatantly engage in highly illegal activity.  From having no license whatsoever, to committing multiple felonies at once, some companies operating within the cannabis industry found out the hard way how to get shut down for good.

Operating Without a License in Washington

During the implementation of the recreational marijuana regulations in Washington state and its transition from solely medical marijuana, many cannabusinesses fell prey to spotty government regulations. Last year, 13 medical dispensaries faced closure after they failed to obtain the proper licensure to remain open under the new medical regime. However, they had done everything required of them to be granted a license- they were just waiting on the state to get their new regulation system up and running. The Washington Liquor and Cannabis board didn’t issue new medical licenses to these already existing medical marijuana dispensaries that had operated legally for years, and they faced complete closure.

At the highest point, there were over 1500 medical marijuana dispensaries in Washington state. At the time that the new state-required licensing laws went into effect, only around 200 medical dispensaries had the required license. The state was slow to issue licenses, and also slow to work out the state-wide medical marijuana patient registry database. The Washington Department of Health was in charge of getting the database up and running, but the launch was delayed due to supposed “software glitches”.

A Desire to be Compliant… But Can’t Be?

Sadly, many cannabusiness owners who did their best to remain in compliance faced closure due to government slowdown. So, what do you do as a business owner when the government is creating an obstacle to completing the very tasks required to remain in compliance with their laws and regulations? Ask your local district court for a temporary restraining order to prevent the state from shutting down unlicensed dispensaries. Even though the state hadn’t finished the licensing system, in this case, the request that these dispensary owners made was still denied by the judge. At that point, owners chose to appeal the decision to the district’s court of appeals. In cases of government obstacles and incompetence like this, owners have to rely on the judicial branch of the very system responsible for their shortcomings to grant them relief.

Colorado Dispensaries- Columbian Drug Cartel Connections?

In 2013, just months before recreational marijuana measures went into effect in Colorado, four Denver-based medical marijuana businesses were raided after they were linked to Columbian drug cartels. Colorado legalized medical marijuana in 2000, but this 2013 investigation by federal law enforcement officers was the largest ever conducted on Colorado marijuana dispensaries up until that point. Federal charges were never filed, but nevertheless, Colorado’s state-level regulators still pursued sanctions and charges at the state level against the four businesses that were discovered to be interconnected after authorities raided more than a dozen dispensaries across the Denver metro area.

Closures Abound in Colorado

Colorado’s Marijuana Enforcement Division (MED) chose to shut down VIP Cannabis, Kushism, and Highland Cannabis Co., all located in Denver, and Grateful Meds, located in Nederland. They notified the dispensaries ahead of time that they were choosing not to renew their business licenses for the following year. The MED followed through and ended up denying the business’s applications to obtain state licenses that would allow them to operate as marijuana dispensaries and cultivation facilities. Reasons cited included operating “the licensed premises in a manner that adversely affects the public health or welfare or the safety of the immediate neighborhoods” in which their businesses were located. Owners only have a 60-day window to challenge notices and request a hearing regarding the violation. VIP Cannabis is reported to have failed a record-keeping inspection in the past due to incomplete recordkeeping and failure to properly track inventory. The company also exceeded their legally allowable plant count without having the proper permission and documentation on hand.

Administrative Holds and the Consequences

An administrative hold was also placed on the dispensaries inventory as a consequence. This meant that all marijuana, marijuana plants, finished marijuana products and infused products were seized. When federal authorities raided VIP Cannabis, they seized over $2 million worth of plants and products. The company was able to reopen a month later, but in the meantime, they were forced to lay off over 100 employees. Federal officials remained relatively tight-lipped regarding the details of why these specific businesses were raided. They did suggest that the businesses didn’t comply with the regulations outlined in the second Cole Memo released by the U.S. Department of Justice. This memo essentially assented to both Colorado and Washington’s soon-to-be implemented recreational marijuana measures, while outlining what issues it would still allocate funding towards to prevent. This list is still used currently and includes:     

  • Distribution of marijuana to minors;
  • Revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels;
  • Diversion of marijuana from states where it is legal to other states;
  • State-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
  • Violence and the use of firearms;
  • Drugged driving and the exacerbation of “other adverse public health consequences associated with marijuana use”;
  • Growing of marijuana on public lands and the “attendant public safety and environmental dangers” posed by marijuana production on public lands; and
  • Marijuana possession or use on federal property.

Just Be Diligent, and Smart, and Things Will Be Fine

While these horror stories may scare anyone involved in the legal cannabis industry, as long as you and your company are operating with the DOJ guidelines and your state’s regulations, don’t fear prosecution or sanctions against you happening anytime soon. Stay tuned to Marijuana Retail Report as we consistently release some of the latest news, and guides, for marijuana retail compliance as legalization continues to sweep across the word.

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