LOS ANGELES – As the saying goes, “the wheels of justice grind slowly, but they do grind.” While the saying is usually applied to criminal cases, the same is true of civil litigation, including three lawsuits involving Catalyst Cannabis, the company’s chief executive officer, and associated entities 562 Discount Meds, South Cord Holdings (SCH), and HNHPC Inc.
In a sense, all three cases stem from the same allegations put forth by Catalyst Chief Executive Officer Elliot Lewis: Catalyst competitor Glass House Brands, combined with lax oversight by California’s Department of Cannabis Control (DCC), have fostered a massive black market for cannabis in the state.
Under different company names, Catalyst filed suit against both Glass House and the DCC, and Glass House responded with a lawsuit alleging Lewis and other Catalyst-related defendants defamed the company. All three lawsuits are ongoing and, given the typically slow pace of civil litigation, may continue for some time to come.
Here is an update on the status of each lawsuit.
HNHPC v. Department of Cannabis Control
Filed in September 2021, this lawsuit against California’s DCC alleges the DCC has failed in its “mandatory and/or discretionary legal duties in implementing the provisions of the Medicinal and Adult-Use Cannabis Regulation and Safety Act.”
In March 2023, the California Superior Court of Orange County found in favor of the DCC, holding HNHPC “does not have standing to micro-manage the [department’s] compliance,” and the “manner of compliance” is left to the DCC’s discretion. The court also denied HNHPC leave to amend its complaint.
The lawsuit was revived last August in a ruling by California’s Fourth Appellate District Court, however, which overturned the lower court’s ruling and found HNHPC “adequately pleaded facts to state a cause of action for a writ of mandate and for injunctive relief.”
The appellate court’s ruling sent the case back to the lower court for trial. In the intervening months, most of the activity has involved status and case management conferences, without much meaningful development of the legal arguments.
In November of last year, the parties entered into a joint stipulation and protective order, in which HNHPC and the DCC agreed on a plan for handling sensitive and confidential information produced during the discovery process. The protective order provides for redacting sensitive information in documents produced in the case while maintaining the rights of the parties to “contest the alleged confidentiality, relevancy, admissibility, or discoverability of the ‘confidential’ information sought.”
While the case-management issues certainly are important to the parties and the court, the big news from an observer’s perspective is a trial date has been set: April 1, 2025. There likely will be pretrial developments before then, potentially significant ones, but assuming all goes according to plan, the most newsworthy aspects of this litigation will begin to flow just under a year from now.
562 Discount Med Inc. v. Glass House Brands
Filed by Lewis and 562 Discount Med Inc. in June of last year, this action alleges violations of California’s Business and Professions Code. The complaint’s allegations are serious, including claims Glass House Brands (GHB) “has become one of the largest, if not the largest, black marketers of cannabis in the State of California, if not the country, and it has purposefully structured its business so as to massively profit from the illegal sale of cannabis to the substantial financial detriment of legal operators such as plaintiff.”
The most recent and most significant development in the case was a motion for judgment on the pleadings by Glass House which, if successful, could spell the end of the lawsuit.
In the motion, Glass House asked the court to dismiss the case because 562’s complaint “does not state facts sufficient to constitute a cause of action because … the doctrine of equitable abstention applies such that this court should refrain from judicial intervention, [and] 562 lacks standing to bring a cause of action for violation of the Unfair Competition Law, California Business and Professions Code section 17200; and … the safe harbor doctrine bars the complaint.” The motion adds the lawsuit “should be dismissed with prejudice, and judgment should be entered for Glass House.”
In a joint motion to “advance and specially set” the hearing date on the motion, the parties noted although “September 10, 2024, was the earliest available hearing date in the court reservation system” and the matter is set for trial to commence on October 25, “the parties believe and respectfully submit that it is in the best interest of both sides and the court insofar as the judicial economy can be preserved to have the motion for judgment on the pleadings heard on an earlier date than is currently set given the trial date.”
The court granted the motion to advance the hearing date, which is now set for June 25. Under the court’s order, briefing deadlines for 562’s opposition and Glass House’s reply in support of the motion for judgment on the pleadings “shall be based on the new hearing date.” 562 has not yet filed a response to Glass House’s motion for judgment on the pleadings.
Glass House Brands v. South Cord Holdings
Filed last June, this lawsuit alleges Lewis, Damian Martin, and 100 John Doe defendants defamed Glass House and violated California’s Business and Professions Code.
The case docket shows a flurry of activity in February and March of this year, including motions to compel filed by both parties at different stages of the discovery process, motions for sanctions and evidentiary objections to various declarations filed.
In a motion for reconsideration on a discovery order previously issued by the court, filed March 8, Glass House wrote, “based on new facts and circumstances, Glass House implores the court to reconsider its discovery order to the extent that it requires Glass House to provide its most confidential, proprietary, sensitive, and trade secret information — that is, its customer list and the details of its transactions with those customers, to a competitor: ‘Catalyst Cannabis Co.,’ the company owned and operated by defendants.”
In support of reconsideration, Glass House noted four new “data dashboards” launched by the DCC in February, which “display publicly, for the very first time, aggregated data from 2020, 2021, 2022, and partial-year data for 2023 reflecting sales, pricing, harvest, and licensing information.” The data available through the new data dashboards “proves with absolute certainty that the underlying ‘math’ employed by defendant Lewis as the sole justification for his false and defamatory statements and, saliently, the discovery challenged hereunder, is demonstrably false.
“The DCC dashboards disprove defendants’ hypothesis to such a degree that they should not be able to ‘test it’ through an invasive and improper fishing expedition where the entire basis for it rests on faulty assumptions,” Glass House added.
Glass House also asserted Lewis “utilized a platform at a premier cannabis investor conference, sponsored by and featuring Glass House, to repeat his defamatory statements about Glass House and to intimidate investors in attendance so that they would reconsider or decide not to invest in Glass House.”
“Lewis’s reprehensible behavior confirms Glass House’s prediction … that defendants are pursuing Glass House’s confidential, proprietary, sensitive, and trade secret information for the express purpose of harassing Glass House’s customers and investors, thereby destroying Glass House’s business,” the company added in the motion.
In South Cord’s opposition to the motion for reconsideration, the company fired back, arguing “over the past eight months (and counting), Glass House Brands Inc. has done literally anything and everything possible to evade or at least to substantially delay compliance with South Cord Holdings LLC’s basic and straightforward discovery.
“When the court put an end to GH’s blatant and bad-faith evasion and delaying tactics via its February 22 order and compelled GH within 30 days to provide a myriad of requested information and finally produce its custodian of records for deposition, SCH believed it finally would begin receiving the information from GH necessary to properly defend against GH’s claims herein,” South Cord wrote. “Sadly, SCH was mistaken.”
As to the new DCC data dashboards, South Cord asserted “to the extent the DCC dashboard can even theoretically be characterized as ‘new facts,’ the data fully supports the truth and objective reasonableness of Lewis’ alleged defamatory statements, as well as his accompanying mathematical calculations and assumptions.
“With respect to the Benzinga conference,” South Cord added, “GH’s claim that Lewis repeated his challenged opinions using its publicly disclosed financial information is not a ‘new fact’ capable of supporting reconsideration, since at best it relates to GH’s alleged damages, and GH made literally no showing that Lewis or his counsel has ever misused, let alone cannot be trusted, with GH’s so-called confidential information — information which, assuming it is properly designated as highly confidential under the stipulated protective order herein, Lewis would have no right or ability to access let alone use/misuse it as GH melodramatically claims.”
A hearing on the Glass House motion for reconsideration was held April 12. Following the hearing, the court denied the motion, holding Glass House “has not shown that the new facts or circumstances warrant modification, amendment or revocation of the present discovery order.”
In the April 12 order, the court noted the DCC dashboard data “was available on February 21, 2024, a day prior to the hearing, giving rise to the present discovery order, and plaintiff GHB has not explained why this information was not produced at an earlier time.
“Also, information known to plaintiff GHB at the time of the original ruling are not ‘new’ facts or circumstances,” the court added. “Further, plaintiff GHB’s evidence appears to show that the February 22, 2024, statements allegedly made by defendant Lewis were made prior to the original hearing. As such, these statements are not ‘new’ facts or circumstances and plaintiff GHB does not provide any explanation why this information was not produced at an earlier time.”
The court further found the plaintiff’s “evidence does not support that the dashboard data is reliable and/or accurate, and plaintiff GHB’s [Chief Financial Officer] Mark Vendetti admits as much in his declaration.
“Lastly, plaintiff GHB’s evidence does not support that defendant Lewis has in the past or will in the future disclose highly confidential, proprietary information provided through discovery.”
With the motion for reconsideration denied, the discovery phase in the case is set to continue.
