A new association of licensed medical cannabis operators in Washington D.C., is entering the legal fray against dozens of illicit gifting shops as the district continues its own efforts to crack down.
After allowing gray-market shops to apply for a medical license, Washington’s Alcoholic Beverage and Cannabis Administration (ABCA) is cracking down on the shops that chose to remain unlicensed. At the same time, the Alliance of Legal Cannabis Entities (ALCE) is going after gifting shops, exposing them in court and demanding compensation for lost business.
Thus far, the ALCE has sued 58 shop owners and 60 property owners who were allegedly illegally selling cannabis or facilitating those sales, in the case of the landlords. Four separate lawsuits had been filed as of Oct. 18 identifying dozens of business owners who are allegedly ignoring Washington’s requirement to be fully licensed as a medical dispensary.
“The only people who are allowed to legally sell cannabis and by sell, that means with any type of remuneration, are people who are licensed, that’s what the law is clear on,” said attorney Jon Brunenkant of Brunenkant and Associates, who represents the ALCE in court.
ALCE’s lawsuits claim that Washington’s gray market is pulling in $600 million annually. Comparatively, licensed dispensaries, cultivators and manufacturers made more than $53 million in sales throughout Washington’s fiscal year 2024, which ran from Oct. 1, 2023, to Sept. 30, 2024, according to ABCA’s most recent medical program quarterly report.
“The unlicensed operators are taking a bite out of the legal market,” he said. “In addition to diverting the sale from the legal dispensary, it is also diverting the purchase from a licensed cultivator. The unlicensed cannabis dispensary doesn’t buy licensed products. Whatever product they’re selling, the product itself is illegal, and that’s taking away from the cultivators and manufacturers.”
The ALCE was formed by licensed dispensaries Herbal Alternatives and Holistic Wellness Group, which operates as Cannabliss. Cannabliss currently has an inactive license and is listed on ABCA’s dispensary directory as “temporarily closed.”
The lawsuits demand that the defendant shops hand over three years worth of profits related to selling or “gifting” cannabis. It also seeks unspecified damages from the landlords who the plaintiffs allege knowingly rented commercial space to the unlicensed smoke shops.
“In the past several years due to the operation of illegal unlicensed dispensaries selling cannabis products that are illegal in the District of Columbia, the legal licensed market has lost substantial revenues siphoned off by illegal market participants,” said each of the four lawsuits filed in U.S. District Court of D.C. on Sept. 27, Oct. 4, Oct. 11 and Oct. 18.
“Some public estimates put the illegal cannabis revenues in the District of Columbia at $600 million plus per year. Faced with squeezed margins and the loss of substantial revenues, several legal licensed cultivators/manufacturers and retailers have been forced to discontinue operations, and all cannabis licensees who represent the legal cannabis market have lost revenues to the illegal cannabis market in the District of Columbia,” the lawsuits claim.
Regulators shutting down unlicensed businesses
Brunenkant noted that he and ALCE were not directly working with the District, but he was using some of ABCA’s information to identify potential targets.
“I am certainly appreciative of the government’s efforts,” he said. “I think that they are really trying hard, and where they have issued an order, I’ve tried to cite it because I find it to be supportive of what we are doing.”
Maria McNamara, spokesperson for ABCA, declined to comment on the lawsuits but did provide some details on the agency’s ongoing enforcement efforts.
The ABCA has issued 29 cease-and-desist letters and 84 warnings as of Oct. 17, according to McNamara. A total of 37 shops have been closed. The ABCA directly shuttered 10 of those businesses, but the district’s Department of Health and Department of Buildings have also investigated and shut down businesses.
Most recently, ABCA shuttered Cannabis Karma and Capital Budz on Oct. 17 after investigating both shops and finding illicit products in plain sight. Investigators seized 31.9 pounds of edibles, 4.8 ounces of flower, 60 grams of wax concentrate and 27 grams of vape cartridges at the former shop, and 4.9 pounds of edibles, 1.5 pounds of flower, 4.9 pounds of vape cartridges and 22.7 pounds of resin, along with 1 pound of entheogenic mushrooms at the latter, according to a press release.
“There’s a host of agencies that are making sure that public safety is maintained and protected,” said McNamara. “The closure number is not reflective of the stores that have actually been padlocked by ABCB and D.C. police. Some of the closures have occurred through other enforcement actions.”
The board’s website includes a data dashboard that shows a little over 100 unlicensed shops in the district. There is no definitive list of locations attached to the map.
The enforcement is part of a months-long effort from the district to rein in its gray market after years of growth.
The district passed a new cannabis law in 2022 that added more medical cannabis licenses and allowed gray-market businesses to apply. The application period was open from March 1 to April 30, 2024. As of Oct. 21, there were 191 approved/pending retail licenses and 104 pre-licenses, according to the CRB Monitor database. There are only nine active retail licenses.
