The owner of a cannabis business that has been spearheading the legal fight against unlicensed smoke shops in Washington, D.C., is facing allegations of tax evasion.
U.S. Attorney Edward Martin accused Jennifer Brunenkant, owner of licensed medical retailer Herbal Alternatives II, of failing to pay $930,000 in federal taxes over the span of four years. The allegations are in a Feb. 27 indictment containing 19 charges that was unsealed and released March 6 by the Department of Justice.
Brunenkant has been associated with licenses for Herbal Alternatives II and Herbal Alternatives, both located at 1710 Rhode Island Ave. NW, and an inactive cultivation license for JJJB LLC.
From 2018 to 2021, Jennifer Brunenkant failed to pay about $800,000 in income taxes related to Brunenkant’s medical dispensary, the indictment says. At the same time, she filed annual business tax forms with the D.C. government, but falsely claimed in those filings that she had also paid her federal income tax.
Brunenkant used two bank accounts held under separate corporate names to manage Herbal Alternative’s finances, according to the indictment. Martin alleged this was done to conceal the business income from the dispensary.
She also allegedly withheld employment taxes from dozens of employees’ paychecks but failed to pay those funds to the IRS. The estimated total of those withholdings is $130,000.
Martin alleges that during a voluntary interview, Brunenkant falsely claimed to have filed her tax returns for tax years 2017 through 2021 and “mailed them to Kentucky.”
Brunenkant is facing four counts of tax evasion and 12 counts of failure to pay employment taxes.
Each of those charges carries a statutory maximum sentence of five years in prison, along with possible financial penalties.
Cannabis alliance is suing unlicensed shops
District residents voted to legalize adult-use cannabis in 2014, but the then-Republican controlled House blocked the district from enacting regulations that would have allowed a commercial market.
As a result, a gray market emerged relying on the ability to gift cannabis. Shops opened that featured free gifts of cannabis along with sales of T-shirts, paraphernalia and even legal service discount coupons.
In an attempt to rein in the gray market, the district passed a new cannabis law in 2022 that added more medical cannabis licenses and allowed gray-market businesses to apply last year. As of March 7, there were 23 active retail licenses, 212 approved/pending licenses and 104 pre-approvals, according to the CRB Monitor database.
After the application period, ABCA began cracking down on unlicensed shops, shutting down 56 as of Dec. 19, 2024. Seven companies formed the Alliance for Recreation Cannabis Entities and filed a lawsuit on Nov. 7 in federal court against Washington agencies alleging the government crackdown violates the U.S. Constitution and due process rights.
Shortly after, a group of licensed shops took legal action against unlicensed shops in Washington.
Herbal Alternatives II was an organizing member of the Alliance of Legal Cannabis Entities, which sued more than 100 unlicensed pot shops in a series of federal lawsuits last fall. Recently, the ALCE filed for class action status in an amended complaint, filed Feb. 17 in the U.S. District Court of the District of Columbia.
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.
Attorney Jon Brunenkant, who is representing the ALCE in court, and at one time was a co-stakeholder of JJJB, declined to comment on Jennifer Brunenkant’s charges, noting he wasn’t representing her against the tax evasion charges.
“It certainly doesn’t impact the ALCE lawsuit,” he said.
