State regulators sue Twin Cities cannabis retailer for illegally selling marijuana without a license
MINNEAPOLIS — The state is suing a Twin Cities retailer for selling illegal, noncompliant cannabis in its stores. It's the first time regulators have taken this step.
The Minnesota Office of Cannabis Management (OCM), the agency tasked with oversight of the forthcoming legal adult-use recreational cannabis market and existing hemp-derived THC products, is suing Zaza, which has stores in Minneapolis and St. Paul, for selling illegal flower, vapes and pre-rolls that were, in some cases, 70 to 75 times higher than the legal limit, the lawsuit said.
It's legal to sell hemp flower, which by definition has no more than 0.3% THC, the compound that produces a high, on a dry weight basis. Anything more than that is marijuana, which businesses cannot without a state license—none of which have been issued
OCM is asking a court to order the destruction of the noncompliant products at the defendant's expense.
WCCO sent an email on Friday morning to Zaza and did not receive a response. Later, WCCO reached the owner by phone who answered and said he would not answer any questions.
The lawsuit says that regulators conducted an inspection in September because consumers complained about illegal products. In one instance, according to the court documents, someone tried to purchase a hemp-derived drink when they observed an employee "pull a jar out from behind a counter and openly sold illegal cannabis flowers to other customers."
When asked about the illegal sale, the worker replied: "We're giving the people what they're asking for," the lawsuit said.
The state is also accusing Zaza of hiding its illegal products from inspectors.
"The OCM's inspections not only confirmed that Defendant was selling illegal cannabinoid products, but that Defendant attempted to conceal its unlawful sales," the filing states. "For example, during initial inspections by the OCM of a related cannabinoid retail business, one of the employees would stall the OCM's inspector while another would remove the illegal products from the store in a backpack through the backdoor."
Jason Tarasek, a cannabis attorney for Vicente LLP, said there's often a "gray market" in states where there's a delay from the point of legalization until the opening of licensed dispensaries. Minnesota is no different, he said. The state legalized use and possession in August of last year, but dispensaries aren't expected to open until next year.
"Once we establish a regulated, licensed market, it will take some time to push those gray businesses away, but eventually they will," Tarasek said. "They will fade, because consumers, I think, if given the choice, want to know that their product has been tested, that they can trust what the label says, and that it's safe."
If a judge rules in the state's favor, that can disqualify Zaza from operating a cannabis business for five years.
A spokesperson for the Office of Cannabis Management said in an email that in the past four months of inspections, just over 5% of businesses evaluated were selling illegal cannabis flowers.
Since inspections began last year, regulators have destroyed more than 35,000 units of noncompliant hemp-derived cannabis products valuing over $900,000. Enforcement against flower began in March and since then, the state has seized and destroyed nearly 200 pounds of it valued at over $607,000.
Steven Brown, CEO of Nothing But Hemp, which manufactures hemp-derived THC products said bad actors who don't follow the rules hurt the entire hemp industry. One of his storefronts is located down the street from the St. Paul Zaza, and he said customers would sometimes ask why his shop didn't sell flower.
"It's really frustrating," he said. "And I think it's frustrating and confusing for the customer too, because they're hearing something completely different down the street that 'this is legal, we can do this.'"
