Santa Barbara Cannabis Update: Sniffing Smoke, Where’s the Fire?

The Santa Barbara County supervisors voted to crack down on tax delinquent cannabis operators this Tuesday, just as California’s State Auditor launched an audit of how Santa Barbara County and five other California counties have issued cannabis business permits over the past five years. The state audit was championed by Assemblymember Reginald Byron Jones-Sawyer Sr. of Los Angeles, who argued it was necessary to determine if the business license processes of the six counties are open, fair, or susceptible to corruption. According to the California Auditor’s Office — which did not use the term “corruption” — the effort will evaluate whether the rules and regulations adopted by individual counties are clear, transparent, fair, and to what extent conflict of interest and other forms of abuse and favoritism are evident. A spokesperson for the Auditor’s Office declined to confirm the identities of any of the six counties, but Santa Barbara County Supervisor Steve Lavagnino — a strong supporter of Santa Barbara’s emergent cannabis industry — confirmed that Santa Barbara was one of the six.

“And it’s a good thing,” Lavagnino said. “I look forward to someone who knows something about it looking at what we’re doing and letting us know what we can do better. I think it will be fair.” 

With the speed at which Santa Barbara’s legal cannabis industry exploded and then imploded, the county sports more cultivation licenses than any in the state, while the crop’s olfactory impact on neighbors led to outraged complaints of political favoritism and kid-glove regulation. What critics decry as corruption, supporters describe as growing pains.

The most spectacular instance of cannabis-infused corruption nearby involved a Morro Bay operator named Helios Dayspring, who was recently sentenced to 22 months in prison for bribing a San Luis Obispo County supervisor to vote for two dispensary permits. The supervisor committed suicide. 

No Santa Barbara supervisor mentioned the audit this Tuesday when deliberating over tough new sanctions they voted unanimously to impose on cannabis operators who failed to file — or make payments — on quarterly tax statements. Operators are required to submit to the county treasurer’s office four times a year, and failure to file these reports or make payments within 30 days of the due dates will result — as of August — in the revocation or non-renewal of those operators’ business license. 

Under the current regulatory framework, such transgressions — a common occurrence almost since the dawn of the new industry — have been subject only to fines. In the most recent report, roughly half the licensed cultivators filed tax returns and made timely payments, while one third reported no gross receipts, and the rest simply didn’t file. 

Adding to the troubles of an industry beset by falling prices and serious overproduction woes is a statewide legal and public relations battle between Graham Farrar — Santa Barbara’s boy-next-door cannabis mogul running the vertically integrated Glass House cannabis operation — and Elliot Lewis with his Catalyst cannabis empire of 18 dispensaries. Lewis filed a lawsuit at the beginning of June in Los Angeles County describing Glass House as “one of the largest, if not the largest, black marketers of cannabis in the State of California, if not the country.” Lewis alleged that Glass House employees sold about 70 percent of their weed on the black market via a network of so-called “burner distros” to consumers as far away as New York and New Jersey. Lewis’s lawsuit provided no direct evidence to support this claim, but relied on mathematical calculations that purport to demonstrate such illegal sales must have to have occurred for Glass House to afford the massive expansion of cultivation production that the company projected — while the market is tanking. Lewis made many of the same allegations on a series of social media posts — delivered with flamboyant profanity — prior to filing his lawsuit. 

Glass House countered this week by filing a defamation claim against Lewis and his partners. Glass House objected to Lewis’s descriptions of company as “the biggest black marketer in American history” and “the largest illicit cannabis operator in American history.” It alleged that Lewis’s broadsides are knowingly false and have inflicted financial damage on the company as well as on the reputation of its principals. Glass House claims Lewis’s charges are part of an attack by one business operation on a competitor. In a cannabis trade publication, Lewis responded to the Glass House countersuit, stating, “I wipe my ass with it.”