Glass House Brands will be voluntarily dismissing without prejudice its defamation lawsuit against Catalyst Cannabis Co., citing serious concerns about Catalyst's financial viability, which could render a judgment worthless, and harassment threats by Catalyst to Glass House's customers, and its customers' customers.
Glass House sued Catalyst (South Cord Holdings and South Cord Management) and its two principals (Elliot Lewis and Damian Martin) for making defamatory statements accusing Glass House of selling into the unlicensed cannabis market, claims that Glass House has vehemently denied. Catalyst has not provided any credible evidence supporting its defamatory statements, despite promising to do so nine months ago. Instead, Catalyst has said that industry-wide, up to "93% of all legally cultivated cannabis ends up being diverted to the illicit market," and that licensed operators should be held responsible for downstream diversions to the illicit market. Essentially Catalyst wants to put the entire industry on trial, something that Glass House does not want to be a part of. Glass House only conducts business with licensed operators and has no interest in subjecting its customers to similar harassment from Catalyst.
While Glass House is confident it would prevail in its defamation litigation, it said it has grave concerns about the financial viability of Catalyst and its ability to pay a judgment. As is widely reported, the cannabis retail market in California is under serious distress. Catalyst recently announced layoffs and the closure of one of its stores, citing the need for "some repairs."
Moreover, Catalyst CEO Eliot Lewis boasted on social media about his company's practice of systematically paying less excise taxes than what the state would want, paying $2 million less in one quarter alone (please see this link: https://www.linkedin.com/posts/elliotlewisceo_wftp-activity-7158590677461725184-96Ym). If this number is consistent throughout the year, it would mean that Catalyst would be paying $8 million a year less in excise taxes than most, if not all, other cannabis retailers in the State with comparable sales.
Catalyst's CEO also revealed that his company is being audited by the State of California and is embroiled in separate litigation challenging emergency regulations enacted by the CDTFA (the State agency responsible for collecting excise tax), which he says are directed at Catalyst and calls the "Catalyst regs." Catalyst is also involved in several other lawsuits including a case against the Department of Cannabis Control (the State agency charged with enforcing cannabis laws) and is in disputes with municipalities and its employee's union.
Addressing the customer harassment issue, Glass House said that proceeding with the lawsuit would necessitate revealing details about its customers, even though they are all licensed. Catalyst made clear that its intent was to then serve similarly invasive subpoenas on Glass House customers looking for diversion downstream, even if Glass House's customers, like Glass House, had no knowledge of any such diversion.
Glass House said, while protecting the identity of its customers, it produced to Catalyst voluminous documents including manifests for all of its sales over the relevant time period. Glass House's documents prove it only sells legally to licensed brands, manufacturers and distributors through California's track-and-trace system, METRC. Since all of Glass House's customers are licensed, Catalyst does not need to know their identities. Glass House said it believes this substantiates that Catalyst knows Glass House does not divert and instead that Catalyst is only interested in harassing Glass House's customers. The Company said while it has no knowledge of any of its customers selling to the illicit market and it has nothing to hide, it is not willing to subject its customers and the industry to such abuse.
Kyle Kazan, Co-Founder, Chairman and CEO of Glass House, said, "Despite the difficulty of the retail market in California, our business continues to thrive. The first quarter of 2024 was another very successful quarter for Glass House where we exceeded Q1 guidance across all operating metrics including cash, sales, production and Adjusted EBITDA."
"Given the foregoing," a spokesperson for Glass House added, "we concluded that from a financial standpoint, there was a high likelihood the judgment against Catalyst, Mr. Lewis and Mr. Martin wouldn't be worth the paper it was written on. We felt our time and money was better spent serving our customers and growing our business, so that we can continue to provide the best quality cannabis at the lowest price."
Glass House said Catalyst's claims will be proven false through the defeat of the separate litigation Catalyst filed against Glass House for unfair competition.
For more information:
Glass House Farms
www.glasshousefarms.org