The results have just come down from a landmark lawsuit involving Procan Labs, a leading Cannabis concentrate company in California. The case is being regarded as the largest lawsuit to date for the cannabis industry.
In late January 2020, the Santa Barbara County Sheriff’s Office showed up Arroyo Verde Farms Inc. with a search warrant in hand. The farm is run by a man named Barry Brand, who was widely regarded as a model player in the industry. When deputies searched the farm, however, the LA Times reports they found “more than 100 gallons of concentrated cannabis oil, an extraction lab and evidence of ‘off-book sales’ – all illegal.”
That raid resulted in the seizure of over $2.6 million of cannabis oil and $620,000 of cash from Brand. The problem is, that oil had already been legally purchased by Procan Labs.
In the end, the State of California v. Arroyo Verde Farms Inc. (Case No: 20-CV-00590) made history.
Brand was operating almost entirely within regulations both within the local jurisdiction of Santa Barbara County, and under state requirements. However, Procan Labs says the the District Attorney brought up allegations of criminal conduct because of “technical noncompliance issues.”
After a quarter of a year spent in litigation, a judge found that criminal laws like those that fall under California’s Controlled Substances Act do not apply to companies that are licensed to operate commercially with cannabis. He also ruled the Sheriff’s Office had to return every item it took from Arroyo Verde.
John Armstrong of Horwitz + Armstrong served as lead attorney in the case for Procan Labs, which was operating under the name Eagle Bay Enterprises in its business with Brand’s company, Arroyo Verde Farms Inc.
He explained in a statement to Wikileaf, Procan Labs formed an agreement where Arroyo Verde Farms would provide Procan cannabis trims for free, and would make the money up until after that trim biomass was converted into cannabis oil.
Brand told Mark Unterbach, one of the founders of Procan Labs, that he’d found a licensed distributor in Long Beach to buy that oil. Arroyo also had a license to transport cannabis, so Brand agreed that on its next drop-off of biomass at the Procan facility in Concord, Arroyo Farms would also pick up Procan’s oil, and hold it at Arroyo Farms. That way, the customer, Kanna Kingdom, could legally pick up the oil.
Then, Armstrong says, an “anonymous tip” came in that Arroyo Farms was illegally making and selling cannabis oil. That’s why the Santa Barbara Sheriff’s Office came in and seized Procan’s oil, which had been legally produced, legally transported and held, and was being sold legally.
The oil had even been tagged with the proper METRC RFID labels and was registered into the system before being shipped, and of course, before being seized.
“From our research, this was a case of first impression, as the Santa Barbara Superior Court had to look at not only the expressly language in MAUCRSA but the very different purposes of MAURCRSA and California’s CSA to reach the correct result. So, this was a significant victory for the cannabis industry as many cannabis operators believe that if they have a regulatory violation, that there may only be a small a regulatory penalty or fine, and are unaware that law enforcement may seek to use regulatory violations to start civil forfeiture proceedings, as here, where law enforcement seized all the cannabis and all of Arroyo’s cash because of a mere regulatory violation.”
The final order for the lawsuit is 11 pages long. In it, Judge Thomas Anderle concludes, “The court will grant Procan’s motion for return of its seized property. The Sheriff’s Department is ordered to immediately release and return the seized cannabis oil back to Procan.”
The Stash reached out to Jared Younker, the Chief Compliance Officer for Cannabis Real Estate Consultants, and asked whether this case could serve to set precedent for other cases nationwide. He answered,
“As you may know, California is a dual-licensure state, requiring cannabis operators to obtain licensure and/or permitting from both the municipality and the state. This requires us to work with local law enforcement agencies regularly, understanding their community’s concerns towards the impact, regulation and compliance of local cannabis operations. While no two city or state cannabis licensing programs are identical, but where California’s legal cannabis industry has set the pace for many other states to consider before launching their own cannabis industries, we feel the Procan Labs case sets a precedent for both cannabis operators and law enforcement to understand the laws and requirements for oversight and regulation of commercial cannabis licensing programs.”
A family-owned cannabis business
Procan Labs is a family-owned company that started up in 2017. The goal, according to its founders, was to introduce products derived from cannabis into what people think of as otherwise traditional medical scenarios.
Initially, the company worked with marijuana growers to find ways to create value from things that might otherwise have gone to waste. Since then, the family running the company has profited enough to build a brand-new, state-of-the-art facility for processing and manufacturing.
Analytical Cannabis, a sector of the Technology Networks Group is an international publisher of scientific news and products. Its branch called Analytical Cannabis focuses on marijuana-related studies and has done vast research on distillation processes.
Distillate is extracted from cannabis by dousing the plant in a solvent. Analytical Cannabis says usually, either CO2, butane, or ethanol is used. The first 2 on that list help to garner isolates that have higher levels of cannabinoids. Ethanol, the publisher says, is the better methods to take out the cannabinoids and terpenes, while leaving behind the vast majority of the chlorophyll in the plant. Chlorophyll can be harsh when smoked and has a bitter flavor when ingested.
Once the plant is stripped, an evaporation process is used to get the alcohol out. Once the process is done, there’s no toxic residue or chemicals left behind in the finished extract.
Procan’s website explains the company uses pure ethanol wash, and is the first large-scale ethanol extraction company in the Golden State. The company says that method is extremely efficient, allowing them to come out with higher production yields and better potency, which then leads to greater profit margins.
“Procan’s mission is to keep the California cannabis supply chain stabilized and reliable with clean, compliant oil, distillate and Terpenes required by licensed manufacturers. Our products elevate the quality of life for people across our state.”