The cannabis industry has long been plagued by the challenges posed by illicit businesses, creating an uneven playing field for law-abiding, taxpaying cannabis retailers. Licensed establishments have grappled with regulatory hurdles, high taxes and unfair competition from unlicensed operators. The frustration among licensed cannabis businesses has reached a tipping point, prompting the California Legislature to act through Assembly Bill 1171 (CA AB 1171).

The Struggle of Licensed Cannabis Businesses

Taxpaying cannabis businesses face an uphill battle, struggling to stay afloat amidst a sea of unlicensed competitors, many of whom do not pay (or charge) taxes and do not face the costly challenges of regulatory compliance. The resulting disparity in consumer pricing puts licensed retailers at a significant disadvantage, and places the public at risk due to the “savings” afforded by untested and illicit product. Additionally, licensed businesses find it challenging to compete with the convenience of unlicensed shops, which operate with unregulated hours, unchecked delivery criteria, serving customers at any time, and in any location. By contrast, hours of operation, location, and modes of delivery are strictly regulated as against licensed businesses.

Before the enactment of CA AB 1171, licensed cannabis businesses had limited recourse against illicit operations. Overworked and understaffed regulatory agencies and city attorneys were the only enforcement authority, leaving licensed businesses with little more than frustration and financial setbacks.

CA AB 1171: A Game-Changing Legal Tool

With the introduction of Section 26038.1 to the Business and Professions Code, licensed cannabis businesses now have a powerful tool at their disposal. This new legislation empowers licensees to take legal action against those engaging in commercial cannabis activity without the required licenses. KVK, a leading law firm in the cannabis industry, has interpreted Section 26038.1 as a crucial development in the fight against illicit cannabis businesses and as formed a dedicated practice group designed to enforce this new law on behalf of new and existing clients alike.

Key Provisions of CA AB 1171

Legal Action and Remedies: Licensees can bring actions in the Superior Court against unlicensed cannabis activities and seek remedies, including injunctive relief, as well as the recovery of damages.

Demonstrating Harm: To prevail, licensees must demonstrate actual harm resulting from unlicensed cannabis activity.

Court Orders: Courts may enter orders including injunctive relief which would enjoin illicit shops from engaging in commercial cannabis activity without a license.

Damages: Prevailing licensees are entitled to either actual damages or statutory damages not exceeding $75,000, and may recover reasonable attorney’s fees and costs.

Our Approach

KVK has proactively built a library of applicable notices and lawsuits, appropriate for the immediate enforcement of Section 26038.1. Our aim is to protect licensed cannabis businesses across Los Angeles and beyond. We are ready to hit the ground running and target all illicit cannabis operations.

Conclusion

CA AB 1171 marks a significant step forward in leveling the playing field for licensed cannabis businesses. With Section 26038.1, licensees now have standing to combat unlicensed competitors and seek redress for the harm caused by illicit cannabis activities. KVK is at the forefront of this legal battle, employing a strategic approach to protect the interests of licensed businesses in the evolving landscape of the cannabis industry. The fight against illicit cannabis activities has entered a new era, and CA AB 1171 is a powerful weapon for those committed to a fair and regulated cannabis market.

 


If you have any questions about any of the above, please feel free to contact Katchko, Vitiello & Karikomi, PC for more information and a member of the team will be happy to assist.

By Patrick Babajanian, November 30, 2023.

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