Aug 26

Counterfeit cannabis products stoke black market for California weed

Loudpack Farms had a multimillion-dollar problem.

An award-winning marijuana vape pen that was among the most profitable items sold by the cultivator had begun turning up at unlicensed weed dispensaries across California, its signature black box with the image of a red-eyed, stoned-out-of-his-mind playing-card king beckoning customers.

As it became clear that someone was counterfeiting the Kingpen brand, Loudpack Farms spent $2.5 million on new packaging and hardware last year to distinguish it from the knockoffs.

“The counterfeit market started replicating what we were doing almost as quickly,” said Daniel Corral, head of sales at the Monterey County firm.

Kingpen’s struggles are emblematic of a dilemma that California’s fledgling legal marijuana market is facing: a proliferation of counterfeit cannabis products that’s cutting into the profits and reputations of some of the state’s most popular legal brands while boosting sales in a thriving black market.

Fake vape pens and other knockoffs flooding the state are also raising safety issues: Like all products sold outside licensed dispensaries, counterfeit items are not tested for pesticides and other contaminants, leaving some concerned the items could pose health risks.

Licensed cannabis cultivators and businesses can’t distribute their wares to unlicensed dispensaries and delivery services without risking punishment from regulatory agencies, meaning any brand-name item that customers find in an illegal shop is almost certainly counterfeit.

“Any of those black market shops that you go into and have brands, that’s just like you going to the flea market on the weekend and getting your Prada shirt for $5,” said Ryan Jennemann, founder of THC Design, a Los Angeles cultivator that has also been a victim of counterfeiting. “That ain’t a Prada shirt.”

Although those in the cannabis industry differ on the severity of the problem, most agree counterfeit items are providing a boost to unlicensed dispensaries, which can sell marijuana at much lower prices than their legal counterparts by skirting state and local taxes.

Two undercover Los Angeles County sheriff’s deputies dump marijuana into an evidence bag during a raid at an illegal marijuana dispensary in Compton.(Jae C. Hong / Associated Press)
Earlier this year, a Times report found there were at least 220 illegal cannabis dispensaries in Los Angeles, more than the number of licensed operators in California’s largest marijuana market. Though the state’s above-board weed businesses are on track to record more than $3 billion in sales this year, a rebound after 2018 revenues fell well below projections, that figure still lags far behind the $8.7 billion expected to be spent on unregulated cannabis in California in 2019.

The extent of counterfeiting remains unclear and has not been treated as a priority by regulatory and law enforcement agencies, many in the cannabis industry say.

Alex Traverso, a spokesman for the Bureau of Cannabis Control, said the agency was trying to discourage customers from shopping at unlicensed dispensaries and warn people about counterfeit products through a public awareness campaign this summer.

The BCC has received 38 complaints about counterfeit products through its online reporting portal since December 2017, Traverso said. The California Department of Public Health said it had received 21 similar reports since May of this year.

It is highly unlikely that either figure captures the breadth of the problem. Corral said he had filed dozens of complaints about fake Kingpen products with state agencies in the last two years alone. A spokesman for the parent company of Stiiizy, another popular vape pen in California, said he had found hundreds of instances of knockoff versions of its products being sold online.

In recent weeks, a Times reporter visited several unlicensed cannabis dispensaries in Wilmington, Koreatown, Hollywood and the San Fernando Valley, finding knockoff versions of vape pens and edibles produced by popular brands including Kushy Punch, Korova, Stiiizy and Kurvana.

One of the counterfeit items, a marijuana brownie bearing Korova’s logo, claimed to contain 1,000 milligrams of THC. It is illegal to sell an edible that contains more than 100 milligrams of THC in California.

A representative for Korova said it had received a complaint about the same fake product being sold in Southern California before, and asked where The Times had found the product so the company could investigate further. Multiple e-mails and calls seeking comment from Kushy Punch and Kurvana were not returned.

Daniel Yi, a spokesman for Stiiizy , said the company had done its best to educate customers about how to spot fraudulent merchandise and issued a number of cease-and-desist letters. But, Yi warned, dealing with counterfeiters is like a game of “ whack-a-mole.”

“The fakes keep getting better and better,” he said.

California now has the biggest legal marijuana market in the world. Its black market is even bigger

Law enforcement and regulatory agencies tasked with combating the state’s illicit cannabis market could not provide information about how popular brands in California are counterfeited. But those in the cannabis industry who have seen their wares faked say the process usually involves local black market growers placing their own products inside packaging manufactured outside the country.

Wesley Hein, head of compliance and government affairs for Mammoth Distribution in Woodland Hills, says vape pens that hold pre-filled disposable cartridges are the most commonly counterfeited item. Locals often will produce their own THC oil and then buy large quantities of packaging mimicking a popular brand from a foreign website. Alibaba, the massive online commerce hub based in China, is a haven for knockoff packaging, Corral said.

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