“Looping” Leads to Loss of Business Licenses for Denver-based Dispensaries

“Looping” Leads to Loss of Business Licenses for Denver-based Dispensaries

Legal cannabis is still a gray area in the states that have approved sales and compliance is of the utmost importance. This includes adhering to any and all limits on the amount of cannabis products one licensed dispensary storefront can sell in one transaction or day.

The illegal practice of “looping” is where a single buyer visits a dispensary multiple times in a day to circumvent maximum daily purchase laws, has become an issue in some areas. One business that is going to have to pay for their mistakes is Sweet Leaf LLC. This week, officials moved to revoke all 26 of the company's cannabis licenses in the City of Denver after several of the business's employees and management team were arrested and accused of illegal “looping” practices in a yearlong undercover investigation. The licenses covered seven dispensary storefronts and several cultivation and processing sites.

When Colorado began recreational sales of cannabis in 2015 – one of the first states to do so, along with Washington – lawmakers set a limit of one ounce per customer (two for medical patients). The majority of approved establishments selling marijuana flower, oils, edibles, and topicals utilize point-of-sale software in order to carefully track daily purchases in order to remain in compliance. In early 2016, several neighbors of area Sweet Leaf locations began to lodge complaints to local authorities, stating that customers would take laps between the dispensaries and their vehicles, sometimes multiple times per day.

Undercover officers set up surveillance, observing several instances of alleged “looping.” Documents obtained by the District Attorney's office found that Sweet Leaf management encouraged the practice. In a December 2017 raid, police arrested 18 employees, including many so-called “budtenders,” charging them with a variety of misdemeanor and felony-level drug offenses. The eight Sweet Leaf locations within Denver were subsequently shuttered.

Representatives for Sweet Leaf argued that Colorado state law was vague, and they interpreted the limit as “per transaction” as opposed to per day. DA officials dismissed these claims, pointing to a statement released in May 2017 by the Marijuana Enforcement Division clarifying that the sales limit is indeed per day. The MED reached out to Sweet Leaf directly the following August confirming that information.

An administrative judge recommended the company lose all of its licenses during a hearing in March 2018, which Denver's Department of Excise and Licenses executive director Ashley Kilroy confirmed this week. It was a stern warning to other canna-business owners to adhere to strict rules and regulations or face the consequences. Of the 18 employees arrested, more than half have had their charges dismissed or dropped altogether.

"Sweet Leaf’s illegal actions undermine the entire regulatory framework created by Amendment 64,” said Kilroy in a statement. “This decision supports the will of the voters for a regulated legal marijuana market, safeguards the legal marijuana industry, and protects the safety and welfare of the public.”

David Kani is an Orange County litigation lawyer and co-founder of Hochfelson & Kani, LLP. Kani’s first book Pot Inc. - An Entrepreneur's Guide to the Marijuana Industry is set for late 2018. To book or learn more, contact [hidden email].


David Kani

David Kani is a Newport Beach, California based business lawyer with a focus on cannabis companies, their investors, employees and cannabis-related litigation.
To connect with David: [hidden email] or 714-907-0697.

To learn more about Hochfelsen & Kani LLP: hockani.com
To learn more about David's book Pot Inc.: suttonhart.com
For media inquiries or speaking engagements: [hidden email]

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