Colorado judge won't block state pot regulator over black market synthetic THC claims

DENVER (CN) — A Denver judge denied an injunction on Wednesday requested by a cannabis cultivator that would have directed Colorado’s marijuana regulatory agency to ramp up testing for black market synthetic THC products.

“You’re requesting better testing, proper tracking, a better way for the state to monitor what’s going on in the marijuana industry,” said Second Judicial District Judge Jill Dorancy. “But the way your complaint is written under the Administrative Procedure Act, there isn’t a final agency act that allows you to be here.”

Housed under the state Department of Revenue, Colorado’s Marijuana Enforcement Division is tasked with collecting taxes generated by the $1.4 billion industry, and regulating to ensure public and product safety.

On March 10, the state’s largest outdoor cannabis cultivator, Mammoth Farms, filed suit in the District Court of Denver County, claiming the state agency was failing in its legal mandate to track marijuana plants from seed to sale.

Mammoth also criticized the government for failing to implement a test for methylene chloride, a compound used to process legal hemp into illegal synthetic THC products that evade the state regulatory process and expose consumers to health risks.

Due to the lack of regulation, Mammoth’s attorney, Ryan Strasser, said cheap, synthetic pot is filling the shelves in Colorado dispensaries, mislabeled to dupe customers into thinking they’re buying products derived from natural, legally grown weed, while law-abiding cultivators like Mammoth struggle to stay in business.

Based in Saguache, Colorado, 200 miles south of Denver, Mammoth is owned by Justin Trouard, a former intelligence agent for the U.S. Army, turned “ganjapreneur” in 2017.

Despite being the state’s biggest cultivator of marijuana, Trouard told the court his sales have drastically shrunk. When customers began asking him for stems and junk clippings, he said he investigated and discovered producers buying cheap byproducts to create a virtual product in the state’s tracking system, which was then filled with an illegal synthetic THC-derived product and sold through the legal market.

Trouard said the regulators ignored his concerns and a 2024 request for an emergency rulemaking session.

Competing with illegal supplies, Trouard said, “has left our company in shambles. This actively devalues the product where the original taxable value is a fraction of what it should be.”

In a separate June 2024 suit, Mammoth has previously brought deceptive trade practices claims against producer Bonanza Cannabis, accusing Bonanza of selling synthetic THC.

After denying Mammoth’s injunction from the bench, Dorancy pivoted to hear oral argument on the state’s motion to dismiss.

Colorado attorney Ross Hoogerhyde argued Mammoth lacked standing to sue for regulatory change since there was no final appealable order for the court to review, as required by the Administrative Procedure Act.

“Plaintiffs claim they seek review of defendants’ failure to act, those are not the facts of this case,” Hoogerhyde said. “This is not a case where a state agency was delegated to create rules and did nothing.”

Hoogerhyde also suggested Trouard’s business challenges might be attributed to the dozens of states that have opened their own legal marijuana markets in recent years, cutting down on Colorado’s weed tourism. Colorado became the first state to legalize the recreational marijuana market through a 2012 ballot measure.

Dorancy pressed Strasser to be clear about his client’s requested relief because she said it all sounded like a request for rulemaking to her.

“It could be through rulemaking," Strasser said. “It could also be through informal rulemaking.”

The judge also observed that the agency seemed to be following its rules.

“It’s not in their rules right now to require testing for methylene chloride, but they’re following their rules,” Dorancy said.

Dorancy did not indicate whether she would grant the state’s motion to dismiss the suit, but promised a written order “as soon as possible.”

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