Moldy Weed, Mystery Buyers: N.J. Pot Sellers’ Alleged Violations

Jars of cannabis alleged violations
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Documents show dozens of alleged violations before recreational marijuana sales began.

While some of the biggest US marijuana companies were preparing to join New Jersey’s newly legal recreational market, several were running afoul of state security and safety rules for their medical-weed operations, documents obtained by Bloomberg show.

A cultivation site had 50 jars of marijuana go missing. One medical dispensary had moldy weed on hand. The staff at one store, “having a hard time with the fractions,” goofed on about a dozen patients’ tracking logs.

The alleged violations show how pot companies and state regulators are challenged by hodgepodge rules and enforcement for a drug that’s federally outlawed yet still a big business, with US sales of legal marijuana forecast to top $33 billion this year. New Jersey, among 19 states that allow recreational use, has a particularly daunting landscape as the largest East Coast legal market by population.

Exclusive documents obtained by Bloomberg under New Jersey’s Open Public Records Act show that the state cannabis regulatory commission issued citations to seven companies from January 2020 through mid-April 2022, when marijuana sales broadened from medical to recreational. There were a total of 54 alleged violations.

Still, the companies with alleged violations — including publicly traded Verano Holdings Corp., Curaleaf Holdings Inc. and Ascend Wellness Holdings Inc. — won approval to open recreational-weed shops. It was a rocky start: On opening day, April 21, the sellers were among the five companies that started drawing a collective $360,000 in fines involving sales hours.

Toni-Anne Blake, a spokeswoman for New Jersey’s cannabis commission, which made and oversees the rules, said all transgressions in the documents have been corrected. “Our goal for issuing a violation is to correct the action that led to a violation,” she wrote in an email.

None of the reports suggested criminal activity.

State Pot Rules
Enforcement of cannabis-related regulations vary widely by state.

In May 2021, for instance, a retailer faced a $62,500 fine from Nevada regulators after it reported a sale exceeding the 1-ounce (28-gram) maximum. In New Jersey, dispensaries flagged 10 such overages, the documents show. But no monetary penalties were exacted because fines weren’t part of New Jersey law until April, when recreational sales started.

Instead, New Jersey enforcement had consisted largely of cannabis commission investigators contacting medical-marijuana sellers to point out errors, then guiding staffs to get back in compliance.

“It’s part of the culture to rush through marijuana normalization and commercialization at any cost,” said Kevin Sabat, a drug policy adviser under former President Barack Obama, who has testified to New Jersey lawmakers on pot regulation. “It shows what a farce the medical marijuana program was.”

‘Hard Time With Fractions’
The 80 pages of records spanning 28 months, though, show errors large and small, and sometimes repeated. Many were caught by state investigators, who often monitor pot shops like casinos via live video.

The most frequent alleged violations occurred at Verano’s Zen Leaf, which operates in Lawrence, Elizabeth and Neptune. Verano was cited 20 times when selling medical weed only.

On three occasions, state investigators, watching Zen Leaf store video, documented workers using “fraudulent security access cards.” At least twice, Zen Leaf allegedly sold to people whose names weren’t in a medical-user registry.

“If you look back through your list of errors you can see that your staff regularly neglects to enter patient purchases into the registry,” an investigator wrote to Verano. The manager responded: The staff was puzzled by math.

In April 2021, an investigator ordered the destruction of 127 pounds (57.6 kilograms) of Verano inventory because some “may have been swept up from the floor” and contaminated. At roughly $450 per ounce, the waste potentially amounted to more than $900,000. That’s a fraction of the Chicago-based company’s $738 million in revenue last year.

When recreational sales began, Verano stores allegedly made 887 sales during patient-only hours. It was assessed $90,000 in fines, the most of any legal pot seller.

Verano spokeswoman Grace Bondy said the company was “required to follow an unmatched level of regulation and compliance” and had resolved any matters flagged by New Jersey. “We continue to regularly review all of our operating procedures and protocols to ensure we are following all applicable laws and regulations in the states in which we operate.”

In July, three months after the $90,000 fine, the state allowed Verano to expand recreational sales to a third Zen Leaf store.

Other pot businesses also have drawn regulators’ scrutiny. In March 2021, an Ascend inventory review showed that 50 jars of weed, totaling about 6 ounces, were missing, the documents show, and the matter hadn’t been reported immediately to law enforcement, as rules required.

The fix was simple, though. Ascend would be in compliance, regulators wrote, if it submitted an explanation and a plan to prevent a repeat. Mark Sinclair, a spokesman for New York-based Ascend, declined to comment on the incident.

Curaleaf on 10 occasions was cited for alleged violations involving security, labeling and mold. In a statement, the Wakefield, Massachusetts-based company said the enforcement “demonstrates that the legalized market is working in New Jersey.”

“We work quickly to remediate any issues and update our standard processes and procedures to achieve the highest level of service, quality and trust that our patients and consumers deserve,” Curaleaf said. “Our business depends on it.”

Marijuana Sales
In New Jersey, hundreds of thousands of error-free transactions have been processed since the state started medical marijuana sales in 2012. At the same time, the documented violations are precisely the sort of missteps that pot critics had warned about.

While the US outlaws pot on a federal level, it could get involved in the regulation efforts. In 2013, when more than a third of the nation had legalized medical marijuana, a Justice Department memo outlined a promise to prosecute if states didn’t enforce their own weed laws. That has yet to happen.

“You have to realize the dance that is being done,” said Peter Prevot, a certified public accountant who specializes in cannabis regulation for Manhattan-based Bridge West Consulting. “When someone isn’t following the regulations to a T, they’re risking federal shutdown of a state’s entire program.”