A new federal lawsuit is rocking the US legal cannabis industry with allegations that California state regulators and their exclusive track-and-trace software partner, Metrc, knowingly enabled the illicit market to thrive—while continuing to collect taxes from diverted product. The suit was first reported by Maine Wire.
Filed in Oregon by former Metrc executive Marcus Estes, the whistleblower complaint accuses the California Department of Cannabis Control (DCC) of conspiring with Metrc to overlook illegal sales, including interstate commerce, through licensed “burner distributors.” Estes claims Metrc ignored irregularities in its data and failed to fulfill its contractual obligation to flag suspicious activity—actions that allegedly allowed a “vast illegal marketplace” to flourish under the DCC’s watch.
Metrc, which holds exclusive cannabis tracking contracts in over 20 states, renewed its agreement with California last year for up to $28.3 million annually. In a statement to MJBizDaily, a Metrc spokesperson called the claims “baseless” and attributed the suit to retaliation from a disgruntled former employee who was terminated for performance issues. “This lawsuit is just a continuation of this former employee’s campaign of retaliation, and the falseness of these claims will be proven in court,” the statement read.
The suit lands amid broader scrutiny of the DCC’s leadership and oversight practices. Director Nicole Elliott, a longtime ally of Governor Gavin Newsom, has also come under fire for the agency’s response to California’s pesticide contamination crisis.
Estes’ claims echo long-running frustrations from licensed operators who argue that state regulators have allowed large-scale diversion to persist while burdening compliant businesses. Retail chain Catalyst Cannabis, which previously sued the DCC and rival Glass House Brands over alleged burner distro schemes, has its own legal battle scheduled for trial in October. Catalyst’s suit was reinstated last year when judges found that the DCC’s contract performance with Metrc was “openly in dispute.”
While Estes seeks reinstatement and damages, the lawsuit raises new questions about the integrity of California’s cannabis oversight and the accountability of the software providers trusted to enforce compliance in state-legal markets.
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