Recommendation that Sweet Leaf lose licenses offers a cautionary tale for marijuana industry

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, Recommendation that Sweet Leaf lose licenses offers a cautionary tale for marijuana industry

A Denver administrative law judge’s recommendation that Sweet Leaf should lose its 26 licenses shines a spotlight on how a prominent Colorado marijuana retailer went off the rails over alleged illegal sales practices.

But the recommendation, issued Monday, also delivers a stark message to the entire cannabis industry – abide by the law, or risk having the feds intervene, according to one local attorney.

“We have these laws and we need to prove that we can police them, and that the failure to comply will result in swift and severe action,” said Adam Detsky, a Boulder, Colorado, attorney who works with cannabis clients on compliance, contracts and insurance.

“This keeps the feds at bay and allows for the industry to prove it can police itself.”

Denver’s top marijuana regulator will ultimately decide on the fate of Sweet Leaf and its licenses.

A Denver administrative law judge wrote that Sweet Leaf – one of the state’s largest MJ retailers – engaged in a multimillion-dollar illegal “looping” scheme that allowed customers to buy ounces of marijuana multiple times a day.

The “unlawful sales resulted in the proliferation of illegal marijuana that supplied criminal drug-dealing,” Suzanne Fasing wrote in a 45-page document arguing that all of Sweet Leaf’s retail and cultivation licenses be revoked.

Fasing contended that Sweet Leaf owners Matthew Aiken, Christian Johnson and Anthony Sauro knew about and directed the looping scheme to sell retail and medical marijuana at all Denver Sweet Leaf dispensaries.

She based that assessment on Sweet Leaf corporate documents and messages admitted into evidence, as well as statements from Sweet Leaf personnel.

Final decision left to regulator 

Denver’s director of marijuana policy, Ashley Kilroy, will make the final decision on the licenses after a 10-day period for objections and an additional five days for responses.

Kilroy doesn’t have a deadline for issuing the decision, but “she hopes to make it in a timely manner after thoroughly reviewing the recommendations and the evidence,” Eric Escudero, communications director for Denver Excise and Licenses, wrote in an email to Marijuana Business Daily.

“We will not be issuing any official comment until after Ashley Kilroy issues the final decision.”

In December, Denver Police shut down eight Sweet Leaf stores and arrested more than a dozen budtenders. The stores have remained closed.

Neither Sweet Leaf’s president nor its attorney responded to MJBizDaily‘s requests for comment Tuesday.

Felony charges are pending against seven of Sweet Leaf’s budtenders, and six salespeople face misdemeanors, according to Ken Lane, spokesman for the city District Attorney’s Office.

“The principals/owners of Sweet Leaf stores have not been charged,” Lane wrote in an email to MJBizDaily. “The investigation is ongoing.”

Detsky, the Boulder attorney, said he’s sure the sales practice wasn’t limited to Sweet Leaf.

“The bottom line is that the law was ambiguous and Sweet Leaf pressed its luck,” Detsky said.

Company culture at issue

Fasing’s recommendation, which followed seven days of hearings in March and April, portrayed a company culture in which Sweet Leaf management allegedly encouraged employees to promote the practice of looping.

According to Fasing, Denver police interviewed 22 Sweet Leaf employees, and all said looping was a practice that occurred frequently at the dispensaries where they worked.

She also wrote that one district manager estimated that Sweet Leaf generated $5 million-$10 million a year in recreational marijuana sales, and that 30%-50% of those revenues could be attributed to looping. The district manager said owners encouraged the looping at weekly sales meetings.

According to the Colorado Marijuana Enforcement Division, the gross sales revenue generated from looping totaled roughly $6.8 million between June 1, 2016 and Dec. 13, 2017 at three medical marijuana dispensaries.

Denver police started investigating Sweet Leaf in November 2016 after receiving complaints from neighbors living near one of the Denver stores.

The neighbors had observed customers walking between the dispensary and their cars many times throughout the day.

Over the next year, police conducted surveillance and undercover operations at multiple locations.

In one of the most brazen examples, a man later identified as Joseph Scott, also known as Cornell Ellis, was seen entering and exiting a Sweet Leaf dispensary 10 times in one day, according to Denver police.

Police later seized from his vehicle 34 marijuana containers with the Sweet Leaf logo, about 30 repackaged plastic bags of marijuana and $17,200 in cash.

Scott pleaded guilty to one count of possession of more than 12 ounces of marijuana and was sentenced to a year in state prison.

Another customer who was arrested told police he would travel to Denver once a month to purchase marijuana from Sweet Leaf and then would resell it or smoke it in New Mexico.

Witnesses at the hearings included:

  • 21 Denver police officers who made undercover purchases of marijuana at Sweet Leaf dispensaries or participated in the investigation
  • Sweet Leaf employees
  • Neighbors of the dispensaries
  • Two Colorado Marijuana Enforcement Division employees
  • A financial crimes investigator from the Colorado Department of Revenue

Jeff Smith can be reached at