Stiiizy president denies allegations of illicit marijuana operations, sales

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Image of a budtender serving a customer at the Stiiizy Costa Mesa location

A budtender serves a customer at the Stiiizy Costa Mesa location. (Photo courtesy of Stiiizy)

(This story has been updated to correct the spelling of Stiiizy President Tak Sato’s name.)

Stiiizy, one of the top-selling marijuana brands in California with operations in several other states, told MJBizDaily it has no connection to illegal business practices detailed in a lawsuit and a published report that prompted some operators to cut business ties with the company.

However, Stiiizy appears to be distancing itself from co-founder Tony Huang, the subject of growing allegations of illegal business dealings in California.

Stiiizy dominates market share in California in vape sales and is the largest retail operator in the state.

Its national footprint includes operations in Illinois, Michigan and Nevada as well as distribution at more than 1,400 retail outlets.

In an exclusive interview with MJBizDaily, Stiiizy President Tak Sato said Huang has not held a formal position within the company for years, though he still serves in an advisory role.

In a follow-up inquiry by MJBizDaily, the company said Huang exited Stiiizy’s executive team in December 2020.

The company declined to provide any financial details related to Huang’s exit.

Sato also told MJBizDaily in a phone interview that the vertically integrated cannabis company has not engaged in or benefited from any illegal business activities in California.

The denials were in response to a recent Los Angeles Times story alleging that Huang leased several buildings to unlicensed retailers in and around L.A. and helped funnel Stiiizy products through illicit retail channels while serving as a top executive for the company.

“I don’t want to minimize the allegations, but they are from many, many years ago,” Sato told MJBizDaily.

“They have absolutely zero connection to Stiiizy and have zero effect on Stiiizy’s fully legal and confined activities.”

Weedweek recently reported that former Stiiizy CEO Jon Avidor filed a lawsuit in September contending Huang and other co-founders ran a criminal enterprise of at least 18 unlicensed marijuana stores in the L.A. area.

Sato denied to Weedweek any connection between the allegations involving Huang and Stiiizy’s licensed operations.

“He is no longer an owner, employee or director of the company,” Sato confirmed to MJBizDaily.

However, Huang is founder and adviser of Stiiizy’s parent, The Shryne Group, the company confirmed.

Huang denied through a spokesperson any wrongdoing, the L.A. Times reported.

Willing to cooperate

Stiiizy is unaware of any formal investigations by law enforcement or regulatory agencies into its business operations.

Sato told MJBizDaily the company submits to annual audits by California’s Department of Cannabis Control (DCC), the state’s chief marijuana regulator, as well as every municipality where it has operations.

“We’ve had no issues from a compliance or licensing perspective, and we’re very proud of that,” he said.

“We are not aware of any investigations,” Sato added, “but we welcome any communication with regulators so that we can reassure them that none of these allegations have any connection or effect on our legal and licensed activities.”

A DCC spokesperson told MJBizDaily that the agency “does not have any comment on this matter at this time.”

Rise to the top

Stiiizy was established in Los Angeles in 2017 by Huang, Samuel Cho and James Kim, who serves as CEO.

The company was founded on the eve of Jan. 1, 2018, when California launched its regulated adult-use market after more than a decade of gray-market collectives and cooperatives supplying medical patients in a largely unregulated system.

The company built its popular vape brand on authenticity, quickly amassing a loyal customer base as it expanded into retail and cultivation.

Stiiizy is on pace to close 2023 as one of the top-selling brands in California, where it dominates market share in the vape pen category.

The brand’s overall sales in the state, as of press time, have eclipsed $358.9 million this year, controlling an 8.7% market share of all products sold in California, the world’s largest regulated marijuana market, according to the most recent sales data from Seattle-based cannabis analytics provider Headset.

Stiiizy sells nearly $25 million in vape pens and cartridges every month through its large network of in-house stores and distribution deals with hundreds of other retailers.

Nearly a quarter of all vape pens sold in California are from Stiiizy, which distributes products in about 900 stores throughout the state.

“It is safe to say Stiiizy is the most known and purchased cannabis brand in California – the brand consumers recognize and remember buying the most,” said Madeline Scanlon, marijuana insights manager at Chicago-based analytics firm Brightfield Group.

Raw Garden, based in Santa Barbara County, is a distant second with a 5.9% market share in vape pens, according to  Headset.

Stiiizy is also the state’s largest retailer with 31 locations.

Beyond California, Stiiizy operates three stores in Michigan and has distribution deals with an additional 500 stores in Michigan, Arizona, Illinois and Nevada.

Industry backlash

Some members of a California marijuana retail trade group intend to boycott the purchase of Stiiizy products based on the L.A. Times report.

The United Cannabis Business Association (UCBA), comprised of licensed retailers statewide, posted an Instagram message last week decrying a lack of enforcement on licensed and unlicensed retailers.

Such operators still proliferate throughout Southern California nearly six years after the state launched its regulated, adult-use market.

The UCBA’s post about Stiiizy was less than discreet: “Urgent! Lack of enforcement allows legal operator to play both sides in CA cannabis industry.”

A follow-up UCBA comment on the post said the allegations are alarming enough that the organization’s president – Jerred Kiloh, who owns a store in Los Angeles – and other board members intend to cease any further purchases from Stiiizy until the charges are fully resolved.

Kiloh, a vocal critic of illicit L.A. area dispensaries for years, told Green Market Report that about 40 retailers intend to boycott Stiiizy products, which include popular vape cartridges, flower and infused THC edibles.

Sato said he was unaware of the UCBA’s existence until last week and that the hardline stance by some of its members represents a minority sentiment in the industry.

“We’ve received a lot of support and phone calls, emails and letters from many, many retailers and other industry players,” he said.

“To our knowledge, not a single retailer has told us to cancel any orders or has made any changes to the regular orders they make.”

Sato noted that the UCBA’s general counsel, Yelena Katchko, is a board director at Glass House Brands, a Santa Barbara County-based megagrower accused of being one of the largest suppliers of marijuana in the illicit market.

The claims were made in a lawsuit filed by Catalyst Cannabis Co. CEO Elliot Lewis.

“It’s sad that another industry player is using this opportunity to throw mud at us, especially considering the stale nature of the allegations,” Sato said.

Glass House in late June filed a defamation suit against Catalyst, denying the allegations.

Sato expects the fallout from the allegations against Huang will have little effect on the company’s customer base or their brand sentiments.

“Customers in the cannabis industry are very discerning,” Sato said.

“They’re really attracted to authenticity, and I think that’s the reason why our products continue to be so popular.”

Stiiizy’s vape brand has the most awareness in Arizona and is among the most recognizable in Michigan, according to Brightfield.

In the four markets where Stiiizy products are sold, upward of 55% of vape consumers listed “reliable” as a brand descriptor.

“In these states studied, Stiiizy’s overall perception is very positive, with the highest amount of negative perception in Michigan at only 3%,” Scanlon said.

“We’ll continue to monitor if negative press dents Stiiizy’s perception in the minds of consumers. As of now, they stand as a strong, well-liked, well-distributed goliath of U.S. cannabis.

“While negative press about the brand might resonate throughout the industry, the general consumer is unlikely to change their affinity for the brand.”

Stiiizy released a statement through its account on X, the platform formerly known as Twitter, highlighting its origin story during California’s Proposition 215 era while touting compliance efforts.

“We are for and by the people. We work tirelessly to bring the true cannabis culture while operating at the highest level of compliance,” Stiiizy said in the statement.

“We take pride in providing the highest level of transparency to the cannabis regulators and city officials who audit our books and facilities year after year.

“Together they ensure our organization upholds the requirements set forth by the states we operate in and exceeds the needs of our customers.”

Knockoffs and markups

Sato and other Stiiizy executives are well aware their products are showing up on shelves in unlicensed stores.

Sato said he was shocked at the abundance of Stiiizy-branded products he saw being sold at New York bodegas during a trip there earlier this year.

The company purchased and tested several products available at various illicit retailers in New York and found that about half were authentic and half were counterfeit.

Sato told MJBizDaily he believes the authentic products are purchased legally in California for $20-$25 at retail and shipped to New York, where they sell for $60-$90 per item.

“They buy them legally and mark up the prices illegally,” he said.

As for counterfeits, Sato said Stiiizy is working with customs agents in China to mitigate the export of bogus products.

“We’ve successfully prevented multiple shipments of counterfeit products being shipped out of China into the United States,” he said.

Stiiizy, he added, was one of the first brands to include QR codes on packaging to ensure legitimacy.

Sato reiterated that Stiiizy has too much to lose by engaging in underground activities.

“We are the No. 1 brand in the country right now,” he said, “and we have an opportunity to leave no doubt of being the No. 1 cannabis company in the world.

“We wouldn’t jeopardize this once-in-a-lifetime opportunity and the unlimited potential this company has for a few dollars here and a few dollars there, being involved in the illicit market.”

Chris Casacchia can be reached at chris.casacchia@mjbizdaily.com.