Whistleblower claims FBI and DCC ignored multi-million dollar Cannabis Diversion
Former employee said FBI, DCC declined to act on the information provided.
As California continues to grapple with the problem of its cannabis being smuggled as far away as New York City, one longtime West Coast industry insider says authorities have declined to act on information about his former employer, a marijuana executive he said shipped at least $2 million worth of legal cannabis out of state in a roughly 10-month period from 2021 to 2022.
The would-be whistleblower, George Engers, is a former chief operating officer at Top Shelf, which holds active delivery, manufacturing, and distribution licenses in California and does business in Sacramento as Cannazon. Engers, along with former Top Shelf general delivery manager Garrett Webb, has filed suit against Top Shelf and several of its affiliates for whistleblower retaliation, wrongful termination, fraud, breach of contract, and more.
Engers and Webb reported roughly $2.1 million in illegal cannabis diversion and counterfeiting by Top Shelf and company leadership to both state and federal authorities, but they say that nothing is being done about the situation, despite their having provided documentation and testimony to back up their claims.
Now, the two have pinned their hopes on a civil suit against the company and its associates, which they say underscores how broken the California marijuana industry is.
One of the defendants, Quan Le, is the “elusive mastermind behind the scenes,” with straw men named on the actual business permits held by Top Shelf, Engers told Green Market Report in an interview.
Engers and Webb also tried alerting two major brands doing business with Top Shelf – Jeeter and STIIIZY – but said officials at those companies enabled the illegal activity instead of cutting off the diversion.
Case Closed
Engers said he provided the California Department of Cannabis Control and the Federal Bureau of Investigation with 36 invoices from Top Shelf and two other licensed companies, Norcal Medicine Man and Harvard Ventures, for which Engers said Le was placing large orders with vendors such as STIIIZY and Jeeter. Webb also said he gave counterfeit Jeeter products made by Le to authorities, and Engers also provided photos and short videos as evidence.
The FBI, however, told Engers that the “case had been closed,” and an FBI agent told him the DCC also closed its investigation into Top Shelf, he said.
A DCC spokesman responded to an inquiry from Green Market Report, “The DCC does not comment on investigations,” and declined to comment further.
The FBI did not respond to a request for comment.
“It felt like the enforcement arm of the DCC is only focused on combating illicit operators who evade paying into the system, with little attention paid to license holders involved in racketeering,” Engers said.
Engers said the takeaway is that fully licensed cannabis companies breaking state rules are now apparently easier and safer to run – and with less legal risk – than unlicensed illegal marijuana businesses.
‘Counterfeiting Products and Embezzling Money’
Engers and Webb began working with Le in 2021, according to the lawsuit, when Le hired Engers away from Sacramento-based cannabis retail chain Kolas with the promise of a 21% ownership stake in a new startup, which was Top Shelf. Engers even took a pay cut, from $150,000 to $54,000, to join Cannazon as COO, according to the suit, and Webb was one of Engers’ first hires.
Before Kolas, Engers began his cannabis career in 2014, and spent time in management at other licensed cannabis companies, including Sparc, Eaze, and Flow Kana.
At first, things were going well at Top Shelf, but things started to go sideways in January 2022.
That was when Engers noticed large cash withdrawals from the account that he typically used for payroll – but he was denied access to the business bank accounts, and later concluded that Le and his wife, Cyndi Nguyen (also a defendant in the suit), were embezzling money from their own business.
A few months prior, in November, Engers said Le told him about a new plan to place bulk orders with suppliers on behalf of several other retailers to make better use of their purchasing power.
“Initially, it worked, and we were able to place large orders. However, over time, some of these vendors started getting suspicious as the orders grew and the intervals between them were too frequent,” Engers said.
As the vendors’ suspicions grew, so did his own. There were too many things that didn’t add up, such as how Le allegedly couldn’t provide the state license numbers or other basic info on other retailers for whom he said he was placing large bulk orders, Engers said.
Things began to really fall apart in the summer of 2022 when Le approached Webb and asked him to try a couple of pre-rolls in order to see “how these compare to the real thing,” Engers recounted.
Both Webb and Engers believed that Le was counterfeiting Jeeter products, and Engers said he found a full pallet of Jeeter goods that had been stripped of their labels for use on the counterfeited products.
“Garrett (Webb) eventually told me about this and mentioned that he didn’t smoke them because he didn’t feel he could trust the product in it. We were previously told that (Le) would repurpose products that failed testing for mold or arsenic,” Engers said.
Despite all this – and the inability of STIIIZY and Jeeter representatives to confirm the validity of business licenses on whose behalf Le said he was making large purchases – those two vendors continued selling in bulk to Le, Engers said.
The questionable invoices that Engers provided to both authorities and Green Market Report began in October 2021 and continued through August 2022. Webb and Engers were terminated in October 2022, according to the lawsuit.
Most of the invoices that Engers said were suspicious were for orders in the tens of thousands of dollars, but some – primarily orders placed for Norcal Medicine Man – were in the six figures. And many of the orders were for far more product than Cannazon was selling, Engers said.
For instance, Cannazon alone would sell only about 20,000 units per year of Jeeter and STIIIZY products combined. But according to the 29 suspect invoices, Le ordered 66,300 product units from Jeeter between October 2021 and August 2022, and another 89,000 product units from STIIIZY in the same timeframe.
Engers said there’s no way Cannazon or the other retailers Le was supposedly ordering for could have sold that much in such a short time, which he said makes it more obvious that diversion to the illicit market was taking place
Enabling Diversion?
In February 2022, Engers traded text messages with Michael Kim, a sales executive at STIIIZY who had tried to verify independently that Le was making purchases for a Los Angeles delivery operation – but the license holder told Kim the operation wasn’t affiliated with Le.
But Kim did nothing with that information, Engers asserted. Engers alleged that the reasoning was simple: The two companies and their sales reps were making sizable profits from Le’s orders.
“Quan’s substantial orders, reaching as high as $300,000 (cash on delivery), were indeed a windfall for STIIIZY and Jeeter,” Engers said. “It became apparent that the vendors were aware of potential regulatory issues and were providing hints and advice on how to modify the orders for plausible deniability in case of any legal repercussions.”
In late summer 2022, according to the lawsuit, Le “transferred another (Jeeter) shipment that (Webb) could not ensure was authentic, prompting him to blow the whistle,” according to the lawsuit.
“Garrett notified Jeeter … via email informing them of the counterfeits and out-of-state shipments of the massive orders,” Engers said. “The Jeeter rep ignored the issue in an emailed response, so I replied with a corroborating statement. Garrett was terminated a couple days after.”
Engers also had taken steps to remove both himself and Webb from any sales accounts between Top Shelf and Jeeter.
On Sept. 16 last year, Engers reached out to a Jeeter sales representative, Noah Brewster, and copied two other Jeeter staff on the email, as well as Webb.
“It has come to our attention that the Ownership at Norcal Medicine Man, Harvard Ventures, and Top Shelf (Crystal and Quan) were conducting illegal activity w/ regards to these extremely large orders being placed through the business. As you are aware, I removed myself from that account a couple weeks ago when I found out what was happening. Apparently the product was moved across State lines along with counterfeit products they manufactured. We do not condone any of this activity and are cooperating with the investigations,” Engers wrote in an email thread shared with Green Market Report.
Webb wrote separately to Jeeter reps on the same day, “The ownership is actively counterfeiting Jeeter products, and are moving METRC compliant products across state lines. I am not okay with this illegal activity and taking action to distance myself from it.”
Brewster wrote back to Webb that day, “This email is coming as a bit of a surprise, I think I speak for the other members of the Jeeter team when I say we are a little confused as to what you mean here!?”
After that, Le and his associates began a smear campaign against Engers and Webb, the lawsuit maintains, including allegations of theft and other misdeeds that justified both of their firings.
Fingerpointing All Around
An attorney for Top Shelf and the other defendants in the wrongful termination suit said they all categorically deny any wrongdoing and “look forward to proving the falsity of (Engers’ and Webb’s) claims,” but declined to comment further due to the pending litigation.
In an emailed statement, Jeeter parent company DreamFields said allegations made in the lawsuit about its company are “unsubstantiated and false.”
“DreamFields has a zero-tolerance policy for unethical or illegal activities, and we do everything in our control to align ourselves with cannabis professionals that comply and respect the law,” the company wrote. “Before conducting any form of business, DreamFields validates each prospective partner’s respective licenses and permits, which includes verifying the active status of such prospective partner’s sellers permits, business licenses and all licenses issued by California’s (DCC).”
STIIIZY also weighed in via emailed statement, and wrote, “This is the first we’re learning about this lawsuit and the allegations against Cannazon for diversion. Our company has a proven track record of meeting and exceeding requirements set forth by California regulators, working in full cooperation with DCC, and all government agencies where we operate. We are confident STIIIZY will be absolved of any affiliation in the illicit activity between these two partners.”
Reached by phone in late April, the owner of Norcal Medicine Man, John Main, also denied any wrongdoing, and said he’d cut ties with Quan Le months ago.
“This guy worked for me before, but it’s been four months, and I never did any business with him in moving anything or diverting anything or doing anything illegal,” Main said, adding that Le is “not a bad guy” and that Le told him he’d fired Engers for theft.
Nothing to See Here
Engers’ and Webb’s lawsuit is scheduled for a hearing in Sacramento County Superior Court on Sept. 1.
But to Engers, the real issue is a lack of any investigation or penalty by authorities for what he says is an easily provable and egregious shattering of state and federal laws. Engers said it would be simple for the DCC to verify his claims about the invoices and orders by checking their status in the state track-and -race program, Metrc.
“I reported all the illegal activity to the DCC and provided them with evidence including invoices from STIIIZY and Jeeter, photos of counterfeit supplies, and information on how to corroborate my allegations. I received a generic acknowledgement of my complaint and a phone call asking if there was anything else I’d like to add,” Engers said. “Despite waiting for months, I did not receive any response or information from the DCC. I reached out numerous times, but the analyst refused to respond.”
To this day, Top Shelf remains licensed and operational, Engers said.
On top of that, Engers said orders placed for Top Shelf have continued showing up in his personal email, which had been connected to the wholesale platform LeafLink when he was employed by Le. Engers said Le apparently forgot to remove his email from the network.
Engers shared the additional three invoices he’d received – between December 2022 and February 2023 – for 7,675 units of Jeeter pre-rolls, vape cartridges, and live resin with a total value of $116,000.
“Despite reporting the violations and providing evidence, the business remained unaffected with an active license,” Engers said.
