New lawsuit alleges owner and property manager of two Bayview warehouses allowed tenants to evade state and local laws and illegally cultivate over 5,800 cannabis plants
SAN FRANCISCO (October 24, 2024) — City Attorney David Chiu announced today that he filed a lawsuit against the owners of two Bayview warehouses for aiding and abetting their tenants in illegally cultivating over 5,800 cannabis plants and evading taxes and regulatory oversight. The lawsuit was filed against the property owner P.A.A. Property, LLC and the LLC’s manager and president, David Chi-Yu Lai, who profited from leasing warehouses used for illegal cannabis cultivation and undermining the legal cannabis industry.
“With thousands of illegal plants seized, the scale of this operation harms all the legitimate cannabis businesses,” said City Attorney Chiu. “Our legal cannabis merchants are following the rules, paying taxes, providing safe products, and supporting our local economy. These property owners assisted their tenants in breaking the rules to make a profit. These illegal grow houses were rife with building code violations and fire safety issues, demonstrating why our cannabis regulatory system is so important.”
“The Office of Cannabis, Department of Cannabis Control, and various City departments have been working side by side to enforce against unregulated cannabis businesses in San Francisco,” said Nikesh Patel, Director of the Office of Cannabis. “Today’s filing by the City Attorney represents a critical step in elevating that work and sending a clear message that unregulated cannabis businesses and those associated with them will be held accountable. We look forward to continuing this necessary work together and supporting the legal cannabis industry that plays by the rules.”
“The enforcement of the illicit cannabis industry is no longer about a plant. It’s about supporting the legal industry, which is suffering in California due largely to the illicit market and lack of enforcement,” said Duncan Ley, owner of California Street Cannabis Company. “Taxes are certainly another significant issue, and the combination of an ever-expanding and unregulated illicit market and retail theft is crippling the legal industry’s ability to thrive. Despite the aforementioned issues at the state and federal level, San Francisco has been a leader in supporting the legal cannabis industry in California. City Attorney David Chiu’s efforts to enforce the laws and support San Francisco’s local cannabis economy are greatly appreciated!”
Background
California legalized cannabis for recreational use in 2016. In order to cultivate cannabis for commercial purposes, operators in San Francisco must have a license from the California Department of Cannabis Control (DCC) and a permit from the San Francisco Office of Cannabis (OOC).
Since 2020, P.A.A. Property, LLC has owned two warehouses in the Bayview located at 1510 Wallace Avenue and 1355 Fitzgerald Avenue. Lai is the manager of P.A.A. Property, LLC and is directly involved in the operation, management, and maintenance of both properties. P.A.A. Property, LLC leased 1355 Fitzgerald Avenue and 1510 Wallace Avenue to tenants who illegally cultivated cannabis at the respective properties.
In 2023, DCC initiated an investigation that found the illegal, unpermitted cannabis operations at both properties. Collectively, DCC seized 4,485 mature cannabis plants, 1,332 immature cannabis plants, nearly 300 pounds of cannabis shake, and a California-restricted fungicide. Following the DCC search, City inspections also revealed a number of fire and building code violations, including unapproved and hazardous electrical wiring, improper maintenance of carbon dioxide tanks, unpermitted mechanical systems and plumbing, and various fire safety issues. Multiple City departments issued Notices of Violations for fire, building, and planning code infractions at the properties.
Lai admitted knowledge of the illegal operations at both properties only after being confronted with surveillance photographs showing him entering one of the warehouses. By knowingly allowing the tenants to engage in unpermitted and unlawful cannabis cultivation, Defendants assisted their tenants in violating the law and avoiding regulatory oversight.
Illegal cannabis cultivation undermines the success and functionality of the legal cannabis market, and gives illegal operators a competitive advantage over lawful cannabis businesses. Illegal operators avoid paying taxes, and they avoid compliance with the regulations related to permitting, working conditions, safety precautions, and environmental protection.
San Francisco’s lawsuit alleges the Defendants engaged in unlawful and unfair business practices, profited from leasing properties used for illegal cannabis cultivation, and violated multiple state and municipal codes. The City is seeking penalties and injunctive relief to cure the violations at the properties.
The case is City and County of San Francisco and the People of the State of California v. P.A.A. Property, LLC, et al., San Francisco Superior Court. The complaint can be found here.
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