SCSA Group, Inc. v. Department of Cannabis Control, a California State Agency

Breach of contract (3rd cause of action): Plaintiff does not oppose the demurrer as to this claim. The demurrer is thus SUSTAINED without leave to amend as to this claim.

Counsel for Defendants shall give notice of this ruling.

8. Fernadez v. Pacific Life Insurance Company 25-1520544 (Moot) 9. SCSA Group, Inc. v. Department of Cannabis Control, a California State Agency 24-1433413 Before the court are two demurrers and one motion to strike filed by two defendants.

In the first demurrer, the Department of Cannabis Control (“DCC”) challenges the Second Amended Complaint (“FAC”) filed by SCSA Group, Inc., 1 Vertical, Inc. Dba 420 Central, Vertical Four, Inc. dba 420 Central - Newport Mesa and Ngu Holdings, Inc. (collectively,

“Plaintiffs”). This demurrer is SUSTAINED with 14 days leave to amend, as set forth herein.

In the second demurrer, the California Department of Tax and Fee Administration (“TFA”) demurs to the SAC. This demurrer is SUSTAINED with 14 days leave to amend, as set forth herein.

In light of the ruling on the demurrer, the motion to strike by TFA is MOOT.

DEMURRER BY DCC

DCC demurs to the 2nd cause of action (“Failure to Perform Enforcement Duties Under MAUCRSA” and 3rd cause of action (Arbitrary Conduct And Selective Enforcement) on the grounds the Plaintiffs have failed to plead compliance with the Government Claims Act.

Prior to filing a suit against a public entity, a plaintiff must comply with the Government Tort Claims Act, which states, in part: “no suit for money or damages may be brought against a public entity on a cause of action for which a claim is required to be presented . . . until a written claim therefor has been presented to the public entity and has been acted upon by the board, or has been deemed to have been rejected by the board.” (Gov. Code § 945.4) The claim presentation requirement is “is not merely procedural but is a condition precedent to maintaining a cause of action and, thus, is an element of the plaintiff's cause of action.” (Perez v. Golden Empire Transit Dist. (2012) 209 Cal.App.4th 1228, 1236)

In their opposition, the plaintiffs point to paragraph 74 of the SAC which alleges generally that “Plaintiffs submitted a Government Claims Act claim” and that it referenced improper taxes as well as the track and trace system. One part of paragraph 74 relates to the causes of action against TFA and the other part relates to causes of action against DCC. However, Plaintiffs have insufficiently pled that either separate claims were made as to the conduct of each agencies or that a single claim was made. Further, while plaintiffs allege the claim made to TFA was denied (SAC ¶79), there is no allegation the claim to DCC was denied.

Accordingly, the demurrer by DCC to the SAC is SUSTAINED, with 14 days leave to amend.

In addition to the foregoing, the Court notes DCC’s argument that the plaintiffs’ claims against it are improperly joined with the claims against TFA.

Code of Civil Procedure section 378 states, in part, “All persons may join in one action as Plaintiffs if: (1) They assert any right to relief jointly, severally, or in the alternative, in respect of or arising out of the same transaction, occurrence, or series of transactions or

occurrences and if any question of law or fact common to all these persons will arise in the action.”

The claims against DCC are unique in that they relate to B&P Code §26067 pertaining to track and trace. On the other hand, the claims against TFA and OAL pertain to improper collection of an excise tax under Rev. & Tax Code §34011, et. seq. While the claims against DCC appear markedly different from the claims against TFA, the defendant has not established prejudice as a result of the joinder.

The Legislature intended “that joinder be liberally construed so as to prevent the diseconomy of a ‘multiplicity’ of cases.” (Petersen v. Bank of America Corp. (2014) 232 Cal.App.4th 238, 249.) “Although the code seems to authorize the sustaining of a demurrer solely on such a technical objection [of misjoinder], the authorities indicate that the defendant is entitled to a favorable ruling only when he can show some prejudice suffered or some interests affected by the misjoinder. (Royal Surplus Lines Ins. Co. v. Ranger Ins. Co. (2002) 100 Cal.App.4th 193, 198.)

DEMURRER BY TFA

Request for Judicial Notice

TFA requests the court take judicial notice of four Statements of Account it issued to the Plaintiffs. Copies of the documents are attached as Exhibits 1-4 to the request for judicial notice. The request for judicial notice is GRANTED as to the existence of the documents but not as to the truth or accuracy of the contents of the documents. (Evidence Code §452(c).)

1st Cause of Action – Improper Taxation AND 4th Cause of Action – Declaratory Relief

TFA demurs to both the 1st and 4th causes of action on the grounds the plaintiffs have failed to plead they paid the taxes.

“Longstanding California law forbids courts from enjoining the collection of taxes, directing taxpayers instead to pay taxes and then seek relief in the manner provided by statute.” (Morgan v. Ygrene Energy Fund, Inc.(2025) 18 Cal. 5th 1061, 1074) The California Constitution, Article XIII, section 32 (“Section 32”) provides that: “No legal or equitable process shall issue in any proceeding in any court against this State or any officer thereof to prevent or enjoin the collection of any tax. After payment of a tax claimed to be illegal, an action may be maintained to recover the tax paid, with interest, in such manner as may be provided by the Legislature.”

“This rule applies whether a taxpayer challenges a tax directly, by expressly seeking to prevent or enjoin its collection, or indirectly, by pursuing other relief that would have the same effect. As our case law explains, any other approach would shortchange the weighty interests underlying the prohibition on tax injunctions. (See State Bd. of

Equalization v. Superior Court (1985) 39 Cal.3d 633, 640 [‘It is also the rule that a taxpayer may not circumvent restraints on prepayment tax litigation by seeking only declaratory relief’]” (Morgan v. Ygrene Energy Fund, Inc.(2025) 18 Cal. 5th 1061, 1075; see also, California Dep’t of Tax & Fee Admin. v. Superior Ct. (Kintner) (2020) 48 Cal. App. 5th 922, 926)

Here, both the 1st and 4th causes of action challenge the legality of the cannabis excise tax. For example, the SAC alleges the cannabis excise tax was improperly enacted because TFA failed to follow proper procedures in enacting the tax and seeks an injunction to stop same. (SAC ¶85 – 1st cause of action for Improper Taxation) The SAC further alleges the amendments to Regulation 3700 and 3802 regarding taxation of cannabis accessories are “invalid and of no legal force or effect.” (SAC ¶102 – 4th cause of action for Declaratory Relief)

Plaintiffs do not dispute that they have not alleged they paid the taxes or that they were unsuccessful in obtaining a refund. Instead, they attempt to re-cast the allegations in the SAC as not being a challenge to the validity of the tax. The Court disagrees and finds these two causes of action are a challenge to a tax.

Accordingly the demurrer by TFA is SUSTAINED as to the 1st and 4th causes of action, with 14 days leave to amend.

MOTION TO STRIKE BY TFA

In light of the ruling on the Demurrer, the motion to strike by TFA is MOOT.

Counsel for TFA is ordered to give notice of this ruling. 10.

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