Surviving a legal storm, High Seas cannabis boutique is ready to open in Costa Mesa
After waiting months for a permit to operate in Costa Mesa — and navigating a lawsuit, police raid and protracted settlement agreement — owners of the High Seas cannabis boutique are ready to open their doors in an early April grand opening.
The dispensary has been at the eye of a months-long legal storm between a trio of legal cannabis proprietors, who claim they’ve upheld the letter of the law, and city police and prosecutors seeking to prove cannabis was illegally sold and delivered to customers before High Seas had obtained a cannabis business permit.
For the record:
3:22 p.m. March 11, 2024An earlier version of this story incorrectly stated Rachel Xin is the majority shareholder of High Seas. It also did not clarify that only two Se7enleaf employees were arrested on Sept. 7. A third individual worked for Expando.
A settlement agreement reached last month details an unannounced inspection and undercover police action that ultimately led to a Sept. 7 raid on three facilities in the city’s Measure X “Green Zone†and the seizure of computers, records and about $1 million of product that has not as yet been returned.
“This is not a settlement I feel good about,†said Michael Moussalli, who co-founded cannabis manufacturer, processor and distributor Se7enleaf, one of the raided businesses, alongside partner Matteo Tabib in 2015. The two partners also hold a minority interest in High Seas.
“I feel like I was extorted, but I had no other choice but to do it. Because if I don’t, this amazing store that we’ve built with the amazing staff that I have, I’m going to lose them.â€
A well-known player in the legal marijuana market who helped inform Costa Mesa’s ordinances regulating industrial and retail cannabis businesses, Moussalli claims Se7enleaf employers and owners were harassed by police acting under direction of a city prosecutor known in the industry for taking a brash approach toward perceived “vice†businesses.
“We’ve been bullied throughout this whole process by [the prosecutor] Gregory Palmer. The guy’s a real piece of work,†he said Thursday, describing a raid by local police that resulted in three arrests and months of fraught negotiations with the city’s legal team.
“In another world where High Seas already had its permit, I never would have settled with the city — nothing illegal was done here.â€
Palmer did not respond to an email request for comment.
Charting a course
In 2021, Orange County real estate developer Rachel Xin partnered with Moussalli and Tabib, already doing legal business in Costa Mesa through Se7enleaf, to open a 7,215-square-foot dispensary at 1921 Harbor Blvd.
While the Se7enleaf co-founders together are majority owners in the business, Xin is the largest single shareholder. She claims to have spent more than $6 million acquiring the building and another $4 million in tenant improvements, including the installation of two giant saltwater aquariums inside a capacious showroom. A full staff was hired to handle daily operations.
But their plans hit a snag in late September when, after breezing through the city’s exhaustive planning and permitting process, they were denied a cannabis business permit with no official explanation from city officials.
Rachel Xin, majority owner of High Seas, said after spending $10 million and two years sailing through the city’s application process, staff have failed to sign off on the last step, costing her and partners $111,000 a month.
Left high and dry, the proprietors filed an Oct. 18 lawsuit seeking a judicial order to end the closure, which Xin estimates has cost about $110,000 a month, including a monthly rent of about $80,000 and paying employees partial wages to keep them on the payroll until the shop could open.
“The loss every month that we are having here without having our doors open is insane,†Xin said Thursday.
Speaking to the Daily Pilot in November, Xin maintained the city provided no legal reason for withholding High Seas’ cannabis business license and claimed she was not aware of any legal or criminal issues delaying issuance of the final permit.
But documentation provided in the Feb. 26 settlement agreement— which includes a list of alleged code violations at Se7enleaf and describes the arrest of Tabib and two other individuals working the day the search warrants were served — tells another tale.
Enforcement efforts detailed
Provided by Costa Mesa City Atty. Kimberly Hall Barlow, the nearly 60-page settlement document details observations made during an August 10, 2023, routine inspection of a Se7enleaf facility by unnamed “city representatives,†who reportedly discovered various unpermitted operations at the site.
In addition to delivery bags with “High Seas†logos on them, inspectors found promotional items and computer software indicating “operations as a dispatch center for a cannabis delivery operation,†the document states, although Se7enleaf is not allowed to distribute cannabis directly to consumers.
Weeks later, an undercover police officer placed a cannabis online order through High Seas via a mobile delivery app and received various products from an employee who wore a Se7enleaf badge but was driving a car licensed to Expando Products, a legally licensed cannabis delivery service in Costa Mesa.
A CMPD detective on Sept. 6 provided testimony to an Orange County Superior Court judge to obtain a search warrant on two Se7enleaf sites as well as the delivery service, Expando Products, all operating in suites at 3505 Cadillac Ave.
The detective noted the observed business operations involved the unlawful use or administering of a controlled substance and the possible commission of a felony.
Judge Katherine Lewis granted the warrant, authorizing police officers to seize cannabis products and paraphernalia, accounting papers, tax documents, personnel files, bank statements, computer devices and any cash found at the properties.
Among the items taken by police were more than 128 pounds of processed marijuana flower, 24 boxes of cannabis oil cartridges and 124 boxes of vaporizers, along with boxes of documents, Se7enleaf’s security system, computer towers, various electronic devices and $8,105.71 in cash.
Tabib was arrested for license violations (at the time Se7enleaf was renewing the documents and had sent payments to the city but not yet received renewal status, Moussalli said) while two employees — one from Se7enleaf and another from Expando — were detained for obstructing peace officers, after attempting to call their superiors from the scene. After being held for several hours, all parties were released.
Moussalli explained he and others had been researching how High Seas would perform in the local market ahead of its opening by placing the brand online and then distributing some of Se7enleaf’s product to Expando for delivery to customers with High Seas marketing material attached to it.
Se7enLeaf is a manufacturer and distributor authorized to distribute to both dispensaries and in this case, a licensed delivery service (Expando).
Moussalli maintained High Seas never actually came in contact with any cannabis distributed during this research period, as Se7enleaf simply “white labeled†the product and then distributed it to Expando, which delivered it
“Not one piece of product was outside of Metrc, the state’s tracking system. Not one piece of product was unaccounted for. Not one piece of product didn’t have taxes on it paid to the city, and not one piece of product was delivered to anyone under 21 years of age,†he said. “This was done in a fully compliant manner.â€
Moussalli estimated the wholesale value of the seized product at at least $800,000, placing its retail value anywhere from $1 million to $2 million. He said some of it may no longer be fit for sale, after having been held for six months.
Under the settlement agreement, Se7enleaf and High Seas have agreed to pay up to $85,000 to cover the city’s legal fees. However, that figure may be reduced by a percentage proportionate to the percentage of any seized cannabis product deemed unsalable, up to 50%.
A March 14 court hearing will determine whether the materials taken on Sept. 7, still in possession of the city, may be returned to the Measure X businesses.
Costa Mesa’s city attorney speaks
Speaking on the city’s behalf, Barlow confirmed Thursday Palmer has worked as a prosecutor for Costa Mesa under a contract between the city and Fullerton-based municipal law firm Jones & Mayer since before she came to the city in 2004. A page on the firm’s lawsuit indicates Palmer began working there in 1999 and has served several different cities.
While Barlow said inspections on cannabis businesses may be performed by city staff or police acting as city representatives, who may self-initiate visits when criminal activity is suspected, she would not say who authorized the Aug. 10, 2023, inspection of Se7enleaf or the subsequent undercover police activity.
“I’m not going to comment, in this particular case, what led to the search warrant other than what’s in the agreement,†she said.
The attorney described past prosecutorial efforts against illegally operating cannabis businesses in the city, but when asked whether other legal operators in Costa Mesa had been the subject of police raids or had search warrants executed on their facilities, she said she did not know.
“I primarily was involved with this one because they’d filed a lawsuit,†Barlow said. “Typically, when there’s no litigation and [an incident] only involves criminal stuff, I never become involved.â€
High Seas plans soft opening this month
Despite the long period of turbulence with the city and its legal representatives, Xin remains hopeful High Seas will be back to smooth sailing soon enough. A soft opening is planned for the week of March 18, four days after the court hearing to retrieve the confiscated product.
“I try to be more positive and to be more optimistic,†she said Thursday. “[When] I look back and reflect, I think I’ve spent a lot of time and I’ve gained knowledge and education, from products to policy, to regulation to taxation. I think I’m going to stick with it.
“Fortunately, with Mike and Matteo being partners, we made it through,†she continued. “We got the permits and we are opening now. I think I will be a good citizen in Costa Mesa and be positive and do good business with the city. Not that I like the way they’ve treated us, but I want to look forward, not backward.â€
Although Moussalli said he’s extremely disappointed by recent events, he’s still looking forward to High Seas’ opening.
“If I could pack up the dispensary and move it to another city, I would. But we’re here,†he said. “[So] I’m going to put aside my distaste for the city situation. I do like the community and I’m excited to serve the community.â€
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