San Francisco is tackling what is also a statewide problem — illegal cannabis grows, City Attorney David Chiu said.
Chiu’s office on Thursday filed a lawsuit against the owners of two warehouses in the Bayview District for allegedly aiding and abetting illegal grows there.
The suit was filed against property owner PAA Property and its president, David Chi-Yu Lai, who Chiu said “profited from leasing warehouses used for illegal cannabis cultivation and undermining the legal cannabis industry.”
California has been struggling against illegal cannabis operations ever since the sale of the crop became legalized in the state in 2016. While legal dispensaries and grows have grappled with taxation and other regulations, the illegal market has thrived in the state to the tune of billions of dollars.
“The enforcement of the illicit cannabis industry is no longer about a plant,” Duncan Ley, owner of the California Street Cannabis Company in San Francisco, said in a statement released by Chiu’s office. “It’s about supporting the legal industry, which is suffering in California due largely to the illicit market and lack of enforcement.”
According to the website Statistica, which tracks data, illegal sales of cannabis in California in 2019 were $8.7 billion, with only $3.1 billion in legal sales. Those numbers appear to be changing, however. In 2024, illegal cannabis sales in the state reached $6.4 billion but were outpaced by legal cannabis sales of $7.2 billion.
It’s not just monetary competition that concerns regulators and legitimate cannabis businesses. There are environmental and safety concerns surrounding illegal grows, many of which are controlled by organized crime.
“With thousands of illegal plants seized, the scale of this operation harms all the legitimate cannabis businesses. … These illegal grow houses were rife with building code violations and fire safety issues, demonstrating why our cannabis regulatory system is so important.”
City Attorney David Chiu
The San Francisco suit alleges that the defendants illegally cultivated over 5,800 cannabis plants in the warehouses and evaded taxes and regulatory oversight.
“With thousands of illegal plants seized, the scale of this operation harms all the legitimate cannabis businesses,” said Chiu in the statement released by his office. “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.”
In order to cultivate cannabis for commercial purposes, operators in San Francisco must have a license from the California Department of Cannabis Control, or DCC, and a permit from the San Francisco Office of Cannabis, Chiu said.
Since 2020, PAA Property has owned two warehouses in the Bayview located on Wallace and Fitzgerald avenues. Chiu said authorities were tipped off when they saw unusually high power bills for the sites, noticed a high level of security around them, and even smelled cannabis coming from them.
In 2023, the DCC found the illegal, unpermitted cannabis operations at both properties, Chiu said. 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, according to Chiu.
Multiple city departments issued notices of violations for fire, building, and planning code infractions at the properties.
Chiu’s office alleges 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,” said Chiu.
In the suit, San Francisco is seeking $167,500 in penalties and injunctive relief to cease all cultivation at the at the properties, which also need to be brought up to safety codes.