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Santa Rosa cannabis manufacturer CannaCraft will pay $510,000 in civil penalties and contributions to local environmental programs, according to the terms of a tentative settlement with prosecutors reached Wednesday, marking the end of an investigation into the company dating back to 2016 when producing concentrated marijuana oil was an unregulated and largely unrecognized business.

Police seized about $500,000 in cash slated for payroll and took the company’s extraction equipment worth more than $2 million during the June 15, 2016 raid of its Circadian Way facility in southwest Santa Rosa. But since then, the case has transformed from a criminal investigation into a civil matter involving business and building code violations, such as inadequate ventilation and improper disposal of cannabis byproducts.

Sonoma County District Attorney’s officials said no criminal charges will be filed against Dennis Hunter, the company’s co-founder, who after the raid was jailed on $5 million bail on suspicion of felony drug manufacturing but released within a day.

Chief Deputy District Attorney Scott Jamar said the settlement agreement, which will be final once signed by a judge, is emblematic of the significant shift in marijuana laws between 2016 and today, including the November 2016 California vote legalizing recreational marijuana. It is also indicative of the learning curve for cannabis businesses operating in the open for the first time, he said.

“We want to hear the voices of the voters, and we want to look at this from the standpoint of a legal industry,” Jamar said. “Clearly there were public safety violations here, and we’re looking for a commitment from the marijuana business community to accept the rules.”

Hunter’s arrest and the high-profile raid by heavily armed law enforcement officers and hazmat crews of the company’s main facility plus five other properties in Sonoma County sparked an outcry from local marijuana advocates and business leaders, who gathered the next day in protest outside Sonoma County Superior Court in Santa Rosa.

It also raised questions about the safety of extracting cannabis oil, a little-known process most visible when fires erupt from makeshift hash oil labs using volatile butane gas, a problem fire officials said had become dangerously prevalent.

But Hunter said his facility was designed to be a safer and more professional facility than the type of clandestine workshops where people have made concentrated cannabis oil for decades. Hunter admits they had failed to meet some requirements, and the police investigation led them to quickly get the facility up to standards. The investigation started when a former employee contacted state Department Occupational Safety and Health investigators, and that agency contacted Santa Rosa police.

“I had a lot at risk. It was a scary time for me personally and for the company,” Hunter said. “I think what really made the difference is we were really trying to be transparent beforehand, we were really trying to work with local and state officials.”

Since that time, Santa Rosa city officials have codified local rules allowing the type of manufacturing being done at CannaCraft at the time of the raid — extraction using high-pressured carbon dioxide compressors. And since state rules went into effect Jan. 1, 595 cannabis manufacturers are licensed to operate, including 18 in Sonoma County.

Santa Rosa Police Chief Hank Schreeder, whose narcotics team led the investigation, called the case a “catalyst” for the development of city rules for manufacturing — and possibly the state.

“The industry wanted to come into compliance, but wanting to be in compliance and being in compliance are two different things,” Schreeder said.

CannaCraft and its family of brands include Absolute Xtracts vape pen cartridges and a Care By Design line of cannabinoidal products such as nonpsychoactive gel caps and under-the-tongue sprays. The company holds at least six state licenses for medical and adult-use operations, including distribution and manufacturing, and licenses for its Hopland dispensary Emerald Pharms.

Reflecting on 2016, Hunter said he knew he was taking a risk by opening the business at a time when manufacturing was not recognized clearly in the laws. But he said they tried to be open about their operations. About two weeks before the raid, they had given a tour of the facility to about 50 members of a Sacramento delegation, including state legislators or their representatives.

According to the terms of the settlement, CannaCraft and Hunter agree to a series of violations to codes regulating business operations and building standards. Jamar said the problems at Circadian Way involved improper storage and mixing of chemicals, hazardous waste handling and disposal, and inadequate ventilation.

The company agreed the roughly $510,000 in payroll cash taken by police will go toward covering costs related to the case, Jamar said. Santa Rosa police and other agencies involved in the investigation will get $130,000 as reimbursement. A sum of $252,000 will go to Sonoma County’s hazardous materials unit for training, equipment and supplies for cannabis-industry related matters. The remaining $128,000 will cover civil penalties incurred by violating the state’s business practices laws.

Santa Rosa police will return the extraction equipment to CannaCraft, which has been in storage for about 20 months. Hunter said the carbon dioxide extraction machines were highly valuable — worth between $2 million and $3 million — and it’s too soon to determine if the equipment was damaged.

Hunter’s attorney Chris Andrian said a judge in Sonoma County’s civil court division is expected to review the settlement this week.

“This case represents part of the learning curve of going from outlaw to law-abiding, and all those steps in between for marijuana businesses,” Andrian said.

You can reach Staff Writer Julie Johnson at 707-521-5220 or julie.johnson@pressdemocrat.com. On Twitter @jjpressdem.

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