Kenneth Schwarzenberg, 48, appeared in Warrnambool Magistrates Court on Monday via video-link from prison.

Barrister Denis Connell said Mr Schwarzenberg had spent three weeks in custody on remand and intended to plead not guilty to the charges "by reason of entrapment".

He said the prosecution case was not strong and that his client was induced by undercover police officers to commit a crime.

He said Mr Schwarzenberg was approached by the officers at a hotel in Port Fairy and was questioned about the purchase of drugs.

Mr Schwarzenberg was remanded in custody until December 7 when he will appear in court again for a contest mention - a step that is used to resolve matters before the case is adjourned off to a contested hearing.

Mr Connell said his client would make a bail application in the Supreme Court on Friday after a previously failed application in late September.

His comments came as the co-accused Bailey Anwyl, 21, Warrnambool, indicated he would plead guilty to the offences at his next court appearance in December.

A previous court heard police established Operation Stein in April this year in order to investigate the alleged trafficking of drugs in the south-west.

Between April 24 and September 18, two covert police operatives allegedly purchased quantities of drugs from Mr Anwyl and Mr Schwarzenberg, including a gram of cocaine, 110 ecstasy tablets, a gram of rock MDMA and two ounces of interstate-sourced cannabis.

Investigators executed search warrants in Port Fairy and Warrnambool last month, seizing various quantities of cocaine, ecstasy and cannabis.

Police allege the men were breaching coronavirus restrictions to purchase and then sell large amount of drugs.

The two men remain in custody.

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