Alex Halperin

Cannabis product safety is under scrutiny as never before. Following the 2019 vape crisis which sickened more than 2,000 and killed dozens, consumers have good reason to want to know what's in their weed. While the culprit is believed to be vitamin E acetate, a dilutant once popular with unlicensed vape companies, testing labs are on the front lines of protecting the legal pot supply.   

To better understand the issues involved, WeedWeek interviewed Frank Traylor, CEO of Colorado cannabis testing company AgriScience Labs about naturally occuring vitamin E, the next product safety crisis and his predictions for 2020. This interview has been lightly edited for clarity and length. 

AgriScience is a Colorado certified marijuana testing laboratory. We were founded in 2013 and licensed in 2014 making us the longest standing certified testing lab in the country. We provide primarily regulated testing for Colorado companies.

What should a cannabis company look for when choosing their lab? 

Different customers have different needs. Some shop exclusively on price. We believe that trust, consistency, and communication are the most important factors in selecting a lab. Most important, the client must trust their lab to ensure they have compliant products. There have been products pulled off the shelf that tested positive for contaminants. A lab should be trusted to ensure this doesn't happen.

Second, test results must be consistent between samples and over time. We measure the variance of each test against historical results to identify issues either internally or externally. Our customers use our results to refine growing methods and produce complex products. They need to know that our results accurately reflect changes that they have made or perhaps problems that have emerged in their processes. 

Third: Communications. Our scientists are available for consultation with customers. Sometimes this is to discuss unexpected results, other times we may compare testing methods to ensure best practices. 

Since 2015, WeedWeek has been the best way to keep up with the Green Rush. WeedWeek's audience includes many of the most influential figures in cannabis because we are editorially independent: Advertisers have no influence on our editorial content.

We publish three free newsletters: 1) WeedWeek by founder Alex Halperin, 2) WeedWeek California by Donnell Alexander and 3)WeedWeek Canada by Jesse Staniforth, as well as the WeedWeek Podcast and original reporting. The original WeedWeek newsletter has 11,000 subscribers.

Tips, comments and complaints to Alex Halperin alex@weedweek.net.

Connect with WeedWeek on Twitter and Instagram.

To advertise contact John Bollinger john@weedweek.net and Ellen Bollinger ellen@weedweek.net.

What do you currently test for? Of that what's required and what is optional?

We perform the Colorado regulated tests: potency, homogeneity, total yeast and mold, e coli and salmonella, residual solvents, pesticides, and heavy metals. We see mostly submissions for these tests to meet regulatory requirements but sometimes we'll see submissions for these tests as R/D during product development. We also test for vitamin E acetate as the current vaping crisis has driven a lot of interest. 

How has the vaping crisis changed your business and lab testing more generally?

We haven't seen a large change but the volume of cartridges tested has certainly decreased. We think this will bounce back as we haven't seen dangerous levels of contaminants in any legal Colorado cartridges. In general, I think that labs are being forced to look for the new contaminants identified by the CDC as potentially dangerous. We don't have regulatory requirements to perform these tests in Colorado but they are being requested.

You've said you've found natural Vitamin E acetate in products. What does that refer to?

Vitamin E is present in plant material and a small amount of vitamin E converts to vitamin E acetate. We are seeing levels as high as 400 parts per million.

It sounds like what you're saying is there are trace amounts of it occur naturally in plants but not at concerning levels. 

We don't know the safe level of vitamin E acetate but we do know that black market vapes that have shown to cause lung illness have as much as 500-1,000 times this amount of vitamin E acetate in the synthetic form.  

What do you regard as some of the potential product hazards that the industry needs to look out for in incoming months? 

We see a good level of safety in the regulated market. We don't have enough data yet to know the level of heavy metal failures but I can imagine there are some outdoor grows that will have hits. The feds are working quickly to regulate hemp and I imagine that we'll see some contaminants depending on the growing conditions. It's impossible to predict hazards that emerge, such as vitamin E acetate, but I believe that the oversight of the federal and state health authorities quickly provide oversight and correction.  

What do you see as some of the big misunderstandings about lab testing in terms of how it's practiced in the regulated industry?   

Lab testing isn't an exact science. There is inherent variability in sampling, prep, and analysis. We know that we produce accurate results based on our historical analysis. The variation that we do see, and the anomalies that we identify, are seen by some as a lack of scientific rigor. It should be understood that there is inherent variability in testing. 

There's talk about lab shopping where companies go around and try and find the lab that'll give them the highest potency. Is this a major issue from what you've seen? 

Yes, it is an issue. Customers will make more money on higher potency results and lose less money on fewer contaminant failures. When there is a financial incentive to use a particular lab, and that lab is certified, some growers will follow the money. We've seen that demonstrated in other states. I believe that the problem is less in Colorado because our industry is more mature. Regular regulatory oversight of labs is important. 

Do you have any predictions for 2020?    

Each state that comes online will experience large market and regulatory fluctuations. There will be problems with too few businesses, then too many, fluctuating until equilibrium. Same with product gluts and shortages. This will be even more pronounced in the hemp market. Hemp regulation will overshoot and divert a lot of supply from regulated supply chains to black market. When marijuana finally becomes legal federally (2021?) we'll see federal legislation cause huge disruptions in the market. 

Do you anticipate more standardization across state lines? Do you see regulators approaching consensuses on these issues and sort of standard procedures? 

I'm surprised at how little standardization there is across state lines. This is starting to improve with better communication between state agencies. Federal regulation of hemp will drive standardized testing and that standardization will transfer over time into marijuana testing. 

AgriScience Labs CEO Frank Traylor on what's next

Q&A: Lab Testing After the Vape Crisis

To outward appearances, marijuana looks increasingly normalized. Expensively packaged weed, sleek dispensaries and the CBD obsession have recast the drug as sophisticated, even healthy. 

Since 2014, when the country’s first legal recreational cannabis market opened in Colorado, the industry has enjoyed extraordinary growth. Recreational use is now legal in 11 states, and medical is allowed in more than 30. Legal sales totaled more than $10 billion in 2018. Virtually all observers predict more states to go fully legal in the coming years and the industry to see rapid growth. 

But from a regulatory perspective, cannabis remains uniquely slippery. The industry operates largely in cash, since many companies can’t obtain bank accounts and other basic financial services. Marijuana also remains federally illegal, and the country’s illicit market is far larger than the combined, regulated state markets. 

As the industry grows wealthier and the large multistate companies compete to increase their footprint, the, regulatory issues are only getting thornier. Further complicating matters, each legal state has its own laws for regulators to enforce and cannabis companies to interpret. And there’s been little apparent help from Washington D.C. – - during neither the Trump nor Obama administrations. 

After Colorado and Washington state voted to legalize recreational in November 2012, the Obama administration had to decide whether to allow these states to set up regulated markets for a federally illegal drug. Its decision came in the form of an August 2013 Justice Department document known as the Cole Memo. Sent to U.S. attorneys in all states, it advised against prosecution for most violations—essentially allowing the state markets to open as long as they effectively enforced federal priorities like no sales to minors, no tolerance for marijuana impaired driving and keeping organized crime out of the industry. 

In January 2018, however, then-U.S. Attorney General Jeff Sessions rescinded the Cole Memo. In retrospect it looks like a symbolic gesture to express his personal disapproval of marijuana: The memo remains the closest thing to federal guidance on what’s expected of the legal states. 

Legal dispensaries seem to be very conscientious about not selling to kids, and stoned driving has not become a significant threat. But other Cole Memo requirements, such as warding off criminal involvement, are trickier. 

In October, two Soviet-born associates of Rudy Giuliani, President Trump’s personal lawyer, were indicted in a scheme to win the favor of politicians in Nevada and other states in order to enter the marijuana business. Thus far, the marijuana industry appears to be only tangentially related to Giuliani and the broader impeachment story; But a phrase in the indictment highlights a little-discussed but potentially enormous problem with the drug’s transition from illegal to legal enterprise.

The indictment says Giuliani’s associates, Lev Parnas and Igor Fruman (and two others), “took steps to hide” the identity of an investor, a foreign national with “Russian roots,” due to the current political climate. (All four have pleaded not guilty.)

Days after the indictment landed, Nevada Governor Steve Sisolak, a Democrat who supports legalization, launched a task force to “root out potential corruption or criminal influences,” in the state’s marijuana market. California and the city of Sacramento also said they would look into the matter after it emerged that one of the indicted men, a Ukraine-born U.S. citizen named Andrey Kukushkin was an officer in a Sacramento marijuana business. (Officials reportedly said there was no evidence of problems with the California licenses.)

To prevent criminal networks from joining the industry, until 2019 Colorado required all direct and indirect investors in pot companies to be identified to the state regulator, the Marijuana Enforcement Division, and for each investor to go through a background check. But laws limiting public disclosure about marijuana investors make it difficult to determine how effectively the state is enforcing the rules. 

In October, WeedWeek reported new details surrounding an apparent 2013 investment of $140,000 in a Colorado marijuana start-up called Ebbu, from an individual who was never identified to state authorities.   

In a 2018 court filing, Ebbu co-founder Michael “Dooma” Wendschuh, who led the company’s fundraising efforts between 2013 and 2015, says Ebbu had a “longstanding policy” of helping investors put money into the company “without publicly revealing their identities.” To Wendschuh’s knowledge, the filing states, “this policy was not intended to avoid compliance with any state or federal laws but  rather to help investors…concerned about the reputational issues associated with having their name on file,” as an investor in a marijuana company. Similar practices, Wendschuh’s filing states, are “common” among Colorado marijuana companies.  (Ebbu’s former CEO Jon Cooper has denied violating any state or federal securities laws, according to a court filing.)

Ebbu’s assets were acquired in October 2018 by Canopy Growth, one of Canada’s largest marijuana companies, in a cash and stock deal worth roughly $250 million. (Canopy and its largest shareholder, publicly-traded American liquor company Constellation Brands, did not respond to requests for comment.)

Colorado regulators past and present decline to answer questions about Ebbu; They also decline to comment on the possibility of unidentified investors getting their money into the state’s roughly 1,500 other marijuana companies. By reputation, Colorado is among the best regulated legal markets.

It isn’t just gangsters and Russians who might prefer their marijuana investments to be anonymous. Many individuals with capital to invest in start-ups also have professional and reputational reasons why they can’t be formally associated with a marijuana. For example, marijuana investments could potentially still cause problems for practicing doctors, lawyers and employees at publicly-traded companies. 

Acreage CEO Kevin Murphy: The WeedWeek Interview

The arrival of marijuana companies with national ambitions has created a new set of regulatory challenges. Several states have created ownership restrictions and quotas on cannabis  licenses, in part to nurture native businesses. In several of these states, issues have arisen surrounding arrangements known as management agreements. These deals resemble the way chain hotels often don’t own their hotels and instead license their brand and operations procedures to the property owners, according to Kris Krane, president of cannabis consultancy 4Front. 

In March, the Boston Globe’s Spotlight team reported that two multistate cannabis companies—Acreage Holdings and Sea Hunter Therapeutics, part of the conglomerate Tilt Holdings ) — appeared to control more than the three recreational dispensary licenses allowed by the state. (To the Globe, both companies denied bending or breaking the rules.)

After the Globe’s story ran, Massachusetts regulators confirmed an investigation, which is ongoing, into these management agreements. It could boil down to a question of what constitutes control of a business. Krane, of 4Front suggested if Massachusetts found Acreage to be in violation it could sue the state in response. Acreage declined to comment to WeedWeek  on the suggestion, but a spokesperson said the company is cooperating with regulators. A Tilt Holdings spokesperson said the company “believes the agreements are within regulatory guidelines” but is “reworking” them. 

Similar controversies surrounding management agreements have arisen in medical marijuana states Maryland, Ohio and Pennsylvania. In June, Philadelphia Inquirer reporter Sam Wood wrote Pennsylvania state lawmakers, “weren’t prepared for creative arrangements that well-financed marijuana companies are using to control more permits than the law intended.” The same could almost certainly be said for other legal states. 

Part of the issue, observers say is that state regulators are perpetually strapped for resources. Further burdening them, their role involves public safety and in some cases ensuring a state market runs smoothly, in addition to enforcement. The question then of what effective regulation looks like becomes hazy. In California, where the situation is especially daunting, roughly two-thirds of the state’s $12 billion in annual cannabis sales take place outside the regulated market.

Asked about these issues by WeedWeek, three lawyers with cannabis clients made similar arguments that legal states are making a great deal of progress. While there may be gaps, they essentially argued that legalization is a regulatory success story, and that most of the shortcomings will be ironed out in coming years, much in the way alcohol is now regarded as well-regulated. 

Considered broadly, this is probably true. But the argument overlooks a key aspect of the marijuana industry. Unlike other industries, marijuana legalization stems from decades of aggressive police tactics and prosecutions which disproportionately punished racial minorities. Its widely believed -- and enshrined in some state and local laws -- that those communities deserve to enjoy the wealth arriving with legalization. Thus far these efforts have yielded limited success. How well the industry is regulated now could have an immense influence on who gets rich. 

Alex Halperin (@alexhalperin) is the editor and publisher of WeedWeek. He lives in Los Angeles.

Correction: This story initially said the Boston Globe's reporting led Massachusetts authorities to open an investigation. The investigation began before the Boston Globe story ran.

Six years into legalization, governing the cannabis industry remains a challenge

Legal Weed's Regulation Mess

iAnthus is one of the more ambitious cannabis companies you may never have heard of. 

The company has 28 stores in the U.S. and is beginning to roll out its Be. dispensary brand in New York, Arizona, Nevada and elsewhere. In 2016, it was the first U.S. cannabis company to go public in Canada. Now that pot stock valuations – including iAnthus’s – are trading near all-time lows, it’s a move some executives are likely second guessing. 

In an exclusive interview with WeedWeek, iAnthus CEO Harley Ford, a former Goldman Sachs banker, discusses how iAnthus coined the term multi-state operator (MSO), the future of interstate trade and why he thinks investors undervalue pot stocks. 

This interview has been edited for length and readability.

To advertise contact John Bollinger john@weedweek.net and Ellen Bollinger ellen@weedweek.net.
*

Ford: Business is great. I've been coming to this conference for five, six years. They had it at the Rio. Everyone stayed at the Rio. The place wasn't sold out. 

You had scenes that looked like the Cantina scene from Star Wars. I was the only guy wearing a suit coat. And people thought that I was covered in cash. 

And you walk through here now and this [conference] is insane. You have massive booths like it’s something from a tech show. I think that's indicative of what the potential is.

WW: Last time we spoke you were just introducing your brand Be. Where are things now?

Ford: We were supposed to launch that in September and then December and now January (2020) in Brooklyn. A couple things happened. We had an original store across from Barclays Center. And then a store right next door that was twice as big became available. So we took the lease and started building that out.

That delayed us a couple months. And then we've had a couple of [routine permitting issues] but we should have it done the end of January. 

WW: Is it looking like New York will legalize REC this year?

Ford: Last year we thought we were going to get full REC. The horse trading didn't allow for that but it looks like it might happen this year. There's budget deficits that grow more supportive. I think the legislative body is going to take it up some time this spring. 

WW: What do you think of Connecticut, New Jersey, New York and Pennsylvania talking about coordinating legalization?

Ford: I think it's the future. Ultimately you're going to have everything legal on a federal basis. I think it will be like alcohol. Counties may opt out and say we're going to be a dry county.

I think you're going to have cross border trade. You'll be able to ship products a lot more like a regular industry. The concept that you have to be vertically integrated in every single state you're in ultimately will go away. I think you'll probably see it in Washington, Oregon, California. You may see it in Colorado, New Mexico. You'll see it in a lot of different areas.

WW: Do you have the sense that they would allow interstate trade even in the absence of federal legalization?

Ford: I don't think the feds will step in and do anything. I mean it depends who your president is. I don't think Trump cares.

Ford: I don't think anyone on the democratic side if they were president would care. Joe Biden is the only one I have some questions about. 

if Connecticut and New York and New Jersey all wanted to ship cannabis around. I think it would be fine. I think it would be good for the industry too. You'd be able to centralize production, drive down costs, make it much more cost effective. I think it allows for more retail outlets. More entrepreneurs could get involved. Smaller mom and pop type entrepreneurs could [get involved].

WW: How does interstate trade help with small mom and pop entrepreneurs?

Ford: You'll probably see production more centralized. You'll probably have more licenses from a retail perspective. More participation on a community level...I don't have a crystal ball but that's how other industries have developed so I would imagine that is how this will develop.

WW: You were the first American company to go public in Canada.

Ford: The first MSO, multiple state operator. We actually coined the term MSO. I was a media banker. That's what we used to call cable companies back in the 80s and 90s: MSOs.

WW: Interesting. Stocks aren't doing so well right now. What do you think that means?

Ford: I'm an efficient markets guy. We've got 60,000 shareholders: The sector's got hundreds of thousands of shareholders. The law of large numbers tells you that, with so many people voting ... they're probably getting it right. But there's asymmetric information. I think what the investment community is doing is pricing an inordinate amount of risk into the market.

At my company I have asymmetric information. I know how delighted our customers are. I know how productive our manufacturing is. I know that we've got money to do things. That's a little more opaque to an investor. 

Individual companies are going to say, well, I've got access to money. I've got a great operating team. My customers are satisfied. I've got great product. So as a CEO I'm going to say “Wow, we are way undervalued,” which I think. 

But do I think the market's wrong? No. I mean if you look at the volatility as well, then volatility on these stocks is crazy. They don't even really trade like stocks, they trade more like an option would. Which when you step back and think about it from an investment kind of perspective that's what all these companies are. They're an option. I'm selling cannabis so long as the strike price of delivering cannabis is reasonable.

WW: Less than risk, I would assume the market is reflecting that companies are losing money.

Ford: Well that's risk. They're saying "OK I get it. There's a $50, $60 billion cash market for cannabis. But they're a little unclear on whether operators can make that kind of money. [Operators need to show they can] compete against the black market with good gross margins and good expense control. 

People look for little indicators -- "Do they have revenue? Do they have cash flow?" --  but until you actually do that quarter, after quarter, after quarter. I think the investment community is going to say "There's a lot of risk there."

That's why I say its asymmetric. From my perspective, I'm like “Yes we can do that. I've got a team that has done it in other industries. We're doing it right now and we were almost cash flow break even in the last quarter.” I think there are some companies already doing that. Some of our peers are generating cash.

The operators, myself included, look at it and say I think the risk is much less. But I'm in control. I have my hands on the steering wheel. The investors are in the passenger's seat. You hit black ice, the passenger is always more anxious than the guy with his hand on the steering wheel.

So, that's the disconnect. I think we're way undervalued. But the investors are like "I can't figure all this out." And then you've got to regulatory overlay on top of it. It just causes a lot of uncertainty a lot of volatility.

Our stock was up last year, 3x. This year its down 70%. That's the problem of having a high volatility. You get the benefits, you get the negatives.

Alex Halperin is the editor and publisher of WeedWeek.

Q&A: iAnthus CEO Hadley Ford

Donnell Alexander


'Tis the season to pray for MORE. 

This moment in cannabis history just may turn out to be a Golden Era for innovation. Technology and creativity have aligned to bring forth more ingenious and satisfying accessories than we can count this season. So, let us celebrate. Throw some low-dose Sea Salt Pop-Up Potcorn into the microwave, if you're feeling peckish, and sit back while I share with you some of my favorite accessories of 2019. 

With all of the dope gifting options available this holiday season, it feels optimistic to start off the list...  with vaping products! 


We publish three free newsletters: 1) WeedWeek by founder Alex Halperin, 2) WeedWeek California by Donnell Alexander and 3)WeedWeek Canada by Jesse Staniforth, as well as the WeedWeek Podcast and original reporting. The original WeedWeek newsletter has  11,000 subscribers.

To advertise contact  John Bollinger john@weedweek.net and Ellen Bollinger ellen@weedweek.net.

In November of 2019, if you're going to offer a vape device you better have, as the kids say, the receipts. Airgraft's receipts come in the form of a diagnostic app that reports all of your cartridge's contents. Just press your vaporizer to your smart phone and see exactly how much THC, CBD, or something unidentifiable and alarming are going into your body. 

It's entirely possible brand that this Los Angeles brand won me over through the impossibly youthful, diverse, and gorgeous models in its advertising. Or,  it could be that the sight of a Besito vaporizer subconsiously reminds me of a Philly Blunt. Probably though, the appeal lay in its clean-feeling high-CBD, low THC oil blends, which come in mint, grapefruit and blackberry. Sometimes a person like to get just a little high. 

Besito vaporizers can be found at these locations.

We didn't for get all of the smokers in the house. Mood Pick, by Israeli-based Trichome Shell, is cannabis extract micro-encapsulated into a thin layer, designed in a shape of a toothpick. A gift for both that friend who likes to  make a tobacco cigarette a bit more European or for enhancing your usual rolled bud with bonus cannabinoids.


West Hollywood-based trans icon Buck Angel has developed the most impressive cannabis-based product I have experienced this year. Unlike Viagra and the like, this CBD beverage leaves its users with no congestion, and the stuff works a good, long time. BuckShot's proprietary blend makes pharaceutical performance enhancers look like trash.

$11.99 (Use the code: BuckShotPower and receive a 5 percent discount.)

The Magical Butter 2 machine is remarkable in its simplicity and versatility. Not only does it extract THC and CBD from herbs in under a half hour, MB2 also turns those cannabinoids in to infused butter, oils, smoothies and even salves and lotions. I made a smoothie for WeedWeek producer Eileen Guo before this week's recording session.

Use the discount code BlackFriday this weekend and get the Magical Butter Master Bundle — which you’ll see online for as much as $260— for $199.  From Cyber Monday through Dec. 6, you can have the MB2 without accessories for $124.95. That’s $50 off by using the code CyberMB.  The codes will also get you discounts on accessories like gummy and butter trays and spatulas. 

You can have to love a water pipe that you can carry around like a warm cup of cocoa. The bubber inspires looks of awe and, frankly, confusion when first encountered. That's part of the buzz, the unique design. Built into this mugs's handle are a perc and smoke pathway are built.  Over time, this water pipe has become a big part of my life.

$89.99 from GRAV.com. Use the code: WEEDWEEK through the end of January and receive a discount of 20%. 

On Monday's podcast version of this gift guide, I asked Alex Halperin how, as a journalist, he would start his 2019 cannabis story. What he said isn't so important. What matters is that you somehow put down your own story of time spent with the plant. These Cannabis Times can unsettle us, but the future is unwritten. 

On Black Friday and through Green Tuesday use the code: GREENANDGOLD  to receive 18% off. 

Happy holidays and three cheers for lovely old capitalism!

WeedWeek's 2019 Holiday Gift Guide

A high-profile Colorado marijuana start-up misled prospective investors and promoted an investment structure that may have violated state laws, according to internal company documents and emails leaked to WeedWeek. The company, Ebbu, subsequently rewarded its investors when it sold its assets in a cash-and-stock deal worth roughly $250 million.

Publicly available court filings and press accounts suggest fundraising irregularities at Ebbu, but these apparently never attracted scrutiny from Colorado regulators or law enforcement. The situation raises questions about how effectively the state enforces its marijuana investment laws. Ebbu’s story shows why money of unknown origin — akin to “dark money” in politics — could be a significant problem in the fast-growing and federally illegal marijuana industry. 

The documents also shine light on the early days of a bellwether cannabis start-up. Ebbu, which had a portfolio of U.S. patent applications, was the “poster child” for the value of cannabis-related intellectual property, a senior attorney told Bloomberg Law this summer.

Soon after its founding in 2013, Ebbu generated buzz with its plan to release "Feelings," a line of marijuana products that would produce specific mood states: Energy, Chill, Create, Giggle and Bliss. Pot delivers a notoriously unpredictable high that can make users sleepy, chatty, horny or paranoid, among other sensations. A marijuana product that induces a specific high on demand is considered by some to be the industry’s holy grail. Over the years, many companies have made similar promises about their products, though there’s scant data to back them up. 

Ebbu co-founder Michael “Dooma” Wendschuh, who led Ebbu’s fundraising efforts for its first two and a half years, said the production techniques necessary to produce the Feelings products were well-established in the perfume industry. A few months after Ebbu’s founding, Dooma said the company also had a chemist who, for six years, had been studying how cannabis affects the brain. 

The company hired several Ph.D. scientists and bought some very expensive lab equipment.  Dooma was interviewed in major media outlets like Fortune, The New Yorker and Fox Business, further boosting Ebbu's credibility. 

In an industry obsessed with respectability, it surely helped Ebbu’s fundraising that both founders were clean-cut guys with experience in the mainstream economy. Dooma is a Princeton grad who co-wrote the blockbuster video game "Assassin’s Creed." Ebbu CEO Jon Cooper was the equivalent of student body president at the University of Colorado, Boulder, before beginning a business career with stints in finance and tech. 

Now in their early forties, Cooper and Dooma became friends early in their careers when both lived in Los Angeles. Cooper moved back to his native Colorado and they reunited there to start Ebbu, months after Colorado voted to legalize recreational marijuana in 2012. (Neither Cooper nor Dooma responded to emailed questions for this story.) 

Ebbu never released the Feelings product line. But in October 2018, one of Canada’s largest marijuana companies, Canopy Growth Corporation, acquired Ebbu’s assets in a deal reportedly valued at C$327 million (US$250 million). Cooper is now a Canopy executive, according to his LinkedIn profile. (Spokespeople for Canopy and Constellation Brands, an American liquor company which is a big Canopy investor, did not respond to requests for comment.)

Like many U.S. marijuana companies, in Ebbu’s early years, it struggled to raise money. Dooma eventually raised about $10 million for Ebbu, but Colorado law, he later told an interviewer, made it “a tremendous challenge, almost impossible.” 

Since its first-in-the-nation market for legal recreational marijuana opened in 2014, Colorado has required all direct and indirect investors in legal — i.e., licensed — pot companies to go through a criminal background check, which includes fingerprinting and financial disclosures. It is intended to ensure organized crime doesn’t profit from the industry.

The process is invasive and time consuming, but perhaps more importantly, lots of people with the money and the inclination to invest in pot start-ups had jobs, custody battles and other life situations that could be adversely affected by association with a stigmatized and federally illegal industry. Colorado does not publicly disclose the names of all investors in licensed marijuana companies, but even so, keeping their involvement confidential was — and remains — a priority for some would-be cannabis investors. 

In a February 2018 court filing, Dooma acknowledged that Ebbu tried to help investors back the company “without publicly revealing their identities,” and said similar practices are common in Colorado’s marijuana industry. To Dooma’s knowledge, Ebbu’s policy of helping investors to mask themselves “was not intended to avoid compliance with any state or federal laws,” the court filing said. 

WeedWeek previously documented a September 2013 transaction in which an individual who appeared to invest $140,000 in Ebbu was not disclosed to Colorado regulators, as Colorado law required. The transaction looked like this: On September 13, 2013, an individual, “E.,” transferred $140,000 to Dooma via a document called a “Custodian Agreement.” One week later, Dooma invested $140,000 in Ebbu. 

In court filings, Dooma identified himself as the investor and didn’t mention E. According to Dooma, it was the first investment Ebbu received. “This financial and security structure was fully vetted with Ebbu’s counsel,” Dooma said in a March 2018 lawsuit.  

Under penalty of perjury, Colorado marijuana license applications and renewal applications require companies to identify “all investments and funds used to start and/or finance” the business. As WeedWeek has previously reported, documents Dooma filed in court suggest Cooper facilitated the $140,000 transfer from E. to Dooma. But when Cooper signed Ebbu’s license and license renewal applications, he did not identify E. to Colorado regulators. Last year, a spokesperson for Cooper said E. had never “invested or loaned money to Ebbu,” and Cooper didn't respond to questions about the apparent financial relationship between E. and Ebbu. 

In an email to Cooper sent weeks before the $140,000 transaction, which Dooma later filed in court, Dooma describes a similar deal structure: “Basically the agreement would say that the person who is paying for the investment will give the money to the person who is actually investing,” he wrote. Dooma also raised the possibility of a “template agreement,” which could be used for multiple similar investments.

“I totally agree with ... a template agreement,” Cooper responded. The $140,000 “Custodian Agreement” signed by E. and Dooma a few weeks later appears to have performed this function. 

The transaction occurred at the very beginning of Colorado’s experiment with marijuana legalization, a confusing time of rapidly shifting regulations. It wasn’t clear to me from the material available whether Ebbu’s failure to identify E. to Colorado regulators on its subsequent license applications was an attempt to skirt the law or a misunderstanding of it. 

Newly leaked emails appear to show that, several months after Dooma’s $140,000 investment, Ebbu’s attorney said he would not participate in deals structured like this, but Ebbu continued to promote the investment structure.

The new leak consisted of about 200 pages of internal documents and emails from the company’s first year; they mostly involve raising capital. In emails, Cooper and Dooma talk up the company’s potential to dominate the industry,  though Ebbu didn’t yet have a permanent headquarters to develop and produce the Feelings products. The documents also shed new light on three-plus years of ongoing litigation, which followed Cooper’s firing of Dooma in early January 2016.

In a leaked email dated two months after the initial $140,000 investment, Cooper appears to indicate that the company’s lawyer, Christian Sederberg, founding partner of powerhouse cannabis law firm Vicente Sederberg, could not endorse this investment structure.

Under the subject line “RE: ‘how to invest in ebbu’ presentation,” Cooper wrote to Dooma:

“Is [a prospective investor] expecting to talk to Christian about gifting? I am happy to arrange a call -- but I think we have to tell [the investor] before the call:   

"1.	Christian is happy to talk about a the [sic] current laws and regs, and about an [investment] structure... 

"2.	Christian will not discuss 'gifting' as that is something that needs to happen outside of the company and without our knowledge…” 

In response, Dooma told Cooper to set up the call. He didn’t address gifting or the lawyer’s view of it. (Sederberg declined to comment citing rules governing Colorado lawyers.)

Despite its lawyer’s counsel, Ebbu still promoted the “gifting” structure as an option for investors. In a January 2014 email, Dooma wrote to a prospect, with Cooper cc’d:   

“GIFTING: It is possible to ‘gift’ funds to a Colorado resident who would purchase equity on your behalf.” 

Dooma attached two slide presentations to the email. It’s not certain which slides he included, but a slide Dooma filed in court illustrates a “gift scenario”: 

The slide appears to model — without explicitly saying so — how an investor (“you” in the slide) could remain unknown to Colorado regulators, as E. apparently did. In a court filing, Dooma said the slide was part of a presentation “developed by Ebbu and distributed by at [sic] Jon Cooper’s request to any prospective [investor] concerned about reputational issues”  associated with investing in a marijuana company. 

In an email to WeedWeek, Franklin Snyder, a Texas A&M University law professor who teaches a course on marijuana law, policy and business, wrote the “gift transaction” structure seems to have no reason “for independent existence apart from the secret investment.”

“It appears to be a sham transaction designed solely to cover up,” the source of the funds,  Snyder wrote. “The investor is the real (or ‘beneficial’) owner of the interest, and not disclosing that fact would make all of the license applications false statements to government officials.” 

Any “agreement of the parties to make false statements could amount to conspiracy,” Snyder added. ”So there may be serious potential criminal violations.” (Snyder is not licensed to practice law in Colorado, and his assessment is based solely on documents provided to him by WeedWeek.)

The above slide “would scare the bejeezus out of me if it were my client!” Snyder wrote. “I’m trying to fathom who could possibly think it was a good idea to even write it down, let alone distribute it.” 

Another slide Dooma filed in court depicted three of six proposed investment structures involving a “gift”: 

Cooper didn't answer whether Ebbu had raised any money from "gifting" transactions. In December 2018, he told me he was not aware of any investigations into Ebbu by any regulators, which he meant as evidence of Ebbu’s good corporate citizenship. 

It’s a reasonable argument — or would be if Colorado were effectively enforcing its marijuana investment laws. Despite numerous queries by WeedWeek over at least a year and a half, past and present state officials have refused to discuss investment law enforcement. 

Colorado’s Marijuana Enforcement Division, known as “The MED,” regulates more than 1,500 cannabis companies. Despite the reputational concerns held by many cannabis investors, The MED refuses to acknowledge the possibility of dark money finding its way into marijuana companies. 

The issue made it into the news this week when an unsealed federal indictment alleged associates of Rudy Giuliani, President Donald Trump's personal lawyer, "took steps to hide" the identity of a foreign investor in a  Nevada recreational marijuana business they hoped to start, part of a complex campaign finance scheme. In response, Nevada Gov. Steve Sisolak(D) immediately pledged to step up marijuana enforcement. 

In Colorado, the MED has “overlapping and reinforcing” measures to maintain financial compliance, a spokesperson said, including at the time of licensing, annual license renewals and during any change of ownership. The agency wouldn’t make anyone available to discuss scenarios such as the potential compliance gap at Ebbu. Citing statute, the spokesperson declined to comment on Ebbu. (After Dooma’s departure, Cooper pivoted Ebbu to focus on cannabis research and voluntarily surrendered its MED licenses in March 2018, about seven months before the Canopy acquisition.)

While several states have struggled to govern their new marijuana industries, Colorado’s market has generally been considered among the better regulated. “We had regulations that work,” former Governor John Hickenlooper (D), who oversaw the first years of regulation, told a reporter in April. “To a certain extent, the largest challenges have passed.” 

Andrew Freedman, who served as Colorado’s first director of cannabis coordination from 2014 to 2017 before founding cannabis consulting firm Freedman & Koski, declined to respond to a list of detailed questions. 

In May 2019, Colorado Gov. Jared Polis (D), who co-founded the cannabis caucus while representing Boulder in Congress, signed an industry-supported bill to loosen the state’s investing rules. Starting this November, public companies will be able to invest in Colorado marijuana companies.

Last year, Hickenlooper shut down a similar bill, calling it “premature” in his veto letter. “We have significant concerns about this broader access to capital markets, particularly as it relates to...keep[ing] criminal enterprises out of the regulated marketplace,” he wrote.

Polis’ office did not respond to multiple requests for comment. Ean Seeb, a cannabis entrepreneur whom Polis’ appointed his special advisor on cannabis also did not respond to requests for comment.  

With almost no apparent coordination or assistance from Washington, D.C., other states are openly struggling to regulate this new industry. Notably, a July 2019 audit in California found the state cannabis regulator is too short-staffed to conduct investigations. 

Cooper fired Dooma in early 2016 for reasons Cooper has never publicly discussed. In court filings, Dooma accused Cooper of orchestrating a “coup” at Ebbu. Dooma alleges Cooper paid a consultant named Daniel Clemens $240,000 to investigate Dooma and find a reason to fire him so Cooper could take over over the company. (Cooper has denied participating in any “unlawful conspiracy” against Dooma.) In a court filing, Clemens said he witnessed Dooma make “serious factual errors and materially misleading statements” to investors independent of Cooper.

A suit filed by Dooma against Cooper has been confidentially settled, but a suit Dooma filed against Clemens is still in play. A central question of the litigation is whether Dooma provided incorrect information to prospective investors to make Ebbu seem more attractive. “I’ve told people what they need to hear to get their money in,” Dooma said in a meeting with Cooper, which Dooma recorded days before Cooper fired him. Dooma later retracted his admissions in a February 2018 court filing, and provided several examples where he alleges Cooper misled investors. 

In February 2019, Clemens filed a lawsuit against Cooper alleging that Cooper engaged in “fraudulent schemes at Ebbu and actions in violation of state and federal securities laws...and that Cooper had conspired with [Dooma] to circumvent Colorado laws.” (Cooper has denied violating any state or federal securities laws, according to the lawsuit. Clemens did not respond to requests for comment.) 

The newly leaked documents indicate Dooma provided inaccurate information about Ebbu to investors, and did so with Cooper’s knowledge.  

According to Colorado records, Ebbu first applied for a license in May 2014 and received it in December 2014. But in an October 2013 email to a potential investor, Dooma, with Cooper cc’d, wrote Ebbu is “fully licensed and duly accredited.” 

The following April, Cooper wrote to Dooma: “fyi -- what have you told him about the license? It could be a problem if he shows up for his apt and we don’t have a license… or even an application in”.

In June 2014, a week after Ebbu applied for a license, Dooma wrote to Cooper: “Fyi when I spoke with [an individual] yesterday I told him we had a license…”  In the leaked documents, at least one investor whom Dooma prematurely told Ebbu had a license indicated he would invest. “We’ll be doing something with Ebbu,” the investor wrote.

Ebbu’s pitch to investors was that its Feelings products would be superior to conventional marijuana products because they would be more predictable. In November 2013 Dooma wrote he was “99.99%!” confident Ebbu could create the five Feelings. “The science is proven. We know how to do it,” he wrote. “We’ve created a precursor to the ‘high energy’ feeling on borrowed machinery.”

It’s not clear how close Ebbu came to developing the Feelings product, but in leaked emails Dooma appears intent on showing  prospective investors a “prototype” even if it was not actually the company’s product.

In January 2014, Dooma emailed Cooper: “See if [an individual] can join the meeting to provide product samples. If he cannot or will not, please go to the Clinic [a Colorado marijuana dispensary] and pick up a nice CO2 oil and remove it from its container and put it in a tupperware or something and just tell everyone it’s our prototype.” 

In December 2015, not long before Dooma was fired, a senior Ebbu scientist wrote to him after a meeting with a prospective investor: “I was put on the spot when you were acting like we had prototypes for Feelings at this moment…I emailed you previously to ask you please not to say this and I was disappointed that you never replied.” (In 2016, a spokesman for Dooma told me Ebbu had prototypes of the Feelings in the second quarter of 2015.)

After he left Ebbu, Dooma started raising money for a new company, with another idea for a “change the world” marijuana product: a THC-powered beer brewed from the cannabis plant. Province Brands’ Instagram is packed with pictures of the huge, elaborate brewery it is building in southern Ontario. The company says it will unveil its first products next year. 

After Dooma’s departure, Cooper redirected Ebbu to focus on cannabis research rather than product development. When Canopy acquired Ebbu’s assets in October 2018, the press release didn't mention the Feelings product line or Dooma, who no longer had a financial stake in Ebbu. The release described Ebbu as a “hemp research” company. 

After the deal closed, Cooper wrote to WeedWeek, “We are not aware of any investors that are disappointed with their investments in Ebbu.”   

Subscribe to WeedWeek's free newsletters: WeedWeek, WeedWeek California and WeedWeek Canada!

Leaked documents raise big questions about who owns the marijuana industry

The Ebbu Files

Cannabis Security: The Hardest Easy Job You'll Ever Have

In California, security work can look like a shortcut into the cannabis industry. Despite popular belief, one doesn’t even need to have a bouncer’s tough aura to work the door at dispensary. It can pay $25-an-hour in a modest-wage municipality like Fresno. Or, it can pay twice as much -- though it won’t feel like it – in San Francisco. 

Since the state requires all open dispensaries to employ security, these public-facing positions  will have openings for as long as brick-and-mortar dispensaries remain viable . But the opportunities don’t end there. Workers who are dependable, trustworthy, and willing to hang around a spell may find themselves escorting cash or product in an armored vehicle, or watching over a manufacturing site, either in person or on video far from the scene.  

Since 2015, WeedWeek has been the best way to keep up with the Green Rush. WeedWeek's audience includes many of the most influential figures in cannabis because we are editorially independent: Advertisers have no influence on  our editorial content.

We publish three free newsletters: 1) WeedWeek by founder Alex Halperin 2) WeedWeek California by Donnell Alexander and 3) WeedWeek Canada by Jesse Staniforth, as well as the WeedWeek Podcast and original reporting. The original WeedWeek newsletter has 11,000 subscribers. 

Tips, comments and complaints about this newsletter to Jesse jesse@weedweek.net.

To advertise contact john@weedweek.net and ellen@weedweek.net.  
*

“When you say security, you’re talking about a range of personnel,” said Elvis McGovern, founder of EL Rey Engineering - which specializes in custom security work for the Cannabis Industry. 

State and local laws and industry standards are new enough that job seekers who don’t have drug dealing offenses can get to work quickly. Too quickly, in too many instances.

“As a private patrol officer I can bring someone off the street and give them eight hours of training” before putting them to work, Sacramento-area consultant Matt Carroll said. Carroll, who comes from a law enforcement background, said state rules call for 40 training hours, but private security companies sometimes throw their newbies into the mixture after only one workday of preparation. 

Are cannabis dispensaries, cultivation sites, manufacturers, distributors and lab testers actually getting that government-mandated training? 

Carroll divides candidates for this kind of cannabis work into three types: The wanna-bes, gonna-bes, and has-beens. The first two tend to be young and enthusiastic but have holes in their resumes wide enough to drive through. 

In the quickly evolving and cash-intensive cannabis industry, security personnel can see action quickly. And that makes the experienced has-beens the most desirable applicants.

You may have heard about Oregon Senator Jeff Merkley (D) accompanying an Oregon operator as he carried a $70,000 tax payment, in a duffle bag. Carroll shared the story of having to escort much more money. “I carried $1.4M into City Hall. I wasn’t feeling really good about it, but one of my clients was representing a number of companies.”

That kind of guard work, a mix of vigilance and chill, is right in the wheelhouse of a specific swath of aspirational and unemployed American. “The silver lining of 20 years of war is we have a plethora of veterans coming out of war zones with immense experience in convoy operations,” Carroll said. He said veteran applicants of this sort should emphasize “Intermodal Security” experience on their linked LinkedIn pages and cover letters.

Distribution companies, which work with large amounts of cash and product, are especially in need of these veterans. However, Carroll said the industry has a problem with distribution and cultivation operations  “allowing unscreened employees learning vault locations and “untold volumes of information” before quitting.

In the year and a half since REC went legal, the security job has changed. The out-of-the-shadows-and-into-the-public-record transition has put increased pressure on security guards. Dispensaries are the cannabis enterprises most often cased by burglars. In addition, to that vigilance, the work often requires constant interaction with the public.

Wannabe security guards who don’t have transport experience can find their niche by coming across as someone who’ll stick around. Dispensaries are plagued by high turnover.  

“The hardest thing is to find someone who wants to do it,” McGovern, of El Rey said. “A lot of people use cannabis as a stepping stone ,” quickly flipping low-level gigs into better ones.

It's the hardest easy job you'll ever have

WeedWeek is the best way to keep up with the green rush. Subscribe to our free weekly newsletter today!

WeedWeek is a media company covering America’s fastest growing and most interesting industry.

WeedWeek Podcast

Original Stories

Q&A: Lab Testing After the Vape Crisis

Legal Weed's Regulation Mess

Q&A: iAnthus CEO Hadley Ford

Are you over 21?