WeedWeek edition / June 15, 2020
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1 “PATTERN OF DECEIT:” INVESTOR SUES BLOOM FARMS

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An investor who bet $5M on prominent California brand Bloom Farms, is suing its parent company. He alleges it engaged in a "pattern of fraudulent misrepresentation and concealments."
🔒Bloomberg

  • According to the Delaware lawsuit, American General Resources (AGR) said it would achieve positive, growing net income starting in November 2019. 
  • Within 30 days of the June 2019 investment, plaintiff Jeff Menashe claims the company revised down previous net income and pushed back its positive net income target to May 2020. Menashe is CEO of financial firm Demeter Group.  
  • At the time of investment, Menashe says he wasn't aware a "federal securities fraud case was brewing" against then-AGR CFO Ronald Roach. Roach subsequently pleaded guilty to two counts of fraud in a "solar energy Ponzi scheme," unrelated to Bloom, which cost investors and the U.S. Government $1B.
  • Plaintiffs "became concerned about the extent to which foul play or fraud might explain the reasons for AGR's claiming insolvency a mere 34 days after closing the financing" in Q4 2019.   
  • AGR, according to the lawsuit, has "steadfastly refused to have an independent third-party audit," and is pursuing a Series E financing.
  • The suit alleges that the company "continues to fail woefully in observing basic principles of corporate governance." 
  • A spokesman for Bloom Farms declined to comment on the plaintiffs "unfounded" claims, and said the company will "vigorously" defend itself. 

Separately, WeedWeek examined the $50M lawsuit against MSO Columbia Care. 

  • Plaintiff MCBD claims Columbia engaged in a "fraudulent scheme" to strip MCBD of its majority ownership in a Florida MED license.
  • According to the suit, Columbia current controls 10 Florida dispensaries under the license.
  • Columbia Care declined to comment but said it would mount a defense.

A third lawsuit alleges top executives at Canadian MED player Tilray "misled shareholders and engaged in insider stock sales." The company declined to comment to MJBiz

Quick Hit

  1. The Pennsylvania budget quietly awarded a MED license worth $25M to a pair of Republican donors.
    Philly Inquirer
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2 THE EQUITY RECKONING

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Illustration by IG @savinamonet

Protests on racial injustice have cast a harsh light on the cannabis industry's overwhelmingly white ownership.

WeedWeek 🌴California and 🍁Canada have lots more.

Quick Hits

  1. At High Grade Hope, longtime cannabis marketing expert Jared Mirsky is offering three free "brand makeovers" to cannabis companies in need.
    Green Entrepreneur
  2. Portland, Ore. appointed entrepreneur Dasheeda Dawson (a.k.a. The Weed Head) as its new cannabis program supervisor.
  3. Nevada Gov. Steve Sisolak (D) announced a plan to pardon tens of thousands of low-level cannabis offenders.
    CNN

3 POWER PLAYERS: 4TH MVMT’S KARIM WEBB ON CAPITALISM AND EQUITY

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This week's Power Player, Karim Webb, thinks capitalism can address the cannabis industry's ownership disparities.

A former Buffalo Wild Wings franchisee, Webb started 4th MVMT to empower minority cannabis entrepreneurs. The name references Dr. Martin Luther King Jr.’s fight for Black economic empowerment.

The company plans to operate largely like a restaurant franchise: Entrepreneurs receive training and financial support to prepare them for the open market.

Webb talked to WeedWeek about his “enterprise approach” to equity. For a longer conversation with Webb, check out this March 2020 episode of the WeedWeek podcast.  

Here's Webb on 4thMVMT's pitch to consumers:

We’re going to be very loud...We’ve got a lot of really significant influencers, some of the most powerful voices in the world, that are supporting what we’re up to.

Once we’re open and we’ve got proof of concept, we can unleash all of these allies to talk about what we’re doing. I think that’s going to drive a lot of traffic. It’s going to drive sales.

Read the whole thing.

4 CANNABIZ GRASPS FOR NEW NORMAL

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Following months of societal upheaval, WeedWeek business columnist Dan Mitchell checked out the International Cannabis Business Conference's virtual summit to see how the industry is adjusting:

There was a distinct awkwardness to some of the discussions, particularly those surrounding the new movement for racial justice. One major theme was the industry’s struggle — particularly in California — to reconcile social-justice concerns with the bottom line. Pretty much every California-based guest broached the subject, which — in broad strokes — pits old-school pot people against the newcomer moneybags.   

Read it all.

Quick Hits

  1. RedHeaded Blackbelt, a site covering California's Emerald Triangle, has an extensive post on the "new paradigm" of  transporting legal product around California.
  2. To encourage voting, ancillary company KushCo will make Election Day a paid holiday. Are you registered to vote?
    Press Release

5 CALI DELIVERY SUIT HEATS UP

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The California Attorney General's office filed an incendiary brief, ahead of a delivery lawsuit going to trial next month.
MJBiz

Quick Hits

  1. Canna Law Blog explains why it "loves" Harborside's appeal against industry-hated tax rule 280E. The law firm also hosted a webinar on the California market.
  2. A report by the Federal Reserve Bank of St. Louis looks at the economic impact of legalization.

6 WHY NOT SUE THE FEDS FOR COVID RELIEF?

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A Houston lawyer thinks cannabis or ancillary companies could sue the U.S. Small Business Administration for the pandemic relief funds given to other industries.
WeedWeek

"The current rules bar eligibility for businesses deriving revenue from illegal activities. But in defining illegal activities, [lawyer Shane] Pennington says, the SBA relied on its own guidance on whether ancillary businesses were eligible for relief...

Pennington thinks a court could overrule the agency’s interpretation of its own regulation...[which is now] in the books, “mocking everybody,” he said.

He compared the agency’s rules to how other federal agencies frequently offer guidance with huge financial implications—involving fuel standards, for instance, or pipeline locations. Such regulations routinely face challenges from corporations and environmental organizations.

No cannabis or ancillary businesses have signed on as plaintiffs.

Here's the story in WeedWeek.

Quick Hit

  1. Investing site New Cannabis Ventures explains why not all cannabis revenue is equal.

7 BRUCE LINTON OUT AS VIREO CHAIRMAN

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Minneapolis-based MSO Vireo Health has parted ways with chairman Bruce Linton, who was previously CEO of Canadian giant Canopy Growth. Vireo didn't offer an explanation.
MarketWatch

  • “I like the company and pushed it hard, obviously a little too hard for everyone’s enjoyment,” Linton said. “I’m not everyone’s favourite flavour. If I invest and bring people’s money along I’m a pretty demanding guy.”
    Yahoo Finance

In other corporate governance news, Chicago-based MSO Cresco Labs named NBA Player's Association chief Michele Roberts to its board.
Crain's Chicago Business

  • She's the first woman or person of color to be a director at the company.
  • The move further strengthen's the NBA's unofficial position as most 420-friendly sports league. Reports also surfaced that the league will stop testing players for cannabis when play resumes.
    Marijuana Moment

8 STUDY: STRONGER WEED DOESN’T GET YOU HIGHER

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Researchers at the University of Colorado, Boulder determined that  high-THC flower and concentrates do not appear to get users higher.

  • The survey, conducted in mobile labs dubbed "cannavans," found that 121 cannabis users didn't self-report being more intoxicated after using the more potent products and performed about the same on balance and cognition tests.
  • The results raise questions about the validity of drug tests that record THC levels in the blood.
  • “People in the high concentration group were much less compromised than we thought they were going to be,” said study co-author Kent Hutchison. “If we gave people that high a concentration of alcohol it would have been a different story.”

9 MANY COLORADANS THINK IT’S SAFE TO DRIVE HIGH

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A state survey of Colorado residents found many believe it's safe to drive while high.
Denver Post

  • It didn't reveal the exact number.
  • In 2018, 13.5% of drivers involved in fatal crashes in Colorado tested positive for cannabis. 

Meanwhile in Michigan, defense attorneys said drivers shouldn't submit to the state's new roadside drug tests, which they consider unreliable.

Quick Hit

  1. Psychology Today posted a list of five signs you're using too much cannabis.

10 METHOD MAN JOINS THE BIZ

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Method Man in Brooklyn 2018 (Photo by Bryan Bedder/Getty Images)

Rapper and actor Method Man is the latest celebrity to launch a weed brand.
N.Y. Post

  • Tical, which stands for Taking Into Consideration All Lives, went on sale this weekend at four Black-owned dispensaries in California.