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One evening in February 2015, about two dozen Wall Street guys crowded into a Manhattan apartment to hear about an investment opportunity. After everyone settled in with drinks, the host introduced himself.
“I raise capital for private equity funds,” he said. A few months earlier, a fund had asked him to look around the burgeoning legal marijuana industry for a company “that can absorb a certain amount of capital, you know, north of 20 to 30 million.”
Despite tremendous demand for weed, it wasn’t an easy assignment. Colorado, the country’s first recreational market, had barely been open a year. Hundreds of businesses in the state sold very similar products, and predictions about which might grow into a national brand were little better than guesswork. The host had met Michael Wendschuh, the evening’s guest speaker — and a co-founder of the Colorado marijuana startup Ebbu LLC — when a mutual friend described Ebbu as “the one company I know that could probably” put $20 million to work.
“Our world needs a better class of psychoactive,” Dooma said, but marijuana is not that drug.
Wendschuh, who’s better known by his college nickname, Dooma, is thin and fit with a salesman’s bulletproof smile. He began his pitch noting that the markets for the world’s favorite mind-altering drugs — caffeine, nicotine and alcohol — were all in decline. “We can’t function as a society without psychoactives…[But] we’re worried about the costs to our own health and society of the psychoactives that we use.” Take alcohol, he said, It helps us close deals and open up on first dates, but it also leads to liver cancer and car crashes.
“Our world needs a better class of psychoactive,” but Dooma said marijuana is not that drug. “Cannabis is simply too unpredictable for the mainstream. One time it will work for you, the next time you get the munchies, the next time you’re paranoid, the next time you use it you’re locked to your couch.”
That, he told the room, was why Ebbu existed: “We solve that lack of predictability by creating five distinct Feelings: Chill, Bliss, Giggle, Energy and Create.”
Dooma was claiming his “pre-revenue,” not-yet-licensed startup would formulate chemicals found in marijuana to induce different kinds of highs. He delivered a favorite line to the finance crowd: “You would no more call [Ebbu products] marijuana than you would call a bottle of vodka ‘potato juice.”
For more than two years Dooma followed the cannabis industry’s conference circuit, touting the Feelings to investors and reporters. He predicted Ebbu would “change the world,” and was very good at explaining details like the equipment and scientific processes the company would need to get there. It surely helped his fundraising that in an industry where college degrees are optional, Dooma had graduated from Princeton, and then helped to create a world famous video game franchise.
Dooma raised millions of dollars for Ebbu, but Ebbu never released the Feelings. Then at the beginning of 2016, Dooma disappeared from the company without a public explanation.
By then, I’d been following Ebbu for a year. I had fallen hard for the Green Rush, the story of an outlaw industry trying to go corporate, with trillions of dollars up for grabs. When I was new to the weed beat, Dooma invited me to “embed” with Ebbu. I accepted and a few months later moved to Denver.
In June 2016, a few months after Dooma vanished, the Silicon Valley site Pando published my story about Dooma’s rise and fall at Ebbu. The story quotes Dooma acknowledging that he occasionally would “stretch the truth” to investors, to make the company look more attractive. (With few exceptions, Dooma declined to participate in this story and did not respond to detailed questions about the events described, citing in part legal matters he’s unable to discuss.)
Dooma never demanded that my story be retracted or attempted to sue over it. But in a 2018 court filing, his legal team calls it, “highly slanted and inflammatory,” and supportive of his Ebbu co-founder, then-CEO Jon Cooper, whom Dooma was suing for $6 million.
As the former partners squared off in litigation, both continued to chase Green Rush billions. Cooper reshaped Ebbu’s strategy; And Dooma moved to Canada, where marijuana is now legal, and returned to the fundraising circuit with an idea for a new marijuana product he has touted as an “alcohol killer.”
Hundreds of pages of court documents have surfaced in their litigation. They offer an inside look at the difficulties of operating in an industry which is still emerging from the shadows, and raise questions about who is profiting from legalization.
Unlike other high growth industries, marijuana is federally illegal, which complicates the business climate in innumerable ways. Cannabis is both strictly regulated by states, and, in important respects, ungoverned. And it doesn’t always, or even often, pay to follow the rules.
"By definition, if you're working in this industry you're comfortable with flouting some aspect of the law," said Doug Berman, a professor at the Ohio State University’s law school and director of its Drug Enforcement and Policy Center. Since marijuana remains federally illegal, “There is always reason to wonder if businesses may not be unduly concerned with flouting new state regulatory law,” he said.
Wall Street no longer hides its interest in weed. Five years after Colorado’s recreational market opened, the arrows point up, way up. Today, medical use is legal in more than 30 states, and recreational is legal in 10. In 2018, legal U.S. weed sales reached $10.5 billion, according to data firm BDS Analytics, (a WeedWeek advertiser.) The legal marijuana market generated more sales in 10 states than Netflix did nationwide. By conservative estimates, U.S. cannabis sales will triple in the next decade.
Marijuana legalization is an historic wealth creation opportunity, a “tsunami of money,” according to an Ohio investor. But not everyone is getting rich.
As Dooma describes it, the Green Rush demands a commitment equivalent to war. In a 2015 Ebbu “pep talk,” he seemed to compare himself to Hernán Cortés, arriving in Mexico to conquer the Aztecs. The conquistador, Dooma writes, “gave the order to scuttle his ships. And as his men stood on the beach and watched the ships burn, they knew they only had two choices, win or die. Retreat wasn't an option. Failure wasn't an option.”
Nationwide marijuana legalization probably became inevitable on Aug. 29, 2013, when the U.S. Justice Department published a document now known as the Cole Memo. Colorado and Washington state had legalized recreational use the previous November, the day President Obama won re-election. Then, for almost a year, the two states waited to hear if the White House would tolerate legal state markets for a federally illegal drug.
Named for its author, then-deputy attorney general James M. Cole, the memo directed federal prosecutors and law enforcement to let states experiment with legal marijuana, provided the states enforced a list of eight federal provisions designed to keep criminals out of the industry and pot away from kids.
Entrepreneurs interpreted the Cole Memo as a green light to start pot companies without fear of federal prosecution. Thousands of businesses opened. Some, like growers and retailers, “touch the plant,” while others manufacture industrial equipment, design indoor farms, and provide business services tailored to the industry’s regulatory patchwork. These “ancillary” businesses are like the pick-and-shovel merchants who supplied the California Gold Rush. This new industry pays state and federal taxes and employs 150,000 Americans, by one estimate.
The same day the Cole Memo landed, Ebbu CEO and co-founder Jon Cooper wrote to a prospective investor. The company wasn’t much more than two guys with an idea, and Cooper touted his co-founder’s significant but hard to describe talents. “Dooma is an incredible ‘pitch artist,’” Cooper wrote in an email Dooma’s lawyers later filed in court. “There is no doubt that Dooma is a great visionary and leader,” Cooper wrote. “I admire his integrity and passion.”
The plan was for Dooma to be Ebbu’s public face, while Cooper would manage the company. “I am stronger at finance, legal structures, agreements, and business development,” Cooper wrote.
When he pitches, Dooma pairs well-cut suits with conversation-piece accessories like cowboy boots, embroidered shirts and oversized rings on his slender fingers. he is fascinated by Elon Musk, which may account for his on-stage persona, which shifts between hipster professor and Silicon Valley oracle.
Dooma -- who’s now 42 -- grew up in Miami, where he was a creative, energetic teenager. “Like a comet flying through the sky,” his mother said over a BBQ dinner in the Rockies. After college, he graduated from a prestigious film production program at USC, where he and a classmate met an artist who had reimagined the animals in the children’s classic The Wind in the Willows as steampunk rogues. Dooma and his friend sold a treatment to Disney in a mid-six-figure deal. The movie didn’t get made, but the pair set up shop in Hollywood as Sekretagent Productions.
Sekretagent found more success in the faster-growing, less-hierarchical video game industry. They signed a deal, described by Variety as the first of its kind, to write games for the French company Ubisoft. There they co-wrote Assassin’s Creed which, along with its sequels became a global smash.
While living in L.A., Dooma befriended Cooper, who’s roughly the same age, and worked in movie finance. Cooper later moved back to his native Colorado. After the state legalized recreational weed, Dooma got back in touch and the pair launched Ebbu. In September 2013, Dooma invested $140,000 in Ebbu, then $100,000 more. (The following May Dooma invested an additional $8,759.)
The Green Rush already felt unstoppable by November 2014, when Dooma and I met at an industry conference in Las Vegas. Days earlier, voters in Oregon, Alaska and Washington, D.C., had legalized recreational pot. Even more encouraging from the industry’s perspective: Recreational had been on sale in Colorado for almost a year, and as everyone said, the sky hadn’t fallen. It showed legalization could work.
Barring an unforeseen disaster, the consensus was California would vote to legalize recreational two years later on Election Day 2016, and then national legalization was inevitable. (Few political forecasts from 2014 have held up so well.) Only a tiny fraction of Americans had access to legal marijuana, but the industry had already won.
In mid-2015, a few months after I moved to Denver, Ebbu began to sell conventional cannabis products. Talking about the Feelings helped Dooma raise almost $8 million for Ebbu in 2015, but it wasn’t clear to me whether the company was making progress on the product line. It had planned to test the Feelings on human subjects, but by the end of the year, the tests hadn’t started.
Dooma and Cooper referred to each other as close friends, but there were few shared jokes or warm moments. Dooma traveled constantly to raise capital, and Cooper oversaw operations at the company’s headquarters in the foothills, a 40-minute commute west of Denver.
In October 2015, a member of Ebbu’s advisory board named Daniel Clemens visited Colorado. Clemens, a Yale graduate and Rhodes Scholar, had co-founded AppJet, a software start-up, which Google acquired in 2009.
Clemens and Dooma had met through an L.A. entrepreneurship club called the Legacy Foundation. By early December, Clemens says he was working full time at Ebbu. On Dec. 6, 2015, Dooma offered Clemens a three-month consulting contract — an onramp to join Dooma and Cooper leading the company. “THIS IS PROBABLY THE MOST EXCITING EMAIL I HAVE EVER WRITTEN,” Dooma wrote in a message Clemens later filed in court. “I want you on board, brother. I couldn’t be more thrilled about what we can do together.” Clemens, who declined to comment for this story, agreed he, Dooma and Cooper could be, “a very powerful leadership triumvirate.”
The relationship soured immediately. Days later, Clemens and Dooma met with prospective investors over tacos and margaritas. During the meal, Clemens alleges in a court filing, he witnessed Dooma make “material misrepresentations” about Ebbu to make the company look more attractive to investors. After speaking with other employees, Clemens brought these and other allegations to Cooper.
Dooma rejects Clemens’ allegations. In a court filing, he says the numbers he used in the taco meeting came from a financial model prepared by Cooper. “[Dooma] denies that he made any material misstatements to investors,” the filing states. Calling him, “an intrinsically honest person,” the filing concedes Dooma engaged in “puffery,” but didn’t feel good about it.
In late December, Dooma and Cooper sat down for a tense, nearly two hour meeting. According to Cooper, Dooma recorded the conversation without Cooper’s knowledge or permission. Dooma doesn’t dispute this, but his court filings don’t broadcast the recording's origin. “The meeting was recorded,” a lawsuit his lawyers filed in September 2017 states. (In Colorado, it’s legal to secretly record one’s own conversations.)
On the recording, which leaked to me, Dooma repeatedly concedes that he’d given Ebbu investors incorrect information.
“I’ve told people what they need to hear to get their money in,” he says.
“Which is a lie,” Cooper responds.
“Yes. I’ve told some things that were not true.”
“It’s a lie,” Cooper says, growing increasingly agitated. “It’s a lie. It’s a material lie.”
“Yes, but at the end of the day, we exist now,” Dooma says. We have the money to do things. And we would never raise this money based on the complete truth, because we have nothing.….We haven’t performed. We’ve underperformed every estimate that we’ve given to investors from the beginning.”
One of Dooma’s court filings offers an explanation for his mindset at the time. “[Dooma] was in a state of panic and was afraid for his future and the company he had invested two and a half years of his life into building….He caved to Cooper’s pressure and said what he believed Cooper wanted to hear.”
In the recording, however, Dooma says, “These sort of things have been going on…since day one, which is basically some embellishment to the extent it’s necessary to close investors.”
Even though Ebbu hadn’t released the Feelings, the company seemed to have solid prospects. It had hired an impressive science team and built one of the more sophisticated cannabis labs in Colorado, if not the country. According to court filings, Dooma believed his initial investments totalling just under $250,000 had ballooned to $6 million, at a company valuation of $33 million. (Cooper disputes these figures but declined to provide his own.)
In 2015, Colorado only allowed two-year state residents to own equity in marijuana companies. Dooma recorded the conversation at a vulnerable time, a month before he became a two-year Colorado resident and could claim the equity he’d been working for.
In the recording, both founders recognize Dooma has opened the door to investor lawsuits, and jeopardized the company as well as themselves. But Dooma argues the risk can be contained if the two founders sign an agreement to “protect” their jobs by making it harder to fire them.
Cooper says Dooma’s proposal “doesn't feel right to me at all,” and calls it “completely irresponsible.” Unable to obtain any leverage, Dooma repeatedly appeals to their long friendship. At times he sounds close to tears, but he also says he’ll go “motherfucking nuclear” if things don’t go his way.
In the recording, Cooper stakes out an ethical high ground: “I want to go back to every investor and say, ‘Here's the facts across the board. You have the option to rescind, but we're making it clean.”
But for reasons Cooper declined to comment on, he didn’t follow through. “There was no rescissionary offer made by Ebbu,” Cooper told me. “And none was required.” “We are not aware of any investors that are disappointed with their investments in Ebbu,” he wrote.
In a court filing, Dooma argues the lack of a rescission vindicates his claim that he didn’t mislead investors. “If Dooma had made “material misrepresentations,” the filing says, “a rescission would be required for compliance.” (Cooper declined to comment on what Dooma told investors.)
When they started Ebbu, Cooper and Dooma agreed to maintain equal ownership of the company, but apparently they didn’t formalize the agreement. “Dude, I have nothing,” Dooma recorded himself telling Cooper. “I really have not a leg to stand on. I am doing this on trust with you as a human being.”
“Sure, sure,” Cooper responds. “I understand.”
Days later, Cooper fired Dooma, stripped him of his claim to Ebbu equity and, according to Dooma, hit him with a gag order.
A year and a half after Cooper fired him, Dooma appeared on the podcast CannaInsider to promote his new marijuana company, Province Brands, which is incorporated in Canada as Honest Inc. But first, he discussed the lawsuit he’d filed against his former company. “I never wanted to do anything to hurt Ebbu,” he said. “I was put in a situation where I had no choice.”
The litigation had cost Dooma almost $500,000 thus far. “It’s been really hard,” he said. The worst part was suing a company he’d helped create, as well as the friends and family he had persuaded to invest.
“The major battle I’ve sort of already lost, and a reason for the lawsuit is there was information, in large part not true, that was leaked out to media sources,” Dooma said on the podcast. “It has done a lot of damage to my reputation and made it very difficult to start the second company, Province.”
Province aims to produce the first beer ever brewed from the marijuana plant: “Two of the greatest substances known to man, beer and cannabis, in the same glass,” Dooma told a reporter.
Dooma once predicted Ebbu would grow larger than Facebook or Google. Now he describes Province as taking on the $1.2 trillion (his estimate) global booze market.
Province’s flagship product -- which Dooma says will contain THC, marijuana’s primary psychoactive ingredient, but not alcohol -- may sound like it was dreamt up between bong hits, but there’s also a case for it. With its smell, smoke and paraphenalia, marijuana is a conspicuous drug. Cannabis edibles appeal to consumers largely because they don’t call attention to themselves. A pack of THC-infused breath mints is convenient, contains minimal calories and is discreet enough to clear airport security.
“Nobody,” Dooma told GrubStreet, “wants to meet the guys after work and eat a plate of gummy bears.”
As Dooma describes it, Province’s beer offers a variation on the theme; It enables drinkers’ to retain their preferred beverage and ritual, but replace the alcohol with “safer and healthier” THC. “Nobody,” Dooma told GrubStreet, “wants to meet the guys after work and eat a plate of gummy bears.” Canada has not yet legalized edibles, a category which includes beverages. But Dooma has said Province will have its beer ready for shelves as soon as legally possible, which could be as soon as October. (None of the major legal markets allow drinks containing both alcohol and THC.)
At Province, Dooma has adapted aspects of the pitch he used for Ebbu's Feelings. As he did at Ebbu, he says Province is manufacturing marijuana into a “better class of psychoactive,” which can disrupt the alcohol industry. (In general, the cannabis world thinks marijuana in its more familiar forms is already capable of competing with alcohol.)
After Cooper fired him, Dooma returned to the marijuana conference circuit to raise money for this new hypothetical product. And he has had some success. Province has attracted widespread media attention, millions in capital and a high-profile partnership. The company is building the world’s first cannabis brewery in southern Ontario.
Aside from legal concerns, marijuana beer apparently doesn’t already exist because yeast can’t ferment the plant in its natural state. Province’s key patent-pending innovation includes a method “to break open the [plant’s] cellulose” and extract fermentable sugar. Dooma calls it the dawn of “a new brewing tradition,” and Province will own the intellectual property.
Province aspires to be an upscale brand, so it will likely have to produce beer with consistent mouthfeel, potency and other variables consumers expect. One imagines these are daunting challenges since the starting material is unfamiliar to both brewers and modern manufacturing. But Rob Kevwitch, Province’s master brewer, who has a Ph.D. in organic chemistry, said it’s coming along. The beer has a light straw color, he said, and the “head retention is fantastic.” Kevwitch anticipates the hardest part will be persuading the public to try an unfamiliar beverage; Canada has a near-total ban on marijuana marketing and advertising.
The beer will also have to taste good. Early batches evoked “rotten broccoli,” Dooma told The Guardian, but it has improved since then: “The flavor is dry, savory, less sweet than a typical beer flavor.”
Whether marijuana beer is a more plausible product than Ebbu’s Feelings remains to be seen. But Province has the advantage of operating in Canada, a far more favorable business climate than Colorado.
Although legalization day wasn’t until October 2018, Canadian marijuana companies had been going public for several years in anticipation. While many of their American counterparts still struggle to maintain bank accounts, Canadian producers export medical marijuana to Europe, Australia and Latin America, and are planting the seeds of a global empire.
For American cannabis companies, raising capital can be especially frustrating. At Ebbu, Dooma sought out-of-state investors but the best he could offer them were interest-paying “notes,” -- like Dooma himself held -- convertible to equity once state law changed or the noteholder moved to Colorado for two years. Anyone willing to invest on these terms then had to go through fingerprinting and a background check. Raising money for Ebbu was “almost impossible,” Dooma told CannaInsider.
North of the border, however, cannabis companies can more or less plug into the normal financial system. “It’s a lot different up here in Canada!” Dooma told the podcast. He has made preparations to take Province public in Canada.
In October 2017, the American liquor company Constellation Brands, parent of Corona beer, announced a deal to acquire 9.9 percent of Canopy Growth Corp., one of Canada’s largest cannabis producers, for $191 million (C$245 million). If cannabis drinks were going to compete with alcohol, Constellation CEO Rob Sands told The Wall Street Journal, he wanted a place in the market.
In an interview with Vice, Dooma called the Constellation deal the “ultimate validation” for Province. Maybe. The deal indicates high hopes for THC-infused beverages — sodas, seltzers and so on — but Province is inventing a new product and its production process has not been tested at commercial scale.
In August 2018, less than a year after its first investment, Constellation invested $4 billion more in Canopy, at roughly seven times the previous valuation. The deal signalled the long-anticipated dawn of corporate weed. In December, Tobacco giant Altria, maker of Marlboro, said it would invest $1.8 billion in the Canadian marijuana company Cronos Group. Together, America’s legal and illegal cannabis sales add up to roughly $40 billion annually. It’s only about one-fifth of the alcohol market so far, but liquor sales have lagged for decades. And booze has never had a competitor before.
Ebbu contemplated marijuana beer when Dooma was there, and in March 2018, a few months after stories about Province started to appear, Ebbu announced plans to develop its own. Under Cooper, Ebbu took a more straightforward approach than its estranged co-founder: Ebbu partnered with the creator of Blue Moon, the wheat beer owned by Molson Coors, and said it would brew beer the familiar way, remove the alcohol, and infuse THC.
In October 2018, Canopy Growth, which received the Constellation investments, said it would acquire Ebbu’s intellectual property in a cash-and-stock deal potentially worth more than $300 million, if Ebbu’s cannabis research programs achieve unspecified milestones. Dooma, who lost his claim to Ebbu equity, isn’t entitled to any proceeds from the sale.
After Cooper fired Dooma, Ebbu focused on cannabis research and eventually stopped selling products. According to a document filed with Canadian regulators, Canopy anticipates Ebbu will contribute to its “hemp and THC-rich cannabis genetic breeding program and its cannabis-infused beverage capabilities.” Ebbu’s assets, the company adds, will also contribute to a “clinical formulations program,” which sounds more like the Feelings. (Cooper declined to comment on the deal. Canopy declined to comment for this story.)
Province's successes, thus far, have been on a smaller scale. In March 2018, a heavy hitting Canadian firm called Auxly (formerly Wheaton Cannabis Income) acquired 10% of Province. An Auxly spokesperson said the company is proud of the Province investment but declined to comment further.
Since at least 2014, Dooma has promised a world-changing cannabis product. This year, we’ll see if he can deliver one.
As Dooma has built Province Brands, he sued Cooper and Ebbu in private arbitration to reclaim what he considered his lost stake in the company and offer a different explanation for why Cooper fired him. Dooma’s side of the story appears publicly in a September 2017 lawsuit filed in federal bankruptcy court against Daniel Clemens, the consultant Dooma helped bring into the company.
The crux of Dooma’s claim is he was the innocent victim of a “coup,” by Cooper and Clemens to oust him from Ebbu, week’s before Dooma became a two-year state resident and could claim his $6 million in equity. The lawsuit alleges Cooper paid Clemens “approximately $250,000” to investigate Dooma and dig up “evidence" against him, so Cooper could take over the company.
“Dooma’s ongoing contentions that Ebbu or Cooper stole his interests in Ebbu or engaged in an unlawful conspiracy to deprive Dooma of his interest are false,” Cooper wrote to me in October 2017. Separately, Cooper declined to comment on the alleged payment to Clemens. In court filings, Clemens denies he was hired to help Cooper fire Dooma.
Dooma recorded the conversation with Cooper two and a half weeks after the taco meeting, when Clemens alleges Dooma misled prospective investors. But based on the recording’s transcript, Dooma was not yet convinced Clemens and Cooper were plotting against him. Instead, he predicts Clemens will oust Cooper and take over the company. “Me first and then you. This is what is happening,” Dooma says. (Clemens no longer works with Ebbu.)
Throughout the recording, Dooma bad-mouths the new arrival whom, weeks earlier, he had been aggressively recruiting. Dooma diagnoses Clemens with “a mild form of psychopathy,” and makes insinuations about Clemens’ personal and professional life.
Dooma also describes an encounter between himself and Clemens from the company Christmas party a few days earlier, which Dooma considers an “assault.” In court filings, Clemens vehemently denies assaulting Dooma. Aside from what Dooma described to him, Cooper told me he never saw or heard about “any ‘assault’ or physical violence by Mr. Clemens against [Dooma].”
Dooma’s lawsuit against Clemens further alleges, “Clemens and/or Cooper and Ebbu” leaked the recording to me. Cooper (speaking for himself and Ebbu) and Clemens both deny it. According to Dooma, the recording was accessible to himself and only two others at the company, not Clemens or Cooper.
(Dooma's legal team has subpoenaed me twice to compel me to provide information or documents about the leak, the time described here, and once more, with a similar result. Pando covered the legal fees it cost to defuse the subpoenas.)
The arbitration to resolve Dooma’s case against Cooper was scheduled for October 2018. But Ebbu was acquired that month, and according to Cooper, all litigation between Ebbu, Cooper and Dooma has been resolved. Dooma has litigation ongoing against Clemens. whom he regards as Cooper’s co-conspirator, in California court. A trial is scheduled for September. Dooma’s previous suit against Clemens was dismissed without a ruling on its merits.
It’s not clear whether Dooma’s lawsuits have paid off for him. But a favorable ruling or settlement may not have been his primary objective. “It doesn’t matter in the real world whether you win or lose in a court of law,” Dooma told the podcast CannaInsider. “It matters a lot whether you win in the court of public opinion.”
At the time, Dooma was fundraising for Province, his new beer company, and an active lawsuit could support his claim to have been the wronged party at Ebbu. “Dooma recognizes that he made a mistake [with Ebbu] in the beginning by not having the right residency status for majority ownership,” an early Province investor told Vice. “We talked about it, and he even sent me the complaint he filed. It was full disclosure and that makes me really confident in him and in the company.”
Another cannabis investor quoted in the story is less charitable: “I wouldn’t touch anything Dooma touches,” he said.
It’s been five years since Colorado’s recreational marijuana market opened on New Year’s Day, 2014. At the time, a key question was how strictly the U.S. Justice Department would enforce the Cole Memo. How many Denver dispensaries would have to be busted selling to teenagers, for example, to trigger a federal intervention?
Five years later, we know the feds, under both presidents Obama and Trump, have largely allowed the states to enforce their own laws. This has remained true since January 2018, when then-Attorney General Jeff Sessions, who loathes marijuana, rescinded the Cole Memo but didn’t follow through with a crackdown on the state industries, essentially demonstrating his powerlessness to do so.
The Cole Memo remains de facto in effect. One of its eight guidelines requires states to stop pot revenue from benefitting “criminal enterprises, gangs, and cartels.” To do so, a spokesperson for Colorado’s Marijuana Enforcement Division (known as “The MED”) says the agency “requires disclosure of all persons having a direct and indirect financial interest in a license.”
Complex state regulations, and the reputational risks of investing in an illegal industry, have largely prevented pot start-ups from attracting mainstream venture capital. Publicly known early-stage cannabis investors tend to be family offices and the independently wealthy.
The situation is evolving, but it can still be a challenge for small private cannabis companies to access funding. Last year, Colorado’s then-Governor John Hickenlooper infuriated the industry when he vetoed a bill to loosen cannabis investing rules. The prevailing dynamic — companies desperate for cash, and investors eager to join the Green Rush, but protective of their reputations — tempts parties on both sides to arrange anonymous deals in violation of Colorado law.
Ebbu confronted the same funding dilemma as other Colorado marijuana companies. In a February 2018 court filing, Dooma’s lawyers say he and Cooper worked to minimize the reputational risks associated with investing in Ebbu, for example by helping investors to shield their names from public disclosure, (as opposed to disclosure to regulators, which was required.) “To [Dooma’s] knowledge, this policy was not intended to avoid compliance with any state or federal laws,” the filing states. “These practices are common in Ebbu LLC’s industry in Colorado.”
However, documents leaked to me in 2016, and documents presented as evidence in litigation, suggest Ebbu received capital from a source the company — whether intentionally or unwittingly —did not identify to Colorado regulators. In September 2013, Ebbu’s earliest days, an individual I’ll call E. transferred $140,000 to Dooma. Days later, Dooma invested $140,000 in Ebbu.
In 2016, Cooper declined to say whose money Dooma’s $140,000 investment actually represented. “I do not know and have never met [E.],” Cooper wrote. “The company did not have a note agreement with [E.] and will not comment on potential agreements between Dooma and other third parties.”
While Cooper may have never met E., material Dooma and Clemens subsequently filed in court suggests Cooper knew of and facilitated the $140,000 transfer from E. to Dooma. In an email sent several weeks before the documented transactions, Cooper refers to an anticipated infusion from another individual who has the same distinctive last name as E. “He will be investing $150,000,” Cooper writes. (E. could not be reached for comment. The individual Cooper named did not return a request for comment.)
Dooma also surfaces an exchange between Cooper and two redacted parties. A September 12, 2013 email, possibly written by Dooma, states, “In a separate email I will send you the custodial agreement. Please have your brother sign that and return to me.”
Cooper soon follows up: “Please find attached the updated documents with the correction. Please let me know if you have any further changes or requests.” The next day, E. transferred $140,000 to Dooma.
When Cooper fired Dooma more than two years later, the settlement they signed, which Clemens’ team filed in court, required Dooma to “obtain releases from the parties subject to the custodian agreements,” showing that the notes have “been satisfied and paid in full.” It appears to close a financial relationship between E. and Ebbu.
When Ebbu had applied for Colorado medical and recreational marijuana licenses the previous year, Cooper and five other Ebbu equity holders — three of whom have served on Ebbu’s board — signed under penalty of perjury that they had disclosed “all investments and funds used to start and/or finance this Applicant’s business entity.” The same six individuals signed Ebbu’s license renewal applications in 2016 and 2017.
If Ebbu benefited from E.’s capital, the company had to disclose him to the state. But Ebbu didn’t disclose him. E. never “invested or loaned money to Ebbu,” a spokesperson for Ebbu told me, which is why Cooper never identified him to regulators.
“Ebbu and I did not violate any MED rules or regulations,” Cooper wrote to me separately. “To the extent that you contend otherwise, you have a misunderstanding of the facts and the law.” Cooper did not respond to a request to clarify the nature of the apparent financial relationship between E. and Ebbu, or say whether it obliged him to identify E. to Colorado regulators.
If a license applicant does not disclose a financial backer whom he or she was required to disclose, it opens the possibility of criminal charges if they did so intentionally, according to Franklin Snyder, a law professor at Texas A&M University, who teaches a course on marijuana law, policy and business. "If you have lied in your application that you made under penalty of perjury, you could be prosecuted for perjury by the state," he said. If the omission is part of a concerted effort to fund a company with money from a non-disclosed source, Snyder said the investor or middleman could be liable as well.
The vast majority of Colorado marijuana companies are privately held and don’t share their financial information. Not many have had potential irregularities aired in the press or in lawsuits. Ebbu has endured both experiences, but Cooper said he is not aware of the company ever being investigated by the MED or any other enforcement agency. (Ebbu voluntarily surrendered its Colorado licenses in March 2018, part of its pivot from products to research.)
While this might be taken to suggest Ebbu’s propriety, it’s fair to ask whether there was a failure of oversight. A spokesperson for the Colorado MED said the agency has “overlapping and reinforcing measures in place” to ensure compliance, but, citing statute, declined to comment specifically on Ebbu.
With the federal government and the investigative media barely in the picture, legal states essentially serve as the final arbiters of how well they’re enforcing their new marijuana laws and the Cole Memo priorities. Colorado is reputedly among the best-regulated, most normalized markets. From the first day of recreational sales, RFID technology has tracked all legal product “from seed to sale” to prevent diversion to the illegal market. Everyone who works at a grower, manufacturer, dispensary or other “plant-touching” business has to pass a background check, as does everyone who invests or provides any other kind of financial support. If a high profile company like Ebbu, received capital from an undisclosed investor and didn’t get caught, it forces the question of how many of the state’s roughly 1,500 other licensed cannabis companies did something similar.
And the problem could be far more widespread. Every legal state is at some stage of writing or implementing its own marijuana investment rules. They are trying to regulate a population of businesspeople who know the industry far better than lawmakers do, and have sufficient risk tolerance to openly break federal law. “We’re in the Wild West; this is like 1880s gold-mining stocks,” Snyder, the law professor, said. “There is a lot of this kind of stuff and time will sort it out.”
There are now thousands of marijuana companies. And with the information currently available, it's hard to know if, or to what extent, events at any one of them are indicative of a broader phenomenon.
In the meeting Dooma recorded days before his firing, he discusses Ebbu in more personal terms. “It's the worst betrayal that has ever happened in my entire life, and that's just where we are today,” Dooma tells Cooper. “If you push this further, and you take further actions to sort of ostracize me from the company or remove me from this company that I helped create, it will ruin my entire life. It will ruin your entire life. It will shut down this company. And that's not what this was ever supposed to be.”
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