CannaRegs Lawsuit Comes To A Quiet End

The cannabis tech firm CannaRegs announced that a lawsuit that was filed against it has been dismissed. CannaRegs is a  technology platform that provides users enhanced access to all state and municipal cannabis rules and regulations. It was acquired by Fyllo in January 2020. Fyllo is another cannabis tech firm whose CannaBrain marketing technology ingests and interrogates billions of data points, allowing brands to safely build and execute advertising campaigns while also enabling publishers to create and monetize compliant ad inventory. At the time of the acquisition, Amanda Ostrowitz, CannaRegs’ founder and CEO,  joined Fyllo as its Chief Strategy Officer reporting to CEO Chad Bronstein.

The case was voluntarily dismissed this week after the executives were unable to provide proof of their claims. The parties stated,

Lester Firstenberger and Sathya Rajavelu (“Plaintiffs”) have decided to voluntarily dismiss their lawsuit against Regs Technology, Inc. and Amanda Ostrowitz (“Defendants”) relating to the sale Plaintiffs’ ownership in Regs Technology.  When they filed the lawsuit, Plaintiffs believed that at the time of their divestment, Ostrowitz and the other defendants named in the original complaint had been negotiating the sale of Regs Technology and had concealed this negotiation from Plaintiffs.  Since the filing of this lawsuit, discovery has revealed that Plaintiffs were mistaken in their belief that discussions pertaining to the sale of Regs Technology had preceded their divestment in Regs Technology.  In light of this, Plaintiffs have in good faith decided to dismiss the lawsuit.”

Ostrowitz said, “I’m grateful to have this litigation behind me and move onward to the next chapter. Also if it can serve as a cautionary tale, I would tell other entrepreneurs that in this litigious society this can happen to anyone, even if you play by all the rules. If I could go back in time and give my young entrepreneur self any advice, it would be to create a “litigation” savings account and put aside at least 5% of each paycheck, and hope you never have to use it.”

Lawsuit

Months after the acquisition, former CannaRegs executives Lester Firstenberger and Sathya Rajavelu filed a lawsuit claiming they sold their 11.8% interest in the company for $178,942, based on a $1.5 million valuation of the company. They claimed that Ostrowitz stayed quiet about her potential acquisition which they say valued the company at $10 million. Their lawsuit accused Casters Holdings, Inc. d/b/a Fyllo (“Fyllo”), Regs Technology, Inc. f/k/a CannaRegs, Ltd., Amanda Ostrowitz, Phyto II, LP, Panther Opportunity Fund, LLC, Larry Schnurmacher, David Friedman, Ramie A. Tritt and Jordan Tritt. They claimed they would not have sold their interest had they known it would be valued much higher only four months later.

No Evidence

According to a letter filed in the case on May 19, 2022, “Plaintiffs, however, have not come forward with a single iota of evidence showing that there were communications between Defendants and Fyllo prior to September 16, 2019. What is more, in order to prevail on their claim that Defendants breached their fiduciary duty to them, Plaintiffs would need to show far more than just preliminary communications. They would need to show that a firm offer was made prior to September 16, 2019.”

The letter went on to say, “Without the evidence needed to make this showing, Plaintiffs have resorted to scorched earth discovery in the hopes of possibly discovering a new claim or theory or leveraging a settlement through discovery costs. Plaintiffs’ efforts include 174 separate document requests, 41 interrogatories, a 32-page discovery letter, a 17-page single-spaced letter motion, multiple motions to compel, multiple requests for hearings before this Court, and multiple iterative requests to the Court to follow up on issues that counsel forgot to raise during lengthy hearings.”

Continued Expansion

Despite the lawsuit, Fyllo has continued to build up the company. A couple of weeks ago, Fyllo said it was buying NineSixteen, an interactive retail display network that delivers high-impact digital experiences in physical retail locations. NineSixteen will bolster Fyllo’s widely-used retail offering, which was created to build stronger connections with today’s most progressive consumers. The company has also expanded into the cryptocurrency vertical.

“Since launching in 2019, Fyllo has rapidly expanded to address the cannabis industry’s need for compliant marketing solutions and jurisdiction-level regulatory solutions. With similar challenges and high-growth opportunities present in the cryptocurrency vertical, expanding our Regulatory Database to serve them is a natural evolution of the business,” said Chad Bronstein, CEO and Founder of Fyllo.

The Fyllo Regulatory Database for cryptocurrency addresses the needs of organizations with this unique challenge, allowing them to scale rapidly with access to information they need to prepare themselves for disruptive compliance infringements. Automated alerts can be set up through the database, notifying users if something changes, enabling them to spot trends and filter through information faster. The platform will be available through a SaaS self-service model, providing instant access to the latest regulations.

 

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.


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