Legal Archives - Green Market Report

Debra BorchardtJune 29, 2022
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7min12910

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.

 


StaffJune 22, 2022
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Two Supreme Courts rejected employee requests to have employers reimburse for medical cannabis costs. On Tuesday, the U.S. Supreme Court said it would not hear an appeal that pits the Controlled Substances Act (CSA) against a state workers’ compensation law requiring employers to reimburse workers for medical cannabis. Like many issues within the cannabis industry, there are competing and conflicting government positions. In this situation, the CSA says cannabis is federally illegal, while state law is saying employers need to reimburse employees for medical costs.

With the Supreme Court declining to take on the case, it reverts back to a Minnesota Supreme Court decision from October that overturned a workers’ compensation court decision that ordered Mendota Heights Dental Center and its insurer, Hartford Insurance Group, to pay for medicinal cannabis that petitioner Susan K. Musta was prescribed for an on-the-job neck injury. The appeal to change the decision back fell on deaf ears as the Court declined to hear. Both petitions asked the justices to weigh in on tensions between federal and state cannabis policies as they touched on medical marijuana patients’ right to be reimbursed.

In May, the Department of Justice (DOJ) weighed in on the Musta case and told the Supreme Court that it shouldn’t take up the case. In it’s brief, it wrote, “Minnesota’s Cannabis Act does not “require the medical assistance and MinnesotaCare programs”— state-run health programs for low-income patients—“to reimburse an enrollee or a provider for costs associated with the medical use of cannabis.”

The DOJ also noted in its brief that if the federally illegal substance of cannabis was forced upon companies to reimburse for the use, then companies could be forced to reimburse for other illegal substances like LSD. “A State could likewise compel private parties to provide reimbursements for services that are banned by federal law.”

The brief went on to say, “Minnesota’s Cannabis Act itself exempts state-run health programs for low-income patients from any requirement “to reimburse an enrollee or a provider for costs associated with the medical use of cannabis.” Minn. Stat. § 152.23(b) (2021). That exclusion—which by definition affects patients with the greatest financial needs—avoids placing
state officials who implement those programs into conflict with federal law. The conflict with the CSA remains, however, when Minnesota law compels private employers to subsidize the same federal crimes.”

The government seemed to acknowledge to conflict between the CSA and various state laws but clearly wants legislators to fix the problem versus the courts.

 


Debra BorchardtJune 17, 2022
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Big Bang Theory star Dr. Mayim Bialik is suing dozens of websites and online markets that are attaching her name to CBD products without her permission. According to Law360, the star filed a lawsuit in Florida federal court on Thursday. In addition to her extensive career in the entertainment industry, Bialik earned her doctorate in neuroscience. Bialik is also an accomplished author with published works in the genres of young adult and cookbooks.

The court complaint stresses that Bialik “engages in deliberate consideration prior to permitting the commercial use of her name, image, likeness or persona, to ensure that she is associated only with reputable products, entertainment, services and/or companies, and to ensure that the value of her name, image, likeness and persona is not diminished either by association with products, entertainment, services and/or companies which she does not personally support and/or by over-saturation of her name and image.” Her complaint also states that Bialik has never endorsed any cannabidiol products.

(Photo by Jeff Vespa/WireImage)

The complaint suggests that the people behind the websites advertising Mayim Bialik CBD products are based in the Dominican Republic. They attach Bialik’s name to the CBD product and when the consumer clicks to buy, they get redirected to another e-commerce page where the name is dropped.

The complaint even uses an example of sponsored content in SF Weekly stating, “The headline of the article proclaims in large, bolded font: “Mayim Bialik CBD Gummies –
Shocking Scam Report Reveals Must Read Before Buying.” The small script in the byline reflects the anonymous nature of the author who is identified only as “Sponsor.” The photograph of the goods identify the featured Unauthorized CBD Gummies as branded by “Cannaleafz.” The article includes promotional language such as: “With the growing age, your happiness is going to remain with you with the remarkable Mayim Bialik CBD Gummies.” (emphasis in the original). The purchase link prompts consumers to “Order Mayim Bialik CBD Gummies Only Visiting Official Website Today.” When a consumer clicks the purchase link, they are redirected to a Product Sales Page.”

Sasha Cohen Said No Too

Bialik isn’t the only celebrity to get angry about the unauthorized use of their image for cannabis promotions. Comedian Sasha Baron Cohen  the creator of the character “Borat” sued privately-owned Massachusetts cannabis company Solar Therapeutics Inc. and the company’s President Edward Dow III for $9 million. Cohen was angry that his likeness as the character Borat was used without his permission on a billboard that was placed on a busy highway. The lawsuit claims that by using Cohen’s image it looks as if he is endorsing cannabis products. Even though the company removed the billboard, Cohen continued with his lawsuit until recently dropping it this past May.

 


Video StaffMay 12, 2022

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On April, 28, 2022, the Green Market Report hosted its first Women’s Summit in New York City. This panel was titled “Keeping It Legal” and featured a stellar lineup of successful women including Kristin Jordan Co-founder of Park-Jordan, Rochelle Boas of LeafLink, Nichole West of LB Atlantis and moderated by Longview Strategies Founder Ellie Seigel. Thank you for watching the Green Market Report! Be sure to subscribe to our channel and our newsletters.


Debra BorchardtMay 12, 2022
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 Talladega wants out of the Parallel cannabis lawsuit. This is the lawsuit that disgruntled Surterra Wellness (now known as Parallel) investors filed against the company’s leader beau Wrigley and Surterra Holdings, along with a family office and Talladega LP and Talladega Inc. The company filed a motion earlier this week to dismiss its involvement and outlined why it should not be a part of the lawsuit. Talladega was not initially named in the case, instead, it was Canadian hedge fund SAF Group, but they were replaced by Talladega. 

At issue is a bridge loan that Talladega extended to Surterra/Parallel. The lender, who owns the Junior Notes says it was a purely selfish move to keep the company operational in order to protect the health of those junior notes. 

Not In New York

First, Talladega says it shouldn’t be included in a New York lawsuit since it isn’t located in the state. The company is based in Canada and says that alone should be grounds for getting itself dismissed from the case. 

Bridge Over Troubled Water

Next Talladega says it only provided a bridge loan that kept Parallel operating and didn’t really classify as debt that would breach the covenants of the other debt instruments. In the motion Talladega says, “Beginning in June 2021, shortly after Talladega and the company entered into the Talladega Credit Agreement, the company began to experience financial stress and defaulted under both the Note Purchase Agreement and the Talladega Credit Agreement. On December 16, 2021, Talladega issued a notice of default to the company listing 11 defaults or events of defaults under the Talladega Credit Agreement. Following issuance of the notice of default, the company, PE Fund, and Talladega entered into discussions to provide financing to the company to allow it to “bridge” the gap until the Company could be sold to one or more third-parties, or recapitalized.”

Talladega says the unhappy investors waited until 10 days after the bridge loan to file the lawsuit. The investors claimed that Talladega completed the bridge loan in order to earn more fees and jump to the head of the capital line. Talladega says it was just trying to protect itself from Parallel going under. The company wanted to give Parallel a chance to find a buyer or get more financing. The fee amounts in the bridge loan documents are redacted. 

The investors also complained that Talladega was an insider, but again the company says that is wrong. The filing stated, “Beyond Talladega’s participation in the Talladega Credit Agreement and the Bridge Credit Agreement, Talladega has no close relationship with the Company that would give it any sort of control over the Company or the Company’s actions.”

The investors believe Talladega knew more than it is saying because it was the Administrative Agent and Collateral Agent for the Junior Note holders for Parallel. The original complaint stated, “The Junior Lien Notice informed the Company that it had failed to (i) maintain the required debt-service-coverage ratio; (ii) maintain specified adjusted consolidated EBITDA as of September 30, 2021; and (iii) “pay Catch-Up [a]mount[s]” due as of September 30, 2021. 99. The Junior Lien Notice also explained that the Company had defaulted on the Junior Note through its “incurrence of Indebtedness pursuant to that certain Negotiable Subordinated Promissory Note dated June 30, 2021”—i.e., the PE Fund Note.” However, Talladega sending out the default notice didn’t make it an insider. 

In Closing

Since Parallel is a private company, there is little information as to the health of the company. Within the state of Florida, where the company mainly operates it is number five on the list of top license holders with 46 licenses according to Cannabiz Media. Trulieve leads with 121 licenses, followed by Curaleaf with 50, then Verano at 48, and Ayr Wellness with 47 licenses. However, none of the companies break out their revenues from Florida, so it’s difficult to determine how much revenue is coming into the company.


Dave HodesMay 4, 2022
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There are a number of law firms building a list of clients in the psychedelics industry, in part because there are more issues percolating within the legal system about a federally illegal substance, and more companies exploring developments in this space.

Zuber Law Firm, Los Angeles; Husch Blackwell, St. Louis; Calyx Law, San Francisco; Clark Howell, Los Angeles; plus a handful of other firms outside of the U.S. are all diving deeper to sort out the legal entanglements of the psychedelics industry.

Lawyers with psychedelics practices are working on such issues as intellectual property rights—product patents—which is to be expected in a new industry of startups elbowing their way into relevance as they begin the expensive and long road from discovery into FDA approved drugs. But there are more issues about psychedelics cropping up fast and furiously that are drawing attention from these law firms.

One new landmark case in psychedelics involves the right to try (RTT) law, which officially became the law of the land in May 2018, after 41 states developed their own version. It creates a uniform system for terminal patients seeking access to investigational treatments. 

RTT opens a new pathway for terminally ill patients who have exhausted their government-approved options and can’t get into a clinical trial to access treatments. But RTT only applies to treatments that have completed an FDA-approved Phase 1 clinical trial and remain under study in an active clinical trial. For example, if there are a Phase 2 or 3 clinical trials for medical cannabis as a treatment of an underlying terminal condition, it may qualify. 

Psychedelics is another matter.

There are murky gray areas within RTT applied to psychedelics that are being challenged in court in one particular case.

Gary Smith, a cannabis-focused attorney at the Guidant Law Firm in Phoenix, and general counsel to the nation’s oldest multi-racial peyote church is also the author of Psychedelica Lex, one of the first books to examine the law of psychedelic substances to help law firms and other organizations navigate novel legal and policy issues in this emerging sector. Smith is also a member of the legalization and regulation committee of the Psychedelics Bar Association (PBA).

RTT and the case of Advanced Integrative Medical Science Institute (AIMS) v. the Drug Enforcement Administration (DEA) recently got on his radar.

In one of his recent podcasts, his guest was attorney Kathryn Tucker, one of the founding members of the PBA and special counsel at Emerge Law Group, where she co-chairs the firm’s Psychedelic Practice Group. She is also the lead attorney on the AIMS v. DEA case.

Tucker discussed the RTT case involving the review of a letter that she and Dr. Sunil Aggarwal, who is the co-director of the AIMS, sent to the Drug Enforcement Administration (DEA) to get advice and guidance on how Aggarwal could administer psilocybin to two terminally ill patients without incurring liability under the Controlled Substances Act (CSA). AIMS is an outpatient clinic and research institute in Seattle, Washington.

Arguments began on September 2, 2021, before a three-judge ninth circuit court of appeals panel on the lawsuit against the DEA that was filed in March. A decision by the DEA to dismiss the lawsuit was rendered on January 31, 2022. 

The case marks the first time that a federal appellate court was asked to weigh in on the meaning of the provision governing the interrelation of DEA’s and FDA’s spheres of authority, according to one of the attorneys representing Aggarwal, Shane Pennington with Vicente Sederberg law firm.

Tucker wanted the DEA to consider “additional registration” pursuant to the RTT Act to obtain psilocybin for therapeutic use for terminally ill cancer patients.

The DEA responded with a letter identifying the available exemptions in the CSA which showed that the RTT Act did not create any additional exemptions. They then provided straightforward guidance about the interaction of the RTT Act and the CSA. Tucker wanted a judicial review of what the DEA said in their letter.

In their summary to dismiss, the judges said that they didn’t have the jurisdiction to review the DEA’s letter. “We then filed a request that the DEA give us a final decision, called a request for waiver, which is one tool in the DEA toolbox,” Tucker said during her blog interview. “It could have issued an exemption.”

They also filed a petition to reschedule psilocybin off CSA’s Schedule 1 to Schedule 2. “This moment is an auspicious and important moment for every activist who wants to see dying patients have the benefit of psilocybin therapy,” Tucker said, calling for a grassroots letter-writing campaign to lawmakers to take a more active role in the DEA’s obstruction to the RTT law, and why a duly enacted state and federal law is not being respected by the DEA. “This is a moment where citizen activism can and should come to the fore,” she said.

She said there has been a tremendous groundswell of organizational support to allow RTT laws to operate as intended. “We really need to reignite that broad support now,” she said.

There’s clearly more to come on this issue. 

Five different advocates and think tank groups filed briefs in support of AIMS in the case on May 21, 2021, including a brief by law professors and bioethicists stating that the DEA erred in refusing the request to access psilocybin for relief of debilitating depression and/or anxiety, and the court should reverse the summary decision to dismiss.

“The criticisms some have lodged against RTT laws simply do not apply in the present situation, where a well-known, safe and effective drug will be given solely as palliative care to patients facing the end of their lives,” the brief stated. 

The brief then cited three studies to back up the efficacy of psilocybin, adding that “these and other studies show that, in research spanning nearly 60 years, psilocybin has been shown to be safe, well-tolerated, and effective in reducing depression and anxiety, particularly in patients facing end of life.”

Then on January 18, 2022, seven members of Congress sent a joint letter to the DEA, citing the AIM v. DEA court case. “We strongly believe that our constituents suffering such illnesses should have access to this investigational drug should they decide to pursue such a course of treatment,” they wrote, adding that quick action was needed.

As clinical psychedelics trials move into Phase 3, and are subsequently OKed by the FDA within 2-4 years, will the DEA just let its obstruction to the RTT go on until then? That doesn’t help now in this case and any other similar cases, Tucker said. “Some of these patients who need help now will not be alive by then,” she said. “So now we see RTT laws thwarted to the detriment of dying patients.”

Stay tuned..


Debra BorchardtMay 2, 2022
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A judge decided on Friday that a New York case against Acreage Holdings (OTC: ACRHF) can proceed. Judge Andrea Masley in the New York Supreme Court listened to a week-long case and following closing arguments decided that the case against Acreage would not be dismissed. The case is regarding a New York license whose ownership got muddled through a series of mergers and partnerships.

Leading the charge is David Feder, an attorney who is part of a group that is claiming that Acreage Holdings cut them out of a portion of ownership of the converted limited New York cannabis licenses. The lawsuit claimed that Acreage acquired a New York property and this particular investor (EPMMNY) wasn’t included in the sale. A review of the legal document shows that EPMMNY’s equity stake was never finalized and so it wasn’t included in the final application for New York Canna (NY Canna).

Lawsuit Background

When medical marijuana was legalized in the state of New York, only 10 licenses were awarded. EPMMNY was formed in 2015 and the group began partnering up with another group called New Amsterdam Distributors, LLC, which was also seeking a medical cannabis business license. Members of the New Amsterdam group include Dixie, Duval, John Vavalo – a co-owner of a co-owner of J. Michael Shoes –, Dominic Falcone – who owns a plumbing company in Yonkers, and a pharmacist named Patrick Harvey. The complaint names Daino was CEO of Terradiol MC, a shell company for New Amsterdam.

Essentially it was a pairing between a group with money and no cannabis experience with a group that had the experience and needed funding. The New Amsterdam group needed the know-how and agreed to partner with EPMMNY to apply for a license as a combined entity called New York Canna Inc. Feder is a New York attorney with experience in the legal cannabis industry, had been preparing to submit a license application and began assembling a team to operate in New York. Feder began working with Malcolm Morrison, an experienced legal cannabis businessperson, who had successfully obtained cannabis licenses in other states. With this team in place, Feder and Morrison created EPMMNY with barely more than a month remaining to prepare and submit the New York license application.
Feder claims in the lawsuit that the partners agreed EPMMNY would be allocated 25% of the business for preparing the application, New Amsterdam would provide funding and own 75% of the business. However, with the clock ticking for the application to be submitted, Feder wasn’t able to get the documents confirming this arrangement. Although there was correspondence between the parties about the agreement. Despite the lack of documentation for the partnership, the application moved forward and ranked number six for getting one of the 10 licenses. This greatly improved the value of NY Canna.
Feder claims at this point NY  Canna merged with NY Medicinal without its consent and diluted its ownership by 50% to 12.5%. NY Medicinal was owned in whole or in part by Acreage Holding LLC’s predecessor, High Street Capital Partners. On December 1, 2016, Feder responded to the merger notice by rejecting it outright and demanding NY Canna’s books and records. Feder claims that his group was asked to accept the smaller ownership percentage, but they refused.
The license was awarded in 2017 and even with the ownership dispute brewing, Acreage ultimately ended up owning all of NY Canna, also known as Terradiol NY. In 2018, a week before Acreage Holdings went public, the group decided to file a lawsuit. It has been moving through the courts ever since, but now it seems Feder has notched a win at this stage.

Millions At Stake

“It’s a pretrial evidentiary hearing on whether Mr. Feder had the capacity to go with the case, and the judge ruled that he absolutely did,” said attorney Lawrence Lonergan who is representing plaintiff David Feder. “We’re very pleased the court saw things our way.” The case noted that the plaintiffs are also hoping to block Canopy Growth from acquiring Acreage Holdings, which would include the New York portion referred to as NY Canna.
The value of the ownership, should the case tip towards Feder’s claim, is worth millions. He is asking for upwards of $200 million for his stake.

Julie AitchesonApril 18, 2022
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Legal cannabis loopholes are sparking both innovation and creative evasion in today’s cannabis industry, and a host of law professionals are taking pains to elucidate them for clients in cannabis who risk both profit and loss by operating within them. After doing our due diligence with some of the cannabis industry’s top law professionals, Green Market Report has composed a list of the top five legal loopholes keeping things interesting in cannabis right now.

CBD

According to Morgan Davis, founder and CEO of Davis Legal, CBD products for food and beverage consumption present one of the most commonly exploited legal loopholes. CBD is still not FDA-approved, but consumables are commonly available everywhere from gas stations to Whole Foods and online retailers. “There are some states that have enacted regulations allowing for hemp and CBD products for human consumption,” Davis says, “but a majority have not. Nevertheless, a consumer can buy hemp and CBD food and beverage products for consumption in almost every state in the U.S.”

David Feldman, CEO of cannabis strategic advisory firm Skip Intro Advisors, puts Delta-8 at the top of his loophole list, and he’s not alone. Legal Associate Demetria Hamilton, in a blog post for law firm Bryan Cave Leighton Paisner (BCLPDigest.com) states that while Delta-8 THC is derived from CBD extracted from hemp plants and has been found to provide a “high” distinct from Delta-9, it still falls under the Farm Bill’s definition of “hemp”. “In other words,” she writes, “while Delta-8 is another name for Tetrahydrocannabinols, its presence in any quantity provides a risky grey area for brave cannabis producers to work-and profit- within.”

Sex & Wellness

Both Feldman and Davis are of the opinion that the medical marijuana market is another realm where cannabis businesses find workarounds to get their products into consumers’ hands. Davis cites “period care”, such as CBD or THC tampons, which are not FDA-approved and, as “medical devices”, are prohibited from including THC or CBD yet are still available online and throughout the country. Sex and wellness is another avenue for loopholes.  As “medical devices”, sex toys are regulated by the FDA, thereby prohibiting cannabis as an additive. Cannabis is also not approved by the FDA to enhance the sexual experience or treat sexual dysfunction, yet products (e.g. THC strains specifically targeted to enhance sexual experience, infused lubes, cannabis condoms, etc.) that address exactly those needs are gaining in popularity. “The loophole,” says Davis, “is that most of the companies either sell their product as a topical or “novelty item” to avoid the medical device issue. Add in some creative marketing to avoid being prescriptive and, so far, these products have avoided much scrutiny or enforcement.”

Both Davis and Feldman agree that “gift culture” has long been used as a means of circumventing legal restrictions by including cannabis gifts with a different purchase, such as a sticker, patch or poster advertising the company. A “donation economy” offers a similar workaround, and one that has been utilized in California’s medical market for twenty years. Customers make a donation in an amount equivalent to the cost of a cannabis product, then receive the product as a “free gift” as a token of appreciation for the donation.

Hospitality

“Cannabis hospitality” is a sector of the market where legal loopholes are helping cannabis consumers enjoy products outside of their homes. Restaurants or lounges may offer consumption options like joints or edibles without possessing the requisite retail license, while hotels, event spaces and even campgrounds can take advantage of private property laws to allow them to host cannabis consumption on their property. This does not extend to national parks and property owned by the Bureau of Land Management, which adhere to federal regulations and where cannabis and certain CBD products are illegal at all times. State parks may be more flexible depending on the state’s marijuana regulations. For example, information officer for California State Parks Adeline Yee confirms that “persons 21 and older may possess up to 28.5 grams of marijuana” at California state parks. Smoking or ingesting cannabis in California state parks is still illegal, however, and may only occur on private property.

Morgan Davis observes that some of today’s hottest trends in cannabis are operating in many of these legal grey areas, driven by those who choose to believe that if something is not very specifically prohibited by law, it is legal. “It’s still an exciting interval to watch,” Davis says. “The first one through the wall might get the bloodiest, but they’ll clear the path for all of the monumental ways this plant can transform lives.”

 


Dave HodesApril 7, 2022
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Psychedelics appear to be on an accelerated path to legitimacy now that the legal beagles officially have a hand in what that legitimacy means.

Lawyers representing clients researching or investing in psychedelics don’t have the same concerns that they had when they first explored similar representations in cannabis. Questions about whether they are violating rules of professional conduct, putting their firm’s banking relationships in jeopardy, or courting suits from state bar regulators have largely been answered.

So now it’s time: Introducing the first-ever Psychedelic Bar Association (PBA), founded in 2020 by one of California’s most effective and respected cannabis business and regulatory attorneys, Nicole Howell, partner at Clark-Howell LLP in Santa Monica, California. She is also the co-executive director of PBA.

“After a lot of careful consideration and making sure that we have a board that we felt fairly represented a diversity of points and practice areas and life experiences, we decided that we wanted to do something that was a little more meaningful and a little different than a bar association that mostly focus on business development and networking,” Howell told Psychedealia

One of the biggest differences between what they’re doing with the PBA and what lawyers are accustomed to, Howell said, is that they’re really inviting lawyers to think about how to integrate whatever sort of personal paths they’re on with their practice of law. “To think about evolving the practice of law together, and to think about some of the assumptions that we make and the ways that we have been trained to interact with each other and with clients. And to think about bringing some more of our humanity into our practice of law.”

Howell said that what they are doing with the PBA is studying the indigenous psychedelics traditions and focusing on the process of building the association. She is now putting together a group of founding members of the PBA and finding there is a lot of interest from other attorneys.

The mission of the Psychedelic Bar Association is to “bring together a diverse network of lawyers in the emerging psychedelic ecosystem, provide education, coalition-building, and community, with a focus on honing expertise in the psychedelic field. The PBA wants to empower members to help shape and steward the legal, political, and sacred contexts of psychedelics and all drugs toward justice, reciprocity, and equity.”

More law firms are beginning to open up divisions of their practices or assign specific attorneys to handle psychedelics cases. There is a handful in both the U.S. and the U.K. For example, the multi-national Los Angeles-based law firm Harris Bricken doesn’t list a specific psychedelics group, but has seven psychedelic attorneys on staff, noting that psychedelics are heading toward legalization.

One of the U.S. law firms that have made a big commitment to psychedelics is St. Louis-based Husch Blackwell, which recently announced its psychedelics and emerging therapies team, an interdisciplinary, cross-office group of lawyers helping psychedelics innovators who want to research, develop and commercialize novel therapies based on psychedelic drugs. 

The team is led by Natasha Sumner, a healthcare regulatory and product and commercial litigation attorney; Kimberly Chew, a commercial litigation attorney and co-founder of the psychedelic group; and Karen Luong, a product liability and commercial litigation attorney and co-founder of the psychedelic group.

The establishment of the firm’s psychedelics team makes the law firm the first Am Law 100 firm to offer such a team. The Am Law 100 is an annual ranking of the highest-grossing law firms in the U.S.

“I think a lot of the more conservative colleagues might have thought is this real? Is that something that you’re really doing? And it immediately caused them to question the legality of a lot of it,” Luong told Psychedealia. “But the way we’ve marketed this internally to those in our firm was, look, we are really focused on the science and the clinical trials and the government-sanctioned research that’s going on. And that’s actually where a lot of our client work has come from.”

There is a lot of general business work like corporate formation, public benefit corporations, and tax issues as well for these psychedelic companies, she said. A lot of companies in the space are also nonprofits, and the law firm has an entire nonprofit group that that deals with those issues. Then there is the entire FDA and drug development side of it.

“What we are doing is trying to help the public benefit corporations and nonprofits that are pushing these substances that they developed through the clinical trials to be approved by the FDA,” Loung said. 

The group is not focusing on advocacy issues right now, but Luong does have a personal stake in any PTSD treatment. “The fact that this psychedelic assisted therapy can potentially cure PTSD, well, I’m all over that. That’s so interesting to me.”

The group often navigates what the FDA is requesting, she said, referring to the MDMA assisted psychotherapy research that was granted Breakthrough Therapy back in 2017 and is going into final clinical trials now. “So it’s highly anticipated that by 2023, this (MDMA treatment) will be approved by the FDA. It’s already in the works,” she said. “So as issues come up with our clients, and as trials go through the FDA, we are here to assist.”

Capital financing and healthcare regulations are what the firm’s psychedelics practice is focusing on now, she said, because that’s where the field is right now. “It’s more in that area of developing the product and so forth, and corporate formation or restructuring.”

The trickle of business they have now will probably turn into a opened floodgate by 2023, Luong said, assuming that the FDA regulatory process proceeds on its path of reviewing more psychedelics that are working through their final clinical trials.


Debra BorchardtApril 5, 2022
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14min35745

The disgruntled investor lawsuit against Parallel cannabis initially hit the public records as a heavily redacted document. The Judge in the case apparently denied the redaction request and Green Market Report got a look at the complaint in all its glory or gory detail.

Notably, the actual debt amounts are spelled out along with other details that weren’t gleaned from the previous review. There are several issues alleged in this lawsuit and it is broken down as such:

  • The SAFE (Simple Agreement for Future Equity) Investors claim their $25 million investment wasn’t supposed to be released until $50 million was raised. Their money was inappropriately taken from escrow 
  • Former CEO Beau Wrigley increased the company debt to $300 million
  • Parallel reduced its revenue projections by 40% in a matter of months
  • Parallel was in default on its debts but did not tell potential investors.
  • The defaults were triggered by money owed to the former founder Jake Bergmann
  • Green Health debt was created inappropriately to pay Bergmann
  • Wrigley was conflicted between issuing debt and making sure repayment terms were overly generous
  • Investors allege that the Ceres SPAC Investment may have been a ruse all along to convince the SAFE investors to commit

SAFE Investors

The SAFE investors say they agreed to invest $25 million if another $25 million was raised bringing the total to $50 million. They say they wanted Wrigley to put up some money to have “skin in the game.” They say their money was in escrow and not to be released until the whole $50 million was raised, but that didn’t occur. They were also told that the investment would be a bridge funding until the SPAC deal was closed or alternative funding was accessed and that their money would likely be tied up until the second quarter of 2022. The money was released on September 27, 2021 even though the full $50 million wasn’t raised. The investors though found out that Wrigley didn’t put up his money after the fact and complained.

Wrigley is alleged to have then made up a shortfall of $10 million, but then had his own family fund called the PE Fund pay him back $3 million. The court filing says, “The Company had quietly used $3 million of the SAFE money to pay back part of Wrigley’s PE Fund Note, which means that while Wrigley was out soliciting “bridge” financing, he was actually taking $3 million out of the Company.”

Big Debt

One of the details that had been redacted in the original documents was the amount of debt at Parallel. The unredacted version states that Parallel had $300 million in debt. “By the end of June 2021, as discussed above, the Company had incurred more than $350 million in debt, a portion of which—the PE Fund Note—constituted an undisclosed default under $300 million of its Senior and Junior Note.”

  • The Senior notes account for $165 million with 10% interest. 
  • The Junior notes are $145 million and are owned by the SAF Group in Canada. The company used the Junior Note to refinance seller financing provided by the sellers of New England Treatment Access (“NETA”). NETA is a cannabis facility that Parallel acquired in 2019. The Junior Note carries an annual non-default interest rate of 14.25%
  • The company also appears to owe approximately $54 million on $44.3 million of certain convertible secured notes issued to Green Health. The Green Health Notes accrue interest at a rate of 16% per year, and carried a prepayment penalty of 25%

Rosy Revenue Projections

The investors also allege that in August 2021, Parallel projected 2022 revenue of $618 million. However, by January 2022 those revenue projections had dropped by 40% to $362 million. The company is privately owned and so actual revenue figures can’t be obtained. 

Debt Defaults

The case alleges that by September 2021, Parallel “was on the precipice of (i) covenant and payment defaults on $145 million of recently issued junior debt, (ii) cross-defaults on $165 million of senior debt, and (iii) defaulting on a $13.5 million promissory note issued by Wrigley’s “family office,” Defendant PE Fund (PE Fund also held $91.2 million of the Company’s $165 million in senior debt); b. That as of September 27, 2021, the company also was already in payment default on approximately $44 million of notes issued by Defendant Green Health – a different Wrigley family office”

The complaint says that Parallel actually began defaulting on the debt as early as June 2021 because the company began issuing new debt to pay its other obligations. The investors say that their debt agreements specifically stated that Parallel couldn’t incur any more debt, but did so anyway. Essentially raising more money to pay off the previous debts due, which is why the complaint called Parallel a Ponzi scheme. 

Bergmann Payments

Bergmann was the original founder of the company but he stepped down in 2018 when Wrigley became the CEO. The complaint says, “A dispute between Bergmann and the company arose over the value of Bergmann’s common stock. To resolve the dispute, and disregarding that Bergmann’s interests should have been junior to all of the company’s debt and Preferred Stock obligations described herein, the company entered into the Bergmann Settlement in or around January 2021.” Parallel (Surterra at the time) agreed to pay Bergmann $38.5 million and the first payment was to be $6 million. The second payment was to be $12.5 million and if Parallel couldn’t make that payment – it would rise to $13.5 million. 

The investors say Parallel didn’t have the money and created more debt called the Green Health note to pay off Bergmann. The investors also say they were never told about the money owed Bergmann when they made their investment. Bergmann was paid $16 million in June 2021, but it didn’t come from Parallel – instead, it came from the Green Health debt which got money from the PE Fund.

Green Health Notes

Green Health is another Wrigley family office. The investors say the Green Health debt was created in order to pay off Bergmann and that was not allowed because the existing note holders agreed to lend money to Parallel if the company incurred no more debt. “The Company also appears to owe approximately $54 million on $44.3 million of certain convertible secured notes issued to Green Health. The Green Health Notes accrue interest at a rate of 16% per year, and carried a prepayment penalty of 25% (inclusive of all interest) had they been repaid before the May 1, 2021 maturity date.” Wrigley was CEO of Parallel and Green Health at the same time. 

The Green Health Notes convert into preferred equity of Parallel to the tune of $135 million worth of preferred stock that would outrank one of the disgruntled investors – Techview’s Series D Preferred stock. So, the $44.5 million investment from Wrigley’s family office would turn into $135 million of stock. 

“Remarkably, the fact that the Third and Fourth Amended Green Health Notes were executed as of May 7, 2021, with a past-due maturity date of May 1, 2021, means the notes were already in default upon execution.

Ceres Acquisition SPAC

Parallel was rumored to be going public as the qualifying transaction for the Ceres Acquisition SPAC (OTC: CERAF). However, the deal fell apart and was terminated. The valuation fell from $1.8 billion to $1 billion and the lawsuit alleges that Parallel’s poor performance as a company would have resulted in a loss of value in the public share. The investors also allege that maybe the SPAC deal was never intended to go forward and was just a marketing tool. 

When the SPAC deal was terminated, Parallel spun the news as a positive story. The company alluded to more investors coming forward and that it had just received new private investor money, which was the SAFE money. 

Parallel Crashes

The problems all came to a head according to the complaint when in November 2021, Wrigley resigned as CEO when the first default notices started going out. At the beginning of December, it became really clear to the investors just how bad the situation was. “During a Zoom call that day with Perella Weinberg Partners (“PWP”)—one of the company’s financial advisors in connection with the purported effort to sell the company—PWP disclosed that the year-end interest payment due on the $165 million in Senior Notes would not be paid, because the company would instead need to conserve precious cash for the sale process.”  

The investors had been told their cash would last the company until at least the second quarter of 2022, but it may have already been used up by the fall of 2021. The investor’s group financial advisor Trip McCoy had eventually asked the current CEO James Whitcomb where the money went, “Whitcomb attempted to deflect the issue to PWP’s supposed mishandling of the situation, but also conceded that although “we still have most of that money today” “[t]he issue is we need to raise more, and the [newly appointed strategic advisory] committee is focused a lot on unwinding of some of Beau’s securities and redistribution of this equity back to the rest of the cap table.” Whitcomb further conceded in the same message exchange that “Beau and Jay have some explaining to do to you as I mentioned in our last call.”


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