Welcome back to Higher Law, our weekly briefing on all things cannabis. I'm Cheryl Miller, reporting for Law.com from Sacramento. Don't worry. Adam Schiff and Pat Cipolline will still be on TV when you're done reading this.

• A messy cannabis trade secrets dispute in Colorado • The SEC's case against marijuana company promoters • The cannabis attorney representing Lev Parnas • A medical marijuana data breach

Thanks as always for reading. Got a story idea? A tip? Send them all my way at [email protected]. Or call me at 916.448.2935. Follow me on Twitter @capitalaccounts.

 

A Cannabis Trade Secret Dispute Goes to Court in Colorado

A messy trade secret fight between two cannabis camps is brewing in Colorado.

In a complaint filed with the U.S. District Court for Colorado Jan. 17, Texas-based Preservation Sciences Inc. accused Wyoming company CannaHoldCo Inc. of marketing and selling a Preservation Sciences' product that can rapidly dehydrate cannabis plants.

The complaint lays out a complex series of events involving a number of acronym-laden companies. The bottom line: Preservation Sciences, represented by Michiko Brown and Emily Wasserman of Davis Graham & Stubbs in Denver, says CannaHoldCo had no authority to sign a letter of intent with Vancouver, British Columbia-based AgriCann Solutions Corp for the sale and distribution of the drying product under the market name Dryco. Agricann terminated the letter on the same day Preservation Sciences filed suit.

CannaHoldCo's "attempts to market the PSI Product as Dryco undercut PSI's claim to have a unique product and thereby damage PSI's credibility and goodwill," Brown and Wasserman wrote in the complaint. CannaHoldCo"s "actions also hamper PSI's ability to attract new investment," they continued.

Barry Gainsburg, general counsel for CannaHoldCo, declined in an email to comment on the merits of the lawsuit. He blamed a "communication breakdown" among Preservation Sciences, CannaHold and Agricann management for the dispute. CannaHoldCo does not own Preservation Sciences' intellectual property and cannot market it, he said.

Gainsburg said CannaHoldCo executives believe they can resolve the "misunderstandings through dialogue, rather than litigation."

CannaHoldCo has asked the federal court for injunctive relief, a declaration that Preservation Sciences owns all rights to the drying product and unspecified damages.

 

Cannabis Company Promoters Face SEC Charges

The U.S. Securities and Exchange Commission has charged two West Coast men with seizing on the buzz surrounding state-legal cannabis to defraud investors.

Guy Griffithe of California and Robert Russell of Washington are accused of pocketing approximately $4.85 million from investors who thought they were buying stakes in a Washington-licensed cannabis company, SMRB. Those securities turned out to be "essentially worthless," the SEC said.

Griffithe spent $1.8 million of the investors' money on luxury cars, boats and a movie industry venture, according to a complaint filed Tuesday in the U.S. District Court for California's Central District. Griffithe allegedly deposited another $1.7 million into Russell's bank accounts. Investors were paid $340,000 "in phony distributions," according to the SEC.

"As alleged in our complaint, Griffithe and Russell exploited popular interest in the cannabis industry to obtain millions of dollars from investors who thought they were buying into a profitable business," SEC Associate Director Melissa Hodgman said in a prepared statement. "Instead, Griffithe and Russell deceived investors and used the money to enrich themselves."

The SEC is seeking a return of the investors' money as well as civil penalties and permanent injunctions.

Brian Newman of the Law Offices of Brian Newman represents Russell and SMRB.

"Mr. Russell denies all the allegations made against him. He has not signed any securities agreements nor solicited investors in SMRB," Newman said in a statement. "Any purported signed documents do not contain a valid/actual signature of Mr. Russell."

Griffithe had no counsel at the time the complaint was filed, according to the SEC.

 

Who Got the Work

• Greenberg Traurig partner Rick Shackelford has entered an appearance for CbdMD, Inc. in lawsuit alleging fraudulent conduct by the North Carolina-based company. The action was filed Dec. 3 in the U.S. District Court for California's Central District by Greg Coleman Law PC, Kohn Swift & Graf PC, and Barbat Mansour & Suciu PLLC on behalf of plaintiff Cynthia Davis.

• Meet Joseph Bondy, the New York attorney who mixes cannabis law, criminal law and politics. You've may have seen him on TV recently standing next to one of his clients, Lev Parnas, the associate of Rudy Giuliani who has accused the president and attorney general of being involved with efforts to get Ukraine to investigate the son of Democratic presidential candidate Joe Biden. My colleague Tom McParland has some fast facts about the "variegated and colorful" attorney here.

• Husch Blackwell secured a temporary restraining order from a Missouri state court that will allow its client, the Healing Center of Kansas City, to continue pursuing a license to operate medical marijuana facilities. The firm is challenging a city of Independence's ordinance that bars marijuana businesses from locating within 500 feet of a residentially zoned location. Husch Blackwell attorneys, led by Jefferson City-based partner Lowell Pearson, argue that the law would effectively cover 88 percent of the city's commercial zones.

 

In the Weeds…

>> Report: Medical marijuana users' personal data were exposed in a major breach. Internet privacy researchers at vpnMentor discovered the data breach in cannabis point-of-sales system THSuite in December. The researchers found 85,000 unencrypted files that revealed information ranging from names and birthdates to the amount of marijuana purchased by customers at at least three dispensaries. [Mashable] [Cleveland.com]

>> Cannabis companies are not immune from investor suits. According to NERA Economic Consulting's annual report, "Recent Trends in Securities Class Action Litigation: 2019 Full-Year Review," released on Tuesday, six lawsuits alleged securities fraud against cannabis companies, including Aurora Cannabis Inc. and CannTrust Holdings Inc. There was only one in 2018. [Law.com]

>> Major Canadian pot companies facing proposed class-action lawsuits in the U.S. "Some of Canada's biggest cannabis producers are facing proposed class-action lawsuits in the United States after investors were hit with steep financial losses in the stock market. At least nine U.S. law firms are pursuing cases against Canopy Growth, Aurora Cannabis and Hexo Corp. in American courts." [CBC]

>> Are trade secret claims hiding vital public information? Greenleaf Apothecaries sought a restraining order last year to stop the Ohio Board of Pharmacy from releasing information on an investigation into the company's ownership. Three Ohio medical marijuana companies, marked their license applications "trade secrets" to prevent their disclosure. [The Columbus Dispatch]

>> Connecticut will join the 2020 recreational race. Senate Democrats are expected to outline their proposal to regulate and tax recreational-use marijuana on Thursday. Last week, Gov. Gina Raimondo unveiled her plan for a network of state-controlled dispensaries. A package of legislative bills died in the statehouse last year. [Hartford Courant] Politico also has a round-up of other states considering marijuana measures in 2020. [Politico]

 

All the Calendar Things

Jan. 24 - Adam Bierman, CEO of MedMen, will answer questions about his company and the industry in an "Ask Me Anything" session at 10 a.m. PST via reddit's r/weedstocks.

Jan. 28-30 - The Texas Hemp Convention takes place in Dallas. Scheduled speakers include Conley Rose principal Charles Rogers; Reed Smith counsel Marc Hauser; and Ritter Spencer attorney Chelsie Spencer.

Jan. 29 - The public comment period ends for the U.S. Department of Agriculture's domestic hemp production program interim final rule.