Santa Ana-based California cannabis testing lab Cannalysis made big headlines late last year by securing $22.6 million in investments led by its newest buy-in bedfellow, a company called CanLab.
That influx of fresh capital was to allow Cannalysis to expand throughout the state of California and into Oregon, to double the size of their SoCal headquarters, and to finance their advancement of robotics and automation in the cannabis testing field.
Instead, the powers that be at CanLab allegedly used their newly purchased leverage to stage an internal coup against Cannalysis co-Founder and CEO, Brian Lannon, eventually leading to his ouster altogether from the company.
This is the allegation that Lannon and his co-plaintiff (his dad) have made in a court filing dated April 20th of this year, but that’s not all he has to say about his short-lived business partners.
According to Lannon, and the 32-page, 11-count complaint and demand for a jury trial filed on 4/20 by him and his lawyers, the defendants named in the case not only wrongfully terminated him but have since refused to reveal any business financials to him, though he is still a shareholder.
He also alleges that the defendants have repeatedly used his personal credit card to make company purchases, despite his demands for them to stop and that they continue to slander him by alleging that he was fired from his position for stealing from the company he helped to build from the ground up.
Finally, and perhaps most damning if true, Lannon says that the new investors almost immediately began trying to recoup their funds by cooking the books to bamboozle new investors.
Welcome to California cannabis! These are supposed to be the industry watchdogs… woof!
CLOWN CAR
Ok, there are a few more characters to introduce but let’s recap who we are dealing with first.
Brian Lannon co-founded Cannalysis, an Orange County-based cannabis testing lab.
His lab, Cannalysis, held a round of investment seeking last year and hauled in $22.6 million with the intent to only give up 44% of the company to investment partners.
CanLab is a company based in El Segundo, California that, from what we can tell, is not a cannabis testing lab, but instead provides a “network” of support and consultation for testing labs.
Lannon is alleging that once CanLab bought into Cannalysis, its executives began conspiring to assume majority control of the company’s Board of Directors. According to Lannon’s complaint, the plan was then to vote to remove him off of the Board and from his CEO position.
If there was a conspiracy and how deep it goes may be revealed throughout the course of a trial, if Lannon is granted one, but the fact is that he was certainly removed from those positions against his will after climbing into bed with CanLab.
The board replaced Lannon with a man named Tyler Autera who not only became the new CEO of Cannalysis, but also its Chief Financial Officer as well as its Secretary. Yes, all at the same time.
In all, there are over a dozen defendants – some named, some John Doe’s – but these are the players to watch as this blooper unfolds.
SHELL GAME
As mentioned, perhaps the craziest allegation in Lannon’s court filing is his claim that the new investment group was inflating the value of their new asset in hopes of roping in another layer of investors to free up their funds.
According to Lannon, as soon as the ink was dry on the investment deal with CanLab, they sent some beancounters over to Cannalysis to do what they dubbed a “budget exercise”.
At that time, Cannalysis was bringing in a respectable $600,000 each month in revenue. Unsatisfied, the team from CanLab presented a projection in which Cannalysis could instead by raking in over $3,000,000 each month, based on CanLab flexing its so-called connections in the industry.
What connections, you may ask, could boost revenues by 5x?
Lannon says that one CanLab principal, a defendant listed in the complaint named Gary Hopkinson, boasted that he had personally invested in MedMen and that he would singlehandedly bring a million a month to Cannalysis from that account alone.
MedMen?!
How’d that work out, Gary?
Ok, this all sounds Chad-tastic, but the first thing you learn in sales is when another salesman tells you a dollar figure you can cut it in half and then cut it in half again before you hone in on the truth. These guys puffing their chests in the boardroom is one thing, but Lannon alleges that the fictitious $3,000,000/mo number essentially became the newest highlight of the pitch deck going out to potential new investors.
As stated, Lannon is seeking a trial by jury on all 11 counts, including:
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BREACH OF FIDUCIARY DUTY
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AIDING AND ABETTING BREACH OF FIDUCIARY DUTY
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WRONGFUL TERMINATION IN VIOLATION OF PUBLIC POLICY
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BREACH OF CONTRACT: VOTING AGREEMENT
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BREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING: VOTING AGREEMENT
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VIOLATION OF CORPORATIONS CODE §§ 303, 709
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FRAUD / FRAUDULENT INDUCEMENT
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TORTIOUS INTERFERENCE WITH CONTRACT / INTENTIONAL INTERFERENCE WITH PROSPECTIVE ECONOMIC ADVANTAGE
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SLANDER
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CONVERSION
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VIOLATION OF CORPORATIONS CODE §§ 1600 ET SEQ.
It is important to note that all of the information outlined above was taken directly from the court complaint which you can read HERE. This is written by Lannon and his lawyers and so it is clearly worded in his favor and offers no rebuttal from the defendants who will likely have their own version of events.
It is an interesting story and is well worth keeping an eye on as it appears to illustrate the fact that no link of the cannabis supply chain is safe from the lure of regrettable investment decisions. Whether Lannon is telling the whole truth, half the truth, or less, he is now locked out of the lab he created.
