If your company employs people in Arizona the people running the company need to read this article by Arizona attorneys Michael D. Moberly & Charitie L. Hartsig of the Ryley Carlock & Applewhite law firm.
Huffington Post: “A bill that would provide order to California’s muddled medical marijuana program cleared a major hurdle Friday, when the state Assembly’s Appropriations Committee moved it forward for a full Assembly vote next week. Authored by Assemblyman Tom Ammiano (D-San Francisco), the measure, AB 1894, would create uniform rules to govern the state’s multibillion-dollar medical marijuana industry. Although California became the first state to legalize cannabis for medicinal use in 1996, the state has yet to establish a set of standards guiding the cultivation, production and sale of the plant, which has led to what Ammiano described to The Huffington Post as “chaos.”
On March 5, 2014, Ultra Health, LLC, filed its first lawsuit in Maricopa County, Arizona. On May 19, 2014, JDT Construction, LLC., sued Duke Rodriguez’ Ultra Health, LLC, in Yavapai County Superior Court for Ultra Health’s alleged failure to pay $826,493 .68 under a contract for construction at 2144 North Road l East, Chino Valley, Yavapai County, Arizona 86323. The JDT Construction Complaint states that Ultra Health, LLC, did pay $1,778,383.91 under the contract and that:
“On May 5, 2014, pursuant to an order from the United States Bankruptcy Court of the District of Nevada on April 11, 2013 (Case No. BK-S-13-11930-btb) allowing Ultra Health to purchase the Property, Ultra Health designee, CVUH LLC recorded in Yavapai County, Arizona a Trustee’s Deed granting CVUH LLC all legal and beneficial interest in the Property subject to other liens, liabilities and encumbrances.”
JDT Construction, LLC, is asking the court to find that JDT has a valid mechanics’ lien, that the lien be foreclosed and the Sheriff of Yavapai County sell the Chino property to the highest bidder.
With the filing of the JDT Construction lawsuit, Ultra Heatlth, LLC, is now a party in four lawsuits filed in the last two and one half months. To learn about Ultra Health’s other three lawsuits read “Zoned Properties, Inc. & Duke Rodriguez Lawsuits.” See also “AZ Dept. of Health Services Confirms Ultra Health, LLC Lacks a License for a Medical Marijuana Dispensary.”
Disclosure: Holistic Patient Wellness Group, LLC, East Valley Patient Wellness Group, LLC, and Natural Remedy Patient Center, LLC (all clients of mine) are parties to some of the Ultra Health, LLC, lawsuits.
The following is the text of a May 16, 2014, Securities & Exchange Commission press release:
The Securities and Exchange Commission today cautioned investors about the potential for fraud in microcap companies that claim their operations relate to the marijuana industry after the agency suspended trading in the fifth such company within the past two months.
The SEC issued an investor alert warning about possible scams involving marijuana-related investments, noting that fraudsters often exploit the latest growth industry to lure investors with the promise of high returns. “For marijuana-related companies that are not required to report with the SEC, investors may have limited information about the company’s management, products, services, and finances,” the SEC’s alert says. “When publicly available information is scarce, fraudsters can more easily spread false information about a company, making profits for themselves while creating losses for unsuspecting investors.”
Spearheaded by its Microcap Fraud Task Force, the SEC Enforcement Division scours the microcap market and proactively identifies companies with publicly disseminated information that appears inadequate or potentially inaccurate. The SEC has the authority to issue trading suspensions against such companies while the questionable activity is further investigated.
As the markets opened today, the SEC suspended trading in Denver-based FusionPharm Inc., which claims to make a professional cultivation system for use by cannabis cultivators among others. According to the SEC’s order, the trading suspension was issued “because of questions that have been raised about the accuracy of assertions by FusionPharm” concerning the company’s assets, revenues, financial statements, business transactions, and financial condition.
“Recent changes in state laws concerning medical and recreational marijuana have created new opportunities for penny stock fraud,” said Elisha Frank, co-chair of the SEC Enforcement Division’s Microcap Fraud Task Force. “Wherever we see incomplete or misleading disclosures, we act quickly to protect investors.”
Other marijuana-related companies in which the SEC recently suspended trading are Irvine, Calif.-based Cannabusiness Group Inc., Woodland Hills, Calif.-based GrowLife Inc., Colorado Springs-based Advanced Cannabis Solutions Inc., and Bedford, Texas-based Petrotech Oil and Gas Inc.
Under the federal securities laws, the SEC can suspend trading in a stock for 10 days and generally prohibit a broker-dealer from soliciting investors to buy or sell the stock again until certain reporting requirements are met. More information about the trading suspension process is available in an SEC investor bulletin on the topic.
“We know from experience that fraudsters follow the headlines,” said Lori J. Schock, director of the SEC’s Office of Investor Education and Advocacy, which prepared the investor alert. “Given the attention that marijuana-related companies have attracted recently, we urge investors to exercise caution when looking at investments in this space. Always thoroughly research the company – and the person selling the investment – before making a decision.”
McClatchy DC: “Delivering a major blow to state-licensed pot growers in Washington state and Colorado, the U.S. Bureau of Reclamation said today it will not allow any federally-controlled water to be used on marijuana crops. ‘As a federal agency, Reclamation is obligated to adhere to federal law in the conduct of its responsibilities to the American people,’ said Dan DuBray, the agency’s chief of public affairs. The decision could hit particularly hard in Washington state, with the federal agency controlling the water supply for two-thirds of Washington state’s irrigated land.”
Benjamin Moses Leff, Associate Professor of Law, American University Washington College of Law, published an excellent law review article about Internal Revenue Code Section 280E, a troublesome tax statute for state-legal medical marijuana dispensaries.
“In recent years, many states have legalized marijuana while the federal government has not. But marijuana industry insiders consider not federal criminal law but federal tax law to be the biggest impediment to the development of a legitimate marijuana industry. State-sanctioned marijuana sellers are required to pay federal income taxes pursuant to I.R.C. § 280E, a formerly largely symbolic provision that Congress enacted to punish drug dealers, but which now could potentially drive legitimate marijuana sellers underground.
This Article proposes a tax strategy that enables state-sanctioned marijuana sellers to avoid the impact of § 280E by qualifying as a tax-exempt organization. The IRS has already stated that a marijuana seller cannot be exempt under I.R.C. § 501(c)(3) because the so-called ‘public policy doctrine’ does not permit a charity to have purposes that are contrary to law. This Article proposes for the first time that the public policy doctrine does not apply to § 501(c)(4) organizations, which opens the door for marijuana sellers to qualify as tax-exempt. The organization would have to be operated to improve the social and economic conditions of a neighborhood blighted by crime or poverty by providing job training, employment opportunities, and improved business conditions for commercial development in the neighborhood, just like many existing community economic development corporations that run businesses.
This novel argument is more than just a ‘tax loophole’ to avoid the impact of § 280E. Rather, IRS recognition of tax-exempt status for marijuana sellers could actually provide a mechanism to resolve the federalism issues raised by the conflict between state and federal marijuana laws. A federal policy that incentivizes marijuana sellers to be nonprofit, neighborhood-based organizations in effect ties federal approval to local support.”
On May 16, 2014, the Securities and Exchange Commission published a detailed warning that is a must read for anybody who owns stock of or is considering purchasing stock of a company that provides products products or services to state legal marijuana businesses.
The SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to warn investors about potential risks involving investments in marijuana-related companies.
The SEC has seen an increase in the number of investor complaints regarding marijuana-related investments. The SEC recently issued temporary trading suspensions for the common stock of five different companies that claim their operations relate to the marijuana industry:
- FusionPharm, Inc.
- Cannabusiness Group, Inc.
- GrowLife, Inc.
- Advanced Cannabis Solutions, Inc.
- Petrotech Oil and Gas, Inc.
The SEC suspended trading in these companies because of questions regarding the accuracy of publicly-available information about these companies’ operations. For two of the companies, the trading suspensions were also based on potential illegal activity (unlawful sales of securities and market manipulation).
Fraudsters often exploit the latest innovation, technology, product, or growth industry – in this case, marijuana – to lure investors with the promise of high returns. Also, for marijuana-related companies that are not required to report with the SEC, investors may have limited information about the company’s management, products, services, and finances. When publicly-available information is scarce, fraudsters can more easily spread false information about a company, making profits for themselves while creating losses for unsuspecting investors.
Risk of Prosecution for Marijuana-Related Companies. If you are considering investing in a company that is connected to the marijuana industry, be aware that marijuana-related companies may be at risk of federal, and perhaps state, criminal prosecution. The Department of Treasury recently issued guidance noting: “
CBS Denver:“Cannabis in the classroom — a new marijuana-themed university is hosting classes on the Auraria Campus in Denver, and not everyone is happy about it. Students might not find “Marijuana 101″ on the catalogs of the three universities that occupy Auraria Campus, but CBS4′s Rick Sallinger found it’s certainly being taught there”
Holistic Patient Wellness Group, LLC, East Valley Patient Wellness Group, LLC, and Natural Remedy Patient Center, LLC (all clients of mine) hold Dispensary Registration Certificates issued by the Arizona Department of Health Services. These companies are involved in lawsuits with Duke Rodriguez, Zoned Properties, Inc. (aka ZDPYD), Ultra Health, LLC, and Cumbre Investment, LLC. ZDPYD focuses “on properties in the medical marijuana industry.” See page 8 of ZPI’s April 15, 2014, Company Information & Disclosure Statement. To learn more about Zoned Properties, Inc., read “Zoned Properties, Inc. Public Disclosures.”
According to page 16 of Zoned Properties, Inc.’s April 15, 2014, Disclosure Statement its major stockholders as of that date were Duke Rodriguez (2,200,000 shares – 9.29%), Marc Brannigan (1,500,000 shares – 6.34%), Alan Abrams (3,200,000 shares – 13.51%), Christopher Carra (2,200,000 shares – 9.29%), Greg Johnson (1,500,000 shares – 6.34%), MJ Trust (1,200,000 shares – 5.07%) and MAC CAM, LLC (700,000 preferred shares). MAC CAM, LLC is owned by Marc Brannigan, Alan Abrams and Christopher Carra. On May 13, 2014, ZDPYD did a 1:120 reverse stock split. Duke Rodriguez is the member and manager of Ultra Health, LLC, and Cumbre Investment, LLC. Zoned Properties, Inc., Cumbre Investment, LLC, and Ultra Health, LLC, have domestic addresses at 16624 N. 90th Street, Scottsdale, Arizona.
Zoned Properties, Inc., is now a party to three lawsuits involving the eviction (see lawsuit #5 below about the Clifton, Arizona premises) and attempted eviction (see lawsuits #2 and #3 below about the 410 S. Madison, Tempe, Arizona premises) of a medical marijuana dispensary tenant, Holistic Patient Wellness Group, LLC.
Check back from time to time because we will be adding pleadings as these cases progress.
Summary of Lawsuits
1. Ultra Health, LLC vs. Healing Healthcare 3, Inc., Scan4Health, LLC. and Holistic Patient Wellness Group, LLC
This lawsuit is Maricopa County Superior Court case number CV2014-005642. On March 5, 2014, Ultra Health, LLC, filed a lawsuit against Healing Healthcare 3, Inc. and Scan4Health, LLC. Ultra Health, LLC’s Complaint contains the following statements:
“On September 15, 2013, Ultra Health and Healing Healthcare 3 entered into a Joint Venture Agreement for purposes of operating a marijuana cultivation facility with its principal place of business at the Tempe Lease facility.
Zoned Properties, Inc., is a publicly traded corporation (symbol ZDPYD) that claims to “focus on properties in the medical marijuana industry.” See page 8 of ZPI’s April 15, 2014, Company Information & Disclosure Statement. ZDPYD stock price per share in the last six months went from $.0754 on November 8, 2013, to a high of $21.98 on March 5, 2014, and down to $.68 on May 12, 2014. On May 13, 2014, ZDPYD did a 1:120 reverse stock split.
The purpose of this article is to help people in the Arizona medical marijuana industry learn about Zoned Properties, Inc., a company that purchased its first of two Arizona real estate properties on January 20, 2014, and is now involved in three lawsuits in Arizona Superior Court with three medical marijuana dispensary clients of mine: Holistic Patient Wellness Group, LLC, East Valley Patient Wellness Group, LLC, and Natural Remedy Patient Center, LLC. To learn more about the Zoned Properties, Inc., lawsuits read “Zoned Properties, Inc. & Duke Rodriguez Lawsuits.”
The text inside quotes below was taken from ZDPYD’s public disclosures and press releases. Text inside brackets
arizona.newszap.com: “A majority of the Mesa City Council voted to approve rezoning property to light industrial for a planned medical-marijuana dispensary at 6350 E. Main St., but legal property-owner protests in the area required at least a 6-1 vote, the council was told May 5. The proposed business would have been in the Mesa Central CHAA – or Community Health Analysis Areas for Arizona’s medical marijuana program – with boundaries of Power Road, Country Club Drive, University Drive and Broadway Road, Gordon Sheffield, city of Mesa zoning/civil hearing administrator, told the planning board Feb. 18. The city requires that medical-marijuana dispensaries be in industrial-zoned areas. There is no industrial-zoned land in the CHAA,”
Southern Investigative Reporting Foundation: Roddy Boyd, the author of “Tinkerer, Lawyer, Hustler, Lies: One Man’s Path to a Dope Fortune” wrote an April 17, 2014, Medbox article for the Southern Investigative Reporting Foundation. All Medbox shareholders and people involved with Arizona medical marijuana dispensaries that used Medbox’ services should read the article. Here are some quotes from the article:
Rishi Patel is on a mission: He is taking a hard look at business opportunities in the wake of Arizona’s decision to permit the sale of medical marijuana in dispensaries across the state. . . .
Patel had come across an ad from Prescription Vending Machines, a company helping folks like him get into the medical marijuana business, and in short order he was in a running dialogue with the company’s founder, an agreeable and talkative fellow named Vincent Mehdizadeh. From there, it wasn’t long before Patel and a pair of friends had struck a plan to help Prescription Vending Machines land a dispensary permit in Arizona.
Just before he wrote a very large check—his father was staking him the capital—Patel did a background search on Mehdizadeh.
After getting the report, Patel was astonished to see a laundry list of crimes and lawsuits; one more serious than the other, all of which Mehdizadeh was at the center. . . .
[Mehdizadeh] tells Patel that there has been a mistake, and that something somewhere is terribly wrong since he hasn’t been repeatedly sued or arrested. . . .
To correct the record, Mehdizadeh e-mails Patel a scan of his driver’s license and another background report.
Shortly after the call ended, Patel opened up the files. As promised, the documents belonged to Pegah Vincent Mehdizadeh, a man from California whose spotless criminal record was the polar opposite of Pejman Vincent Mehdizadeh. . . .
And then in July 2011 Patel got his dispensary and within minutes knew that everything was wrong. The furniture was used, the location wasn’t what they’d bargained for, and even the vaunted dispensary system they’d been promised didn’t do what was advertised.
The quotes above are a small part of a very lengthy and troubling story.
New York Times: “A joint might never be as easy to access as a can of beer or a cigarette. But thousands of people and millions of dollars are hard at work to make it as predictable and dependable as one. Call it the Bud Light-ification of bud. There’s a pressing economic reason for the pot industry to get better if it is to survive, aside from its formidable legal challenges. The plant is relatively cheap and easy to grow, and not complicated to process either. Left to the whims of the open market — meaning ignoring taxes and regulations — the price of a joint could plummet to the price of a tea bag or a packet of sugar. So how will investors help the market mature while still making money?”
Phoenix New Times: Medbox is a company that “features patented systems that dispense medication based on biometric identification . . . . [and] turn-key consulting services to the pharmaceutical industry” Medbox (MDBX) is a publicly traded company whose stock value was $19.91 as of May 9, 2014, which gave it a market value of $587,857,682. Medbox is a major player in the Arizona medial marijuana dispensary industry.
On May 8, 2014, the Phoenix New Times published a devastating story about Medbox written by investigative reporter Ray Stern. Here are some interesting quotes from the story.
“Judging by its stock, this company truly is big time. Its products and services, however, aren’t as impressive. Medbox machines are by no means in widespread use in Arizona’s 80 medical-marijuana dispensaries. One drawback of the devices, as the unit at BC Wellness Center demonstrates, is that customers can’t use them legally. . . .
We spent all this money for the machine, and the customer can’t use it. . . . But the machine isn’t crucial to the dispensary’s operation . . . . ‘We could do without it.’ . . .
It’s not a glowing review of the Medbox product from one of the two Arizona dispensaries in which New Times was able to verify the existence of working Medbox machines. . . .
Vincent Mehdizadeh — founder, inventor of the dispensing machine, senior strategist, and (until his recent resignation) chief operating officer — is a convicted felon. He pleaded guilty last year to stealing from immigrants by offering them bogus legal services, avoiding a prison sentence when he paid $450,000 in restitution to victims. Medbox owns no factories, no buildings. It rents a West Hollywood office. Last year, it had revenues of $5.2 million but didn’t turn a profit. It ended the year with about $300,000 in the bank. What Medbox does have, though, is impressive stock. . . .
The founder of Medbox generally goes by the name Vincent Mehdizadeh. In U.S. Securities and Exchange Commission filings, however, he calls himself P. Vincent Mehdizadeh. The P is for Pejman, listed as his true first name in a 2013 plea agreement with the Los Angeles County District Attorney’s Office — a deal that allowed him to escape serving four years in prison. A civil complaint filed in a California court by theft victim Abdul Ahmed states another a.k.a. for Mehdizadeh: Vince Zadeh. [See the Statement of Issues and Supporting Facts, Declaration of Abdul Ahmedts with Evidentiary Exhibits . . . Memorandum of Points of Authorities in Support of Prejudgement Attachment filed in this lawsuit.] . . .
Over recent months, Medbox has been the target of another writer, Roddy Boyd of the Southern Investigative Reporting Foundation, who wrote lengthy articles about it published on September 30, 2013, and on April 17 [See “What’s in a Name: The Ongoing Saga of Medbox“]. A week before Boyd’s most recent article appeared, Mehdizadeh resigned as director and COO of Medbox, saying in a news release he’d done so to make the company ‘less prone to attack.’ [Roddy Boyd is the author of another scathing story about Medbox and Mehdizadeh called “Tinkerer, Lawyer, Hustler, Lies: One Man’s Path to a Dope Fortune.”] . . .
The June 21, 2013, plea agreement and subsequent news releases by the California agencies involved in the case are available online and show that Mehdizadeh pleaded guilty to two counts of grand theft and admitted to a “special allegation of engaging in a pattern of related felony conduct involving takings in excess of $100,000.” In addition to the hefty restitution order, he was sentenced to five years’ probation.
Read the article because it contains much more information about Medbox and its machines.
Yahoo News: “The green-cross storefronts of medical marijuana dispensaries are common in much of Washington, and the state is plowing ahead with licensing people to grow and sell recreational pot to adults. But a federal trial scheduled to begin in the coming weeks for five people in Spokane suggests not all is OK with weed in the state. Larry Harvey, a 70-year-old medical marijuana patient with no criminal history, three of his relatives and a family friend each face mandatory minimum sentences of at least 10 years in prison after they were caught growing about 70 pot plants on their rural, mountainous property.”
Bellingham Herald: “A federal lawsuit is challenging Washington state’s authority to tax marijuana as long as marijuana remains illegal under federal law. The case arises from the state’s attempt to collect sales taxes from a medical marijuana dispensary. But lawyer Douglas Hiatt, who filed it late Thursday, said it could throw a wrench in Washington’s plans for collecting taxes on recreational marijuana, too. . . . the dispensary’s operator, Martin Nickerson, who is simultaneously being prosecuted criminally for marijuana distribution and targeted by the state Department of Revenue for not collecting and remitting taxes on the pot he was allegedly distributing.”
US News & World Report: “Marijuana reform advocates hope Oklahoma will live up to its nickname – the Sooner State – by becoming the first U.S. jurisdiction to both legalize cannabis for personal use and allow it to be exported as a cash crop. In the best-case scenario for pro-pot campaigners, there will be two initiatives on the November ballot: One that would allow medical marijuana and another more far-reaching initiative that would comprehensively dismantle status quo pot policies.
Washington Post: “the banking industry, which is federally regulated, is steering clear of anything to do with Colorado’s burgeoning marijuana industry. And that means the whole pot value chain – from grower to retailer to customer – is cash only. In addition to making it harder for pot retailers to grow and manage a legitimate business, a cash-only enterprise is harder for the government to track for tax purposes and an easy target for criminals. Wednesday, Colorado lawmakers . . . . approved a plan to setup a network of uninsured cooperatives that would offer basic banking services to pot businesses.
Tucson Weekly: “someone told these caregivers—and a lot of folks in the medical marijuana community along with them—that all you have to do is call it a donation, and you’re legal. I would venture an educated guess that more than half of the medical marijuana community thinks it’s legal for patients and caregivers to just go around trading donations for meds. But the Arizona Medical Marijuana Act forbids patients or caregivers from selling marijuana, period. There aren’t any qualifiers in the law, such as ‘You can sell it if you don’t say you’re selling it, if you just call it a donation’.”
New York Post: “Pot production is about to go industrial. Of course, you’ll have to head to Canada to take advantage of it. CEN Biotech — a nutrition company best known for an amino acid supplement — is working on opening the “largest and most advanced” legal marijuana production facility in the world. The Ontario site will be able to grow 1.3 million pounds of pot from 50,000 plants — an operation that could produce $5 billion in sales per year when it starts producing in a few weeks after it passes government inspections.”
Arizona Republic: “He advertises himself as a medical-marijuana patient offering extra high-grade pot ‘with huge buds’ for a ‘reasonable donation.’ The seller’s Craigslist ad says those with medical-marijuana cards can purchase an ounce of high-quality pot — and get it delivered — for $250, about $150 less than what some medical marijuana dispensaries charge, he told The Arizona Republic. . . . While Arizona’s medical-marijuana program is intended to be “purely medicinal,” some participants are exploiting the law by reselling marijuana they’ve legally purchased or grown, fueling the illegal drug market.