John SchroyerA federal racketeering lawsuit filed in Georgia last week alleges that California cannabis brand leaders STIIIZY and Cookies – along with 12 co-conspirators – illegally sold marijuana products that had been intentionally mislabeled as federally-legal delta-8 hemp goods, and asks for a minimum of $150 million in damages.
The class action suit, filed Feb. 6 in U.S. District Court in the northern district of Georgia, claims that resident Hannah Ledbetter was misled by the defendants into purchasing the federally illegal marijuana products that had been sold as federally legal hemp goods that included 0.3% delta-9 THC or less, which is the federal threshold for legal hemp products.
“Defendants have conspired to import, manufacture, distribute, and possess illegal (delta-8) THC vape pens that are marijuana” and not hemp under federal law, the suit charges. “This scheme could only be accomplished through a pattern of racketeering activity.”
The suit asserts that Ledbetter carefully inspected the product labels prior to purchase “because she did not want to break the law.”
Rather, the suit claims, the products that Ledbetter ultimately bought – at multiple retail chains that do business in Georgia – were found to have delta-9 THC “far above what is allowed by law,” according to third-party testing results.
STIIIZY IP LLC, Cookies Creative Consulting & Promotions, and their partners “have facilitated the manufacturing, distribution, and/or sale of illegal marijuana to thousands of people over the course of the last four years,” the suit charges.
Bait and switch
“In essence, (customers of the defendants) are paying for legal hemp-derived THC but are receiving illegal marijuana, which has created millions of dollars of fraudulent profit,” the suit summarized.
The 14 defendants were well aware that the products in question wouldn’t pass muster with an honest testing lab, the suit claims.
So they “lab shopped” until they found cannabis testing labs in California and Oregon that were willing to issue falsified certificates of analysis – also known as COAs – stating that the flower in question had less than 0.3% THC by dry weight and was legally hemp.
Ledbetter v Cookies STIIIZY et alA spokesperson for STIIIZY wrote in an email to Green Market Report that the lawsuit “contains absolutely no factual evidence to support its conclusory and baseless claims against STIIIZY.”
“We intend to defend ourselves vigorously against this meritless lawsuit and seek to have it dismissed since it has no factual basis,” the spokesperson wrote.
A spokesperson for Cookies declined to comment on the lawsuit, citing the pending nature of the litigation.
None of the other defendants responded to requests for comment, or could not be reached for comment.
Cookies has ramped up its national hemp footprint over the past year, however, as have many other national marijuana companies after Congress legalized hemp – defined as cannabis with a maximum of 0.3% THC – in the 2018 federal Farm Bill. That legalization move led to a boom in intoxicating hemp products in the ensuing years, which set the stage for Ledbetter’s lawsuit.
Aside from STIIIZY and Cookies, the case also targets Georgia retail chains Cloud 9 Online Smoke & Vape, Green Rush LLC which does business as Xhale City, Xhale City Franchise Company LLC, and Alabama-based online retailer Thesy LLC which does business as Element Vape. The lawsuit also targets hemp manufacturers and distributors Savage Enterprises and L&K Distribution, Oregon-based testing lab Columbia Laboratories, and California-based testing labs Encore Labs LLC and PharmLabs SD. The suit also names several executives with a number of the company defendants, including the CEO of Cloud 9, Khalil Amor.
The suit charges that Ledbetter purchased five supposedly hemp-based delta-8 vape pens from Cloud 9, Element, and Xhale City or one of its franchisees in the Atlanta metro area, all either made, distributed, or sold by each of the 14 defendants, and each of which was found to have illegal delta-9 THC levels.
Not only that but the vape pen oils Ledbetter bought were also contaminated with heavy metals and other potentially dangerous substances, the suit claimed.
“Each of the Defendants warrants that these D8 THC Vape Pens, on the label and through inaccurate certificates of analysis, are compliant with the Hemp Farming Act of 2018, meaning that these products are to contain no more than 0.3% hemp-derived D9 THC by weight,” the suit states. “This representation is false.”
“Each of the Products had a COA, and these COAs did not reveal that these products contained mycotoxins and more than 0.3% D9 THC by dry weight,” the suit charged.
“To facilitate this fraud, the Lab Defendants knowingly created false test results that were advertised over the internet hundreds of times for publication and marketing through the wires, and such activity is wire fraud,” the suit charges.
The organized illegal cannabis sales have been going on “continuously since at least 2021,” the suit alleges.
The lawsuit is an attempted class action, meaning it must first be granted class-action status by a federal judge, and it was filed utilizing the Racketeer Influenced and Corrupt Organizations (RICO) statutes, which were originally created for federal prosecutors to use against the mafia.
Under RICO statutes, plaintiffs are entitled to three times the recorded damages. The lawsuit estimates the amount of product fraud to be at least $50 million, and it also specifically requests treble damages, meaning the defendants could be on the hook for over $150 million if they ultimately lose the case.
The suit charges the defendants with negligent misrepresentation, fraud, unjust enrichment, and two counts of racketeering.
There are no hearings yet scheduled in the case, according to court records.
16 comments
Terry Hagerdly
February 13, 2024 at 4:42 pm
Omnium Canna does this.
Debra Borchardt
February 13, 2024 at 5:08 pm
any proof? email Schroyer.
Ryan Fingerhut
February 14, 2024 at 9:22 am
I can’t tell if this article is poorly researched or just misleading. Cannabis and hemp are scientifically the same plant – the difference is legal. The Farm bill says hemp is any product with less than 0.3% Delta-9 THC. While some States are banning other types of THC, under the farm bill the amount of Delta-8 does not matter. This article seems to use Delta-8, Delta-9, and total THC (which includes other types of THC as well) interchangeably. That is not how hemp regulations work.
Brandon Ellerbee
February 14, 2024 at 12:30 pm
Both hemp and marijuana are classified as cannabis plants; however, they exhibit distinct differences. Notably, hemp contains a higher concentration of CBD and less than 0.3% D9, while marijuana has a greater level of D9.
You rightly pointed out the provisions of the Farm Bill. According to the legislation, a product can contain all forms of THC (Delta 8, Delta 9, Delta 10) but is deemed illegal if, and only if the Delta 9 THC amount exceeds 0.3%.
Torei Miller
May 28, 2024 at 5:31 pm
They still are the same plant you dolt. There’s no such thing as Hemp or Marijuana they are purely legal definitions for the cannabis plant.
Billy bobber
February 29, 2024 at 5:24 pm
Anyone involved behind the scenes in the industry knows that D9 is too high in hemp vapes and much of the flower and labs are bought and paid for. This lawsuit was bound to happen. That also means that anyone else who wants to follow this path can and should. Go buy some hemp vape and have it privately tested, then sue. The moneys waiting, go get it.
John Rubins
February 14, 2024 at 9:04 pm
This is a bullshit article with many misleading points. None of those stores are authorized cookies, stiizzy, etc partner’s. It’s all federally legal if it tests correct, to say the defendants are liable is crazy. Also if it was a RICO case people would be in bracelets not a lawsuit. Definitely a gray area but nothing illegal if paperwork is legit. D9 happens with heat
Dingus
February 15, 2024 at 3:29 am
Now that they essentially know all the thca hemp distros are filled will state program Marijuana, they should test it for mold and pesticides and gain the common sense required to understand what’s going on in this country on a massive scale.
The state licensed growers are so clueless about growing Cannabis, they created an alt market to move the stuff that would’ve got them in court if it was surprise shopped by the health dept. Thca hemp literally smells like pesticides and mold,amongst other off aromas. Just as much legal dispensary product did before health advocates threatened many big players in the industry ( who’s backgrounds are largely meth heroine weed and pill dealing, not Cannabis production or anything remotely pro-human.
Tldr anyone whose interest in Cannabis is attached to money has probably let us humans down. It made me sick realizing how scummy Cannabis growers and breeders hiding behind state programs are in general. Anyone remember when strains had distinct flavors and therapeutic effect? Back before the meth dealing crime lords took over?
webmaster
February 15, 2024 at 8:44 am
your website is bad and you should feel bad. do better.
Debra Borchardt
February 15, 2024 at 11:34 am
Dear anonymous webmaster, we are very proud of our product and think we provide a real service to those in the cannabis business community.
Chicken Richard
February 15, 2024 at 2:51 pm
What is left out is the testing methodology. As Georgia is an illegal state, compliance testing often used gas chromatography. This leads to “false positive” notifications for hemp products as they go through a chemical change due to heat. Liquid chromatography mitigates this in labs and in states that have legalized cannabis this is often a practice in testing for hemp versus cannabis products. Unless specific brand cartridges and products are identified, it can be argued that the products are delta-8 with thca suspensions, which when heated would decarboxylate into a non compliant substance through the gas method, while being legal if tested otherwise.
This is a common methodology for hemp brands to bypass the delta 9 reporting by utilizing thca which is not regulated under the farm bill, and provides the same intrinsic high as delta 9, because it becomes delta 9 through activation of burning or vaping. Until these products are consumed though, they are technically legal products. There are too many arguments that can be made for this to hold any reasonable weight, and I will be surprised to see this proceed.
However. With the above said, it is also a well known fact that lab reports are shopped. Look at the fine print of most lab reports and they specifically say “This report is not a California regulatory compliance certificate, it is for R&D/Quality Assurance purposes only. Values reported relate only to the product tested. Sample was tested as received from client. Encore Labs makes no claims as to the efficacy, safety or other risks associated with any detected or non-detected levels of any compounds reported herein. This Certificate shall not be reproduced except in full, without the written approval of Encore Labs.”
This causes an issue, as the lab is making sure they are not being utilized for a legal interpretation, but also is still making claims on the sample sent. As a consumer, this would be easily missed and the the statements would make me wary as this is not to be used for a state compliance document. From a legal perspective the companies may not necessarily have to worry, but from the consumer side of things, reading the fine print on these documents is a must to understanding you are taking chances.
Dr. Dabs
February 26, 2024 at 1:55 pm
Chemist here; this is a very nuanced comment. I came here to mention the distinction in test results through GCMS-FID vs HPLC. You’re 100% right. Same for the laboratory shopping.
We did a blind study on about a dozen of the largest testing laboratories with samples of isolate labeled as three separate batches. Some of the variance between these three identical samples were up to 15% WITHIN a laboratory, and we also saw variances of up to 25% BETWEEN labs.
The lack of standardized methodology, pressures for potencies to go up, and the legal matters at hand create a confluence of factors leading to situations like these…
Shannon Swantek
February 16, 2024 at 8:31 pm
“and each of which was found to have illegal delta-9 THC levels.
Not only that but the vape pen oils Ledbetter bought were also contaminated with heavy metals and other potentially dangerous substances, the suit claimed.”
I don’t understand why the lab who tested the store-bought products isn’t named. There are very few labs out there right now that are above suspicion of producing data of unknown quality.
I hope the Plaintiffs were smart enough to hire someone to perform data validation on the results that contradicted the products because if that data isn’t admissible or is prepared/analyzed without the most rigorous of best practices under a reference method, that will be a lot of money and time wasted because those results will get tossed.
They didn’t hire me, but I’d love to validate those datasets just out of curiosity about the laboratory and data that was trusted enough to be the basis of a suit that also names labs. I’m also assuming they must have some proof of the labs being complicit in this but I doubt it. The “intent” piece of fraud, historically, is a tricky one to prove in criminal court and civil courts, both. There needs to be a lot of evidence in raw records to really present a strong argument alleging fraud because the intent vs incompetence/lab error piece is tough. Even when auditors observe fraud, we are trained try to collect enough evidence to present to authorities for them to actually act on it and that list is so extensive, its rare to hear that all evidence necessary was found.
Don’t even get me started on the issues with lack of representative sampling that provided the source for this testing – there are a dozen contributors to uncertainty of result present even if the plaintiffs have sterling Chain of Custody and took a representative number of products based on an established confidence interval. The lab had no control over the sample given to them and to indicate this was their responsibility in 119 is ridiculous. Labs in most industries cannot control what happens to the sample before it arrives and these labs definitely did not have custody or ability to identify the batch the samples came from nor control over what happened to the product after testing (switched out, adulterated, etc). Again, I hope the other parties had immaculate traceability because the labs will.
I’m not saying the rest of the allegations are not true. I am only commenting on the laboratory piece which I think was an overreach which will harm the labs’ reputation if unproven.
This case will teach us a lot of lessons about the dangers of putting so much responsibility on the labs that belong with the producers. I hope people will realize how much the labs cannot control after seeing the superior traceability and documentation the labs keep in their daily practices versus the other players. Let’s keep the responsibility with the producers, if in fact these allegations are true. The labs have taken the industries “heat” for way too many problems for way too long. It would be hard to identify their part when they are being blamed for producer and distributor decisions that they played no part in. “Results pertain only to the sample received” is on all of those reports for a reason.
Grukak
March 10, 2024 at 4:25 pm
The testing facility mighty have been Infinite Chemical Analysis. There is a similar lawsuit, by same/similar counsel, and that company was named as the plaintiff’s testing facility.
Is that a facility that would have done the proper testing as you described would be needed?
Jack Gee
March 13, 2024 at 2:24 am
Actually who is the slime here ? The attorneys trying to make a quick buck from the hard work of the companies that already have red tape up there but? This is a very hard, long and expensive case to defend against and they are just looking for a settlement if it even makes it to court.
Come to DTLA here in LA and I can get you counterfeit anything and dropped at your door.
lol.. most print shops make a killing in counterfeit packaging and labels for anyone who ask. They print and you pack. To many holes in this case and very hard to prove.
Fintech Zoom Ethereum
August 26, 2024 at 3:29 am
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