Breach of Contract in the California Marijuana Industry

A lawsuit filed against owners of Santa Ana’s 420 Central – a high profile cannabis store in Southern California – accuses CEO Robert Taft, and executives Jorge Burtin and Jeff Holocomb, of defrauding investors. Among the laundry list of claims made, the complaint alleges:

• Breach of Contract;
• Fraud;
• Breach of Fiduciary Duty;
• Conspiracy to Commit Breach of Fiduciary Duty
• Dissolution of Partnership and Corporations;
• Turnover of Corporate Books and Records; and
• Injunctive Relief.

If you need counsel settling cannabis related business disputes, our Los Angeles marijuana business lawyers can help.

Trouble for Taft
This particular suit against Taft, Burtin and Holocomb, was filed by two investment companies in the Orange County Superior Court of California. Among other claims, it alleges that Taft ran an unlicensed cannabis outfit in Sonoma County.

The lawsuit further paints a dismal portrait of the defendants, claiming they committed frequent and ongoing “dishonest, corrupt and fraudulent activity.” It also calls Taft a “mercurial and volatile leader,” known for bragging to employees about his big ideas. It calls into question Taft’s ability to lead, while outlining a number of his deliberate fraudulent schemes, and even notes Taft’s invitations to employees to smoke weed with him during business hours.

Smoking Pot on the Job
According to the National Safety Council, “workers with substance use disorders miss almost 50 percent more work days than their peers – up to six weeks each year,” and not surprisingly, “absenteeism leads to losses in productivity.” The Council outlines a number of ways in which employers can help to ease this situation, like enacting strong company drug policies, or treating substance abuse as a disease. Smoking pot with employees during work hours is noticeably absent from this list.

This lawsuit also states that 420 Companies entered into a “death spiral” under Taft’s direction, losing revenue and clients at a staggering rate.

Keeping Investors in the Dark
Further allegations within the suit claim the defendants failed to seek input from company investors before rejecting a $75 million buyout offer from Acreage Holdings, another operator within the cannabis industry, conducting activity across a number of states. The complaint notes that the defendants believed the company to be worth much more than the offer on the table, so they turned it down.

Having tired of these kinds of claimed business circumstances, the plaintiffs now seek:

• A minimum of $11 million in damages;
• Dissolution of 420 Companies;
• A preliminary injunction against the defendants; and
• A court appointed receiver to oversee management of 420 Companies.

Implications
The success of a company often reflects the actions of its leaders, and if the charges outlined in this complaint are found to be correct, it is not surprising that investors are seeking damages and the dissolution of partnerships.  One point that is intriguing, is the willingness of a company leader (Taft) to partake in drug use with employees whilst on the clock. Not only does this kind of behavior send an inconsistent message to employees on what is expected of them (i.e. to remain sober and able to operate on full cylinders at all times) but it also calls into question whether or not Taft has his own drug use under control. And if not, is that good for business? At the end of the day, whether one is working in an industry that revolves around drugs or not, employees should be expected to conduct themselves professionally during working hours, and those in leadership positions must lead by example.

About Cannabis Law Group
The Los Angeles CANNABIS LAW Group represents growers dispensaries, ancillary companies, patients and those facing criminal marijuana charges. Call us at 949-375-4734.

Additional Resources:
National Safety Council – Drugs at Work