Wana Brands, a high-profile Colorado edibles maker, has been sued for allegedly stealing confidential business information from a marijuana company that says it was duped into believing it would be acquired.
LP Capital, a Colorado extraction company that makes MJ-concentrated vape cartridges, claims in a lawsuit it suffered more than $5 million in damages from lost revenue and business relationships after the proposed acquisition collapsed.
The company also alleged Wana – which sells its products in four states and has large-scale expansion plans – lured away some of its employees.
“LP Capital shared its vape strategies and plans with the good-faith belief that Wana would acquire LP Capital and run the vape product line for Wana,” according to the lawsuit.
Instead, Wana “tricked” LP Capital into providing proprietary information, “with no intentions of proceeding with the transaction.”
Wana denies the allegations, saying in a statement Monday the suit has “no merit.”
The case is the latest in a growing number of legal skirmishes in the marijuana industry, reflecting the sector’s growth and the increasing number of mergers, partnerships and other business deals.
Lawsuit targets company, CEO
The lawsuit was filed last Friday in Boulder County District Court against Mountain High Products, which does business as Wana Brands, and Wana CEO Nancy Whiteman, who also is an owner of the edibles maker.
Boulder-based Wana, known for its gummies, sells edibles in Arizona, Colorado, Nevada and Oregon, and has plans to expand to California, Florida, Illinois, Maryland, Pennsylvania, as well as Canada.
LP Capital, based in Henderson, produces cannabis oil extracts in the form of vape pen cartridges and syringes, as well as shatter and wax extracts, according to the lawsuit.
“As the nascent cannabis industry continues to mature,” according to Wana’s statement, “brand leaders are beginning to experience many of the challenges faced in other more mature industries, including groundless lawsuits that seek to damage successful companies.
“Unfortunately, Wana Brands has found itself in such a situation. We know there is absolutely no merit on which to base this suit, and in the end, justice will prevail.”
LP Capital seeks damages
The lawsuit asks that Wana be ordered not to use information “wrongfully obtained” from LP Capital and that LP Capital be awarded unspecified damages for breach of contract, fraudulent inducement and unjust enrichment.
LP Capital said it spent about $2 million in building its vape strategies, hiring a chemist and equipping a laboratory by the time the two companies started discussing a possible merger in July 2017.
A nondisclosure agreement was signed around September 2017, according to the lawsuit. LP Capital said it was to receive an equity position in Wana as part of the merger.
After the nondisclosure agreement was signed, LP Capital said it started sharing confidential information, including its vape strategies.
According to the suit, Whiteman announced the merger in late October 2017 to the LP Capital staff.
Several of LP Capital’s key employees resigned after the meeting, and in the following weeks others were terminated, the lawsuit says, based on Whiteman’s determination that they wouldn’t fit in with the post-merger plan.
Around that time, Wana also recruited key LP Capital employees, including a product design staffer, to implement the new business plan.
“Starting in early October, upon the instructions and specific direction of the defendants, LP Capital stopped all marketing and branding efforts and new sales relationships of its own products,” the suit said.
That included stopping relationships with certain partners in Ohio and Massachusetts, LP Capital said, “at (a) significant loss of future revenue.”
LP Capital said it did so because it was told the partnerships would conflict with Wana’s existing relationships.
Around that time, LP Capital said, it introduced Wana to San Francisco-based PAX Labs, known for its portable vaporizers. LP Capital said it was in the process of forming a business venture with PAX at the time.
PAX officials couldn’t immediately be reached for comment Monday.
The lawsuit alleges that Whiteman met with PAX representatives without LP Capital around November 2017 and, shortly after, PAX stopped all communications with LP Capital.
In early December 2017, “suddenly and in bad faith,” according to the lawsuit, Wana Brands informed LP Capital that it no longer was pursuing the acquisition.
“Upon information and belief, Wana is now implementing LP Capital’s business strategies as if they were Wana’s own ideas,” the lawsuit claims.
Jeff Smith can be reached at [email protected]