Cannabis tech platform and delivery giant Eaze Solutions is facing a new legal challenge to its business model, this time from a Canadian competitor that also runs a delivery platform in California.
Toronto-based DionyMed filed suit against Eaze in San Francisco County Superior Court, alleging the California company uses wire and bank fraud to process credit and debit card payments from customers buying marijuana through its online platform.
The lawsuit was filed on behalf of DionyMed’s California subsidiary, Herban Industries, which runs a competing delivery platform called Chill.
An Eaze spokeswoman dismissed the allegations as “false” and an attempt by DionyMed to boost its own business and stock price.
The lawsuit claims that Eaze uses unfair business practices that give it an edge over competitors such as Chill by illegally processing credit and debit card payments through European-based shell companies.
“Eaze conspires to disguise the cannabis transactions as transactions for dog toys, dive gear, carbonated drinks, drone components, and face creams, among other things, to obtain approval for these transactions,” the lawsuit alleges.
“To perpetrate these frauds, Eaze created or partnered with Cyprus- and U.K.-based shell corporations that purport to sell these seemingly innocuous products but in fact exist solely or primarily for the purpose of misrepresenting the nature of the underlying transactions.”
The suit asks for an injunction to force Eaze to cease all such activity but doesn’t request any monetary damages.
The lawsuit follows an announcement in March that another DionyMed California subsidiary, Hometown Heart, broke ties with Eaze because it couldn’t verify that its “credit card payment processing methodology met regulatory compliance requirements.”
Eaze denies allegations
In an emailed statement to Marijuana Business Daily, Eaze spokeswoman Elizabeth Ashford called the suit “a thinly veiled attempt by publicly traded Canadian company DionyMed to gain an advantage through litigation, prop up their failing stock price and publicize their new delivery platform.
“The allegations are false, and their attempts to hide their true motives are obvious.”
Ashford also pointed to previous company statements that Eaze does not process electronic payments. That’s the responsibility of the licensed MJ vendors for whom Eaze is facilitating sales through its website and smartphone app, she said.
San Francisco attorney Katy Young, who specializes in business disputes, said the case could prove “dangerous” for the industry at large.
Even if Eaze is innocent of the charges levied by DionyMed, she noted, some of its retail partners could be guilty, and this lawsuit could expose that.
“There’s going to be wide-reaching repercussions, where a lot of businesses’ records that are not involved in the fight between Eaze and DionyMed, they’re all going to get dragged in,” Young said.
“It’s pretty easy to think of a situation where one of the dispensaries that is on Eaze’s platform, maybe they’ve had their bank account revoked multiple times, and they may have found a workaround that might not totally be on the up and up.
“Now that business is going to get dragged into this lawsuit through the discovery process.”
Young believes such litigation could set a risky legal precedent involving the “nasty underbelly” of how the industry does business.
“We all know in the cannabis industry you have to get your hands a little dirty,” she said, “and the second we start blowing each other up in lawsuits for the various ways that entrepreneurs have figured out how to do business, that’s how the industry starts to cannibalize itself.”
Eaze is also still battling a lawsuit filed last May in which a customer alleged the company violated federal law by spamming her and others with unsolicited phone text advertisements.
John Schroyer can be reached at email@example.com