Does vape lawsuit foreshadow litigious future for cannabis industry?

By John Schroyer

A turf war over Arizona’s medical cannabis vaporizer market has spilled into the courts, with one multistate marijuana company suing another over an alleged smear campaign.

While the case itself may not be a particular milestone, it’s another hallmark of the industry’s emergence into an atmosphere where high-stakes litigation is commonplace.

The lawsuit is over a year old but was amended in early April to identify Colorado-based Openvape, which has licenses and products in 11 states, as the primary defendant.

In the suit, Arizona-based Verde Dispensary and its vaporizer cartridge wing, Dream Steam, charge that Openvape has “conducted itself like the tobacco companies of yesteryear, perpetrating an extensive campaign of misinformation in the marketplace.”

The plaintiffs allege in the complaint that Openvape and several of its Arizona business partners “orchestrated a campaign of blatantly false advertising” with the intent of undercutting Dream Steam’s sales while expanding its own market share.

Verde is the Arizona arm of Harvest Inc., a marijuana company that also holds business licenses in Illinois, Maryland and Nevada; Dream Steam also produces vape cartridges in Nevada.

Openvape attorney John Moynan said the lawsuit is “entirely without merit” and equated the complaint to a “financial shakedown.” He declined to comment on specifics of the suit, citing the ongoing nature of the litigation.

Sign of things to come?

Defamation lawsuits are not uncommon in other industries, such as a 1990s legal battle between Pizza Hut and Papa John’s over wording in an advertisement that claimed Papa John’s used “better” ingredients.

And it’s likely civil cases involving cannabis will only become more common as the industry continues to expand nationally, said San Francisco attorney Katy Young, who specializes in marijuana business disputes.

“This is natural market behavior, that the first comers to the market want to keep out the newcomers, and they do so in a variety of ways, some of which are fair competition and some of which are unfair competition,” Young said of Dream Steam’s suit against Openvape. “Both of those are a product of intense competition, and you will be seeing more and more intense competition in the cannabis industry as it grows across the country.”

The case

The Dream Steam-Openvape dispute centers on cutting agents used in the vaporizer cartridge production process. While Dream Steam uses refined coconut oil, Openvape employs polyethylene glycol (PEG), an additive commonly used in electronic cigarettes.

Dream Steam alleges in its suit that Openvape spread “defamatory statements” in 2015 and early 2016 about the safety of coconut oil as an additive to vaporizer cartridges, including that it can cause a form of pneumonia.

Such a claim “is simply false and intended to mislead consumers,” the suit states.

The lawsuit also asserts that Openvape, through Arizona business associate Steve Cottrell, spread the misinformation through a website and Facebook page, both called Ganja Gossip (the website has been deactivated, but the lawsuit includes screen shots of the Facebook page). Cottrell and his brother Matt work for AZ Open, Openvape’s sole product licensee in Arizona.

According to the suit, Ganja Gossip’s Facebook page contained this comment on Aug. 27, 2015: “Please be careful of vaporizing coconut oil. Its (sic) toxic and is proven to cause Lipoid Pneumonia. Vaporizing pens like … Dream Steam in Arizona are peddling this poison.”

Dream Steam’s suit also noted that Openvape made the lipoid pneumonia claim in advertising flyers, while saying Openvape’s additive, PEG, has a “track record … for safety and efficacy.”

Both claims are false, the suit contends, citing research by the Medical Marijuana Research Institute, a private research venture funded by Harvest Inc.

The research found, the suit says, that “one vaporized puff of” PEG has nearly the same amount of formaldehyde “as found in an entire cigarette.”

Steve White, an Arizona attorney and president of Verde, said his company funds the MMJ research because it’s important for consumers to know what types of additives are safe in vaporizer pens.

Openvape’s goal, according to the suit, was “to damage (Dream Steam’s) reputation and economic interests in the medical marijuana industry, which they succeeded in doing.”

Dream Steam suffered a significant loss of business, said White, whose firm, White Berberian, is handling the suit.

“We know there are customers who refused to carry the product because they believed the lies. We were told that directly by a number of customers,” White said. “The really unfortunate thing is that we have also heard some of the same misinformation being repeated in different states. So it appears to be pretty widespread.”

White declined to estimate how much sales Dream Steam, and Verde, may have lost because of Ganja Gossip’s pneumonia claims. But the suit contends Dream Steam incurred damage to its bottom line and professional reputation and seeks compensation and punitive damages.

Moynan, Openvape’s attorney, acknowledged that Cottrell and his brother work for AZ Open, the Openvape licensee in Arizona. But Openvape “has no affiliation whatsoever” with Ganja Gossip, he added.

Where things stand

Dream Steam has requested a jury trial, and White said he doesn’t expect a settlement agreement will be reached.

“Dream Steam will prosecute this matter until all consumers know the truth about (Openvape’s) lies and synthetic products,” White said.

Openvape said in a statement to Marijuana Business Daily, “The claims contained in the Dream Steam complaint are entirely without merit, and simply represent an effort by a competitor to gain a competitive advantage through a financial shakedown.

“These types of lawsuits are an unfortunate cost of doing business, but (Openvape) remains committed to producing the highest quality vaporizers and staying true to our core values, one of which is, ‘We win the right way.'”

As of Monday, Moynan said, Openvape hadn’t been served with the amended complaint. He also said it would be premature to discuss whether Openvape may pursue a settlement or a trial.

The suit could take months to play out. Young, the San Francisco lawyer, said it’s likely the sides will settle out of court. She noted that about 90% of such civil cases end up settling, particularly when there’s no admission of wrongdoing by either side and because trials are often “prohibitively expensive.”

She estimated a settlement could cost Openvape anywhere between a few hundred thousand dollars and a few million.

John Schroyer can be reached at [email protected]

2 comments on “Does vape lawsuit foreshadow litigious future for cannabis industry?
  1. Matt O'Leary on

    O-pen has been in several lawsuits. They are a “sharp elbowed” company.
    They want to win, the “right way” is open to interpretation.

    Reply

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