More Cookies investors have sued the cannabis industry darling, claiming the prominent California-based marijuana brand mismanaged their $15.5 million through “multimillion dollar kickbacks and other self-dealing” that benefited company founders at investors’ expense, court documents filed this week show.
But what could be a more troubling sign for Cookies as well as the struggling marijuana industry, Cookies allegedly ran out of money last summer when it missed a key valuation and then “burned through most of” an additional $23 million raised earlier this year.
A Cookies spokesperson declined to comment to MJBizDaily, although in a court filing Friday the company’s president rejected “many” of the new lawsuit’s allegations.
These latest claims – filed along with a request for a judge’s intervention in company business on Thursday in Los Angeles County Superior Court – mirror separate allegations against Cookies made in two other legal matters filed earlier this year.
In those matters, one of which was settled and another that’s still pending, other Cookies partners and investors also claimed that company executives, including CEO and public face Gilbert Milam Jr., better known as Berner, diverted Cookies investor cash into personally owned side companies.
But this case goes further.
The investors, Wilder Ramsey and Tom Linovitz of Red Tech Holdings and Gron Ventures Fund, claim Cookies “burned through cash and ran out of money” after “wildly missing its numbers” last summer and failing to support a $275 million valuation, according to Thursday’s filings.
This year, as lawsuits piled up, Cookies spent “most” of a separate $23 million raised this spring with Dallas-based Entourage Effect Capital, and is currently trying to raise even more money, according to the investors.
Red Tech invested $10 million in Cookies in 2019, and Gron Ventures invested $5.5 million in 2020, according to filings.
According to Cookies’ response, the entities are affiliated with tech billionaire Vinny Smith, who is not named in the plaintiff filings.
The investors filed for arbitration against Cookies in December 2022, according to filings.
Cookies filed a counterclaim in April 2023.
That matter is still pending.
The investors asked a judge in a filing Thursday to impose a restraining order to stop company executives “from continuing to run Cookies into the ground” while the arbitration claims are settled.
A hearing on the restraining order was scheduled for 8:30 a.m. Friday.
Claims “demonstrably false”
In a response filed in court Friday, Parker Berling, Cookies president, said “many” of the investors’ claims “are demonstrably false.”
Further, imposing a restraining order would cause “irreparable harm to Cookies by bringing its business operations to a halt for over a year while the arbitration is pending,” attorneys for the company responded in an objection filed Friday.
Cookies claims that it tried to return the principal to the investors, who in turn are trying to exert undue influence over Cookies, in bad faith,” the company claimed.
An attorney for the plaintiffs did not respond to a request for comment on Friday.
In court filings, the plaintiffs claim they made their investments with written, binding assurances that there were “no agreements, understandings, or proposed transactions” between Cookies and any outside ventures controlled by the directors.
Instead, the plaintiffs claim, Cookies “admitted at least 7 different transactions of self-dealing which were not previously” disclosed.
These include Cookies investing in:
- A garden-supply company mostly owned by Berling.
- A deal in which Cookies pays a software company controlled by Berner and Berling “$20,000 per month for unspecified ‘software development fees.’”
- And separate deals in companies including rolling-paper brand Vibes and Sacramento, California-based cultivator and processor Natura.
Further, the plaintiffs claim, earlier this year, Cookies plotted to transfer its “most valuable asset (its cannabis production rights)” to “yet another affiliate entity called Cookies Production, Inc.”
That “improper unapproved $23 million transaction,” led by Entourage Effect Capital, rendered the plaintiffs’ investments in Cookies “worthless,” they claimed.
According to the investors’ claims, “Cookies has somehow already burned through most of the $23 million within only a few months and is preparing to enter into yet more unapproved financing deals within the next month.” (Full Story)