A federal racketeering lawsuit filed in Georgia last week alleges that California cannabis brand leaders STIIIZY and Cookies – along with 12 co-conspirators – illegally sold marijuana products that had been intentionally mislabeled as federally-legal delta-8 hemp goods, and asks for a minimum of $150 million in damages.
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The class action suit, filed Feb. 6 in U.S. District Court in the northern district of Georgia, claims that resident Hannah Ledbetter was misled by the defendants into purchasing the federally illegal marijuana products that had been sold as federally legal hemp goods that included 0.3% delta-9 THC or less, which is the federal threshold for legal hemp products.
“Defendants have conspired to import, manufacture, distribute, and possess illegal (delta-8) THC vape pens that are marijuana” and not hemp under federal law, the suit charges. “This scheme could only be accomplished through a pattern of racketeering activity.”
The suit asserts that Ledbetter carefully inspected the product labels prior to purchase “because she did not want to break the law.”
Rather, the suit claims, the products that Ledbetter ultimately bought – at multiple retail chains that do business in Georgia – were found to have delta-9 THC “far above what is allowed by law,” according to third-party testing results.
STIIIZY IP LLC, Cookies Creative Consulting & Promotions, and their partners “have facilitated the manufacturing, distribution, and/or sale of illegal marijuana to thousands of people over the course of the last four years,” the suit charges.
Bait and switch
“In essence, (customers of the defendants) are paying for legal hemp-derived THC but are receiving illegal marijuana, which has created millions of dollars of fraudulent profit,” the suit summarized.
The 14 defendants were well aware that the products in question wouldn’t pass muster with an honest testing lab, the suit claims.
So they “lab shopped” until they found cannabis testing labs in California and Oregon that were willing to issue falsified certificates of analysis – also known as COAs – stating that the flower in question had less than 0.3% THC by dry weight and was legally hemp.
A spokesperson for STIIIZY wrote in an email to Green Market Report that the lawsuit “contains absolutely no factual evidence to support its conclusory and baseless claims against STIIIZY.”
“We intend to defend ourselves vigorously against this meritless lawsuit and seek to have it dismissed since it has no factual basis,” the spokesperson wrote.
A spokesperson for Cookies declined to comment on the lawsuit, citing the pending nature of the litigation.
None of the other defendants responded to requests for comment, or could not be reached for comment.
Cookies has ramped up its national hemp footprint over the past year, however, as have many other national marijuana companies after Congress legalized hemp – defined as cannabis with a maximum of 0.3% THC – in the 2018 federal Farm Bill. That legalization move led to a boom in intoxicating hemp products in the ensuing years, which set the stage for Ledbetter’s lawsuit.
Aside from STIIIZY and Cookies, the case also targets Georgia retail chains Cloud 9 Online Smoke & Vape, Green Rush LLC which does business as Xhale City, Xhale City Franchise Company LLC, and Alabama-based online retailer Thesy LLC which does business as Element Vape. The lawsuit also targets hemp manufacturers and distributors Savage Enterprises and L&K Distribution, Oregon-based testing lab Columbia Laboratories, and California-based testing labs Encore Labs LLC and PharmLabs SD. The suit also names several executives with a number of the company defendants, including the CEO of Cloud 9, Khalil Amor.
The suit charges that Ledbetter purchased five supposedly hemp-based delta-8 vape pens from Cloud 9, Element, and Xhale City or one of its franchisees in the Atlanta metro area, all either made, distributed, or sold by each of the 14 defendants, and each of which was found to have illegal delta-9 THC levels.
Not only that but the vape pen oils Ledbetter bought were also contaminated with heavy metals and other potentially dangerous substances, the suit claimed.
“Each of the Defendants warrants that these D8 THC Vape Pens, on the label and through inaccurate certificates of analysis, are compliant with the Hemp Farming Act of 2018, meaning that these products are to contain no more than 0.3% hemp-derived D9 THC by weight,” the suit states. “This representation is false.”
“Each of the Products had a COA, and these COAs did not reveal that these products contained mycotoxins and more than 0.3% D9 THC by dry weight,” the suit charged.
“To facilitate this fraud, the Lab Defendants knowingly created false test results that were advertised over the internet hundreds of times for publication and marketing through the wires, and such activity is wire fraud,” the suit charges.
The organized illegal cannabis sales have been going on “continuously since at least 2021,” the suit alleges.
The lawsuit is an attempted class action, meaning it must first be granted class-action status by a federal judge, and it was filed utilizing the Racketeer Influenced and Corrupt Organizations (RICO) statutes, which were originally created for federal prosecutors to use against the mafia.
Under RICO statutes, plaintiffs are entitled to three times the recorded damages. The lawsuit estimates the amount of product fraud to be at least $50 million, and it also specifically requests treble damages, meaning the defendants could be on the hook for over $150 million if they ultimately lose the case.
The suit charges the defendants with negligent misrepresentation, fraud, unjust enrichment, and two counts of racketeering.
There are no hearings yet scheduled in the case, according to court records.
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