This is a regular series of articles intended to be chapters in a compilation story book of lessons to learn from Corporate Cannabis. Names have been changed to protect the guilty (and the innocent).
Episode 6 in the Smoke Screen is about a big CBD company that has fallen flat on its face.
They went public on the American exchanges early on, and raised plenty of investor money to make themselves successful quick, fast and hard.
They advertised everywhere, became the leader in white labeling and private labeling, gaining the attention of everyone, including the FDA.
The FDA started looking into them because of their product claims and marketing claims that their products “helped” or “cured” diseases on their website. They were one of the few companies that got a letter from the FDA demanding they stop making claims.
Then they were on the receiving end of a class action false advertising lawsuit with the class representative claiming that the products did not have the amount of CBD they said they have in them. The suit alleges the company misrepresented the amount of CBD in their products. The lawsuit says the plaintiff purchased $119.97 worth of CBD gummies from the company’s website, which purported that each product contained anywhere from 150 mg to 550 mg of CBD. The suit claims the actual amount in at least one of those products was far less, although it does not explain how the actual amount was determined.
Due to the fact that the FDA was investigating them, and the fact that they’re a public company, the SEC (Securities Exchange Commission) who regulates the stock market, started investigating them.
The SEC tipped off the FBI and their corporate offices were raided. Now they can’t pay their bills and are trying to keep their white labeling business alive, but the market is flooded, and their reputation is destroyed.
They’re still attending conventions and cold calling distributors, but they’re using an alias for the company name while pretending not to be connected, despite having the same sales reps, phone number and physical address.
The moral of the story is: The bigger they are the harder they fall.
We are still in a new, almost experimental market. CBD companies may not realize that regulation on the horizon. The bigger you are, the more of a target you become.
Don’t be the one they make an example of.