CannLabs Loses Luster as Fallout Continues From Founder’s Termination

A year ago, CannLabs (OTC Pink: CANL) and Genifer Murray were the shiniest story in the marijuana press—success, science, money, feminism and the good things that regulation can bring—all rolled into one sweet ball.

On Nov. 24, 2015, CannLabs closed its Denver laboratory and laid off as many as 15 people. Some question the company’s future viability.

So what happened?


What We Know Now

In June 2014 CannLabs went public through a reverse merger with SpeedSports Branding, a motorsports business.

CannLabs Inc. thereafter failed to file required SEC reports for the calendar quarters ending on June 30 and Sept. 30, 2014, but did file for the quarter ending March 31, 2015.

Between September 2014 and February 2015 the Colorado Marijuana Enforcement Division inspected the lab three times, ultimately citing it for 44 violations.

The leadership of the company went through a series of rapid changes, none of which were disclosed to shareholders in a timely fashion. In July, the company revealed that Scott McPherson, CFO, had been promoted to the position of Chief Executive Officer. Within months, McPherson resigned and former company CEO, Mark Mirken, resumed the position after a brief stint as a consultant to the Board of Directors.

On Sept. 4, 2015, president and founder Genifer Murray was terminated, allegedly for cause. Two weeks later, she resigned from the Board of Directors.

By October the share price had slid drastically, trading at a 60 percent plus discount from January 2015.

On Nov. 24, 2015, the company, terminated the Administrative Services Agreement and the Technology License Agreement with CannLabs Colorado and closed the Denver lab.

The MED laboratory license for CannLabs Colorado is owned by Murray and former Chief Information Officer, Steve Kilts.

CannLabs Inc., on the other hand, owns the lab’s intellectual property, licenses in Connecticut and Nevada, a consulting business and the consumer-oriented StrainData database.

CannLabs Inc. is reportedly trying to acquire or partner with another licensed Colorado lab.


What We Hear

The company has accused Murray of breaches of fiduciary duty, disclosing confidential information to third parties and making defamatory statements about officers, directors and shareholders thereby exposing the company to the risk of litigation. In announcing the closure of the Denver lab the company also cited the cost of remedying the violations uncovered by the MED and the time spent waiting for the state to issue an additional microbial certification.

According to The Denver Post, CEO Mark Mirken said, in apparent reference to Murray,

There were a significant amount of issues surrounding our involvement with CannLabs Colorado, items that were made public by certain people within that company that were factually incorrect and clearly became an impediment to our ability to work with them under the administrative services agreement.

Murray is not talking to the press. However, on Sept. 17, in her letter of resignation which was attached to the company’s 8-K filing, she complained of “noncompliance,” “outrages [sic] expenditures,” “untrue statements,” and “defamation.” She claimed that her termination was procedurally improper and that the company owes her more than $100,000.

There is no particular reason to suppose that this story is over, yet.


What We Take Away

The company appears to be framing the dispute in terms of a personality clash with an additional element of regulatory burden. One simple lesson is that it is clearly a bad idea not to own the license that permits a company to operate.

Some see this as the sad story of a reverse merger gone bad, a cautionary tale of an entrepreneur losing control of her company. Still others see it as an example of the risks that investors in a new industry face, especially when data is biased or not disclosed in a timely manner.

In any event, the closure marks another step in the rapid and dramatic decline of a once promising enterprise.

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