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L.A. Marijuana Lawyer on Cannabis, Crypto and the Courtroom

An agricultural research and commercial hemp company is attempting to bankroll a civil lawsuit against the state of California through crowdfunding, asking investors to purchase cryptocurrency. The lawsuit alleges state officials unlawfully destroyed more than $1 billion of the hemp crop belonging to Apothio LLC in 2019.

As reported by Reuters, this approach breaks some ground on numerous fronts. Small investors, for the first time, can put up as little as $100 or as much as $500,000 to buy a stake in the outcome of the civil litigation. Although the U.S. Securities and Exchange Commission has long allowed individuals to invest in litigation finance deals, those individuals had to meet SEC accreditation criteria. This approach of sidestepping those rigorous requirements is allowed under an SEC provision that permits up to $5 million in litigation financing through crowdfunding. Furthermore, to the best of our Los Angeles cannabis attorneys’ knowledge, this is a first for tokenizing litigation funding through blockchain. What that means is if the firm ends up winning the case and getting paid, investors will be paid their share of the verdict in tokens from the company.

Within a day of the request going live, the company had raised more than $156,000 from 85 investors – more than 60 percent of the target minimum of $250,000.

This is an interesting approach that we imagine many California marijuana business lawyers are going to be watching closely, as it may allow a greater number of plaintiffs of all sizes to pursue civil litigation for unfair regulatory action, such as destroying crops or license revocation.

There is some concern that smaller investors may not have enough savvy in terms of litigation to make informed choices about which investments are likely to pay off. However, commercial litigation investors are likely investing millions, while individual investors chipping in $100 here and there may be less risk averse. This particular deal reportedly shields investors from losses in case the matter is immediately dismissed.

The case in question involves the sheriff’s office in Kern County as well as the state Department of Fish & Wildlife. The government reportedly ordered 500 acres of the company’s hemp harvest to be bulldozed. The company not only grows the hemp but conducts research and even partners with two local community colleges. Attorneys for the firm insist the product was lawfully grown and unlawfully destroyed. It claims violations of both federal and state constitutional rights. Both the county and state governments are pushing to have the matter dismissed, arguing that the firm was growing marijuana (not hemp) unlawfully for commercial distribution. They argue that because the crop was contraband, there is no constitutional or valid property right claim.

As longtime marijuana business attorneys in California, it’s apparent that not only the facts but the underlying laws are complex, particularly given that there were community colleges involved and interpretations of federal law that have exempted hemp from the U.S. Controlled Substances Act.

If the government is successful in having the claim dismissed, investors will lose 20 percent of their investment, while the rest of their money would be refunded. However, if the case is lost at a later stage, investors would lose all their money. If the company wins, however, investors will be entitled to a cut of the damages awarded.

The Los Angeles CANNABIS LAW Group represents growers, dispensaries, ancillary companies, patients, doctors and those facing marijuana charges. Call us at 714-937-2050.

Additional Resources:

Cannabis, crypto and crowdfunding in first of its kind litigation finance offering, Oct. 27, 2021, By Alison Frankel, Reuters

More Blog Entries:

California Cannabis Company Sues State Regulators Over High Taxes, Illicit Market, Oct. 21, 2021, Los Angeles Marijuana Business Lawyer Blog

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