Cookies, among the most well-known American cannabis operators, is accused in separate lawsuits filed by current investors and a onetime business partner of using coercive “strongarm” tactics and bullying to force them to pay company executives “millions of dollars in personal benefits and kickbacks” as a cost of doing business with the brand.

The two lawsuits, filed in Los Angeles County Superior Court, claim Cookies President Parker Berling and other board members and executives solicited and pocketed “kickbacks” in the form of cash, jewelry and other gifts.

This “hidden forced private tax,” in the words of one suit, is levied on anyone wishing to do business with California-based Cookies, both lawsuits allege.

Cookies’ CEO and co-founder, Gilbert Milam Jr., commonly known as Berner, is named in only one of the suits, which was filed by a pair of investors. He declined to comment to MJBizDaily.

Through a spokesperson, Cookies and Berling also declined to comment.

In a video posted to his Instagram account last week, Berner blasted the allegations as “bulls***” and an attempt to take Cookies away from him during a personal health crisis.

At the very least, the lawsuits claim to offer a rare peek inside the Cookies empire, which includes retail clothing stores in New York City and San Francisco as well as Cookies-branded stores in such U.S. states as California, Colorado, Florida, Michigan and Nevada as well as Canada and Thailand.

First lawsuit details

The first lawsuit was filed in December by Florida-based Cookies Retail Products (CRP), which claims to have secured in 2021 an exclusive license to manufacture, market and sell Cookies-branded delta-8 THC and CBD products.

In the suit, CRP Chief Executive Paul Rock claims Cookies executives sabotaged nascent deals, stole product and forced CRP to use Cookies-selected preferred suppliers before threatening to revoke CRP’s license to use Cookies’ branding.

Before that, Cookies took kickbacks on deals between CRP and third-party vendors on top of the unspecified licensing fee and royalties paid by CRP to use the Cookies logo and other intellectual property, the suit claims.

After Cookies executives meddled in various other deals, CRP claims to have been saddled with “millions of dollars in spoiling vape cartridges, blunts, hemp smokes, 1gram Vaporizers, Gummies, and Dab Liquids.”

That suit, which claims damages in excess of $38 million, names two Cookies companies, Berling and other Cookies C-suite executives.

Berner is not named in this suit.

Second lawsuit details

In the second suit, refiled on March 8, two Cookies investors – who together say they own 10% of the company – claim a similar pattern of behavior that benefits executives at the expense of the company.

Berner “and his cohorts,” including Berling and Cookies executives Ian Habenicht and Lesjai Peronnet Chang “use the popularity of the Cookies brand to engage in pervasive self-dealing without regard to inherent conflicts of interest and to strongarm and bully others into paying them millions of dollars in personal benefits and kickbacks,” the suit alleges.

In their suit, BR CO I and NedCo – the latter is controlled by Ned Fussell, a co-founder of California cannabis manufacturer CannaCraft – claim Cookies board members steered contracts and deals toward outside companies they wholly own or controlled.

These include a tech firm owned by a company called Mesh Ventures – Berner and Berling are co-owners – to which Cookies pays “hundreds of thousands of dollars in ‘software development fees’ for no discernible benefit,” as well as a construction company owned by Berling’s brother, the suit claims.

Anyone licensing Cookies is instructed to use Seth Berling’s construction firm GCI “even though GCI often costs more than double” other outfits, “so that he (Berling) can take kickbacks from GCI for his own personal benefit,” the suit claims.

Anyone who resists is “threatened, including with physical violence and slanderous blasts on social media,” the suit adds.

The lawsuit further claims that Berner and Berling use Cookies company cash and resources as “lifestyle slush funds” that bankroll their “lavish” way of life as well as promoting their own personal projects.

The suit seeks unspecified damages. It also asks a judge to remove Berner and Berling from Cookies’ board.

Berner rejects claims

In his April 19 Instagram video, Berner called the claims “bulls***” and attempts to take his company away from him that the litigants deliberately timed with his public revelation of a cancer diagnosis.

The San Francisco-bred entrepreneur and rapper, who maintains a residence in nearby Marin County, revealed a stage 3 colon cancer diagnosis in October 2021.

“When I got sick, I think that a group of predatory investors saw a good opportunity to make a move on me and the leadership over at Cookies,” he said in the video.

Berner called the relationship between the company and its investors as a “loan-to-own” situation – the description used by other cannabis entrepreneurs who have lost control of their businesses after taking investments – and claimed the investors are “trying to starve (Cookies) out.”

“This playbook has been run on other people in this space,” he said. “And it’s worked. But it’s not going to work here.”

Last week, he also posted what appeared to be a dig at his former partners.

In a promotional photo for an upcoming music release, Berner is sitting at what appears to be a table at a corporate boardroom, surrounded by men in suits.

Visible on the table is a reflection of the suited men, who appear menacingly dressed in ski masks.

CRP’s Rock did not respond to a text message seeking comment. Nor did his attorneys at a Los Angeles-area office of Leech Tishman Fuscaldo & Lampl.

A message left for NedCo’s Fussell at a Santa Rosa, California, listing was not returned.

Attorneys at Irvine, California-based Rutan & Tucker, representing the Cookies investors, declined to comment.

Peek inside the company

In addition to painting their own inside picture of the Cookies empire, the suits claim to divulge key details about Cookies’ finances, though the whole picture remains incomplete.

What the public has come to know as “Cookies” is in fact a network of related companies, incorporated in California as well as corporate-friendly Delaware, all of which are closely tied to Berner’s immense presence on social media.

All these companies are privately held and not publicly traded – and, since the Cookies-branded cannabis stores are run by outside companies that license the brand and pay royalties to the outfits controlled by Berner, Berling and some of the other executives and board members named in the suits, they are practically non-plant-touching.

Outwardly, Cookies appears to have carefully guarded precise details about the company’s structure and operations while publicly presenting itself as a runaway success story.

Early last summer, Berner claimed in an interview with Insider that Cookies was a “definitely a billion-dollar company.”

Then, in August 2022, when Berner graced the cover of Forbes – the first cannabis company executive to do so – the business publication pegged Cookies’ actual worth at closer to $150 million.

#NewProfilePic pic.twitter.com/AFGSTPEM9v

— Berner (@berner415) August 2, 2022

Observers contacted by MJBizDaily said the lower figure could be possible, based on funding details contained in the investor lawsuit.

Silent raise

The lawsuits preceded a Series A financing round Cookies announced in April, led by Entourage Effect Capital, a Texas-based private equity firm that’s invested into other prominent cannabis companies, including Chicago-based multistate operator Green Thumb Industries.

Though no dollar figures were disclosed, Cookies claimed to have secured its “largest equity raise at the highest valuation” since its 2012 founding.

The ambiguity raised eyebrows among investors and observers, who told MJBizDaily that it’s unusual for a company to not advertise both its valuation as well as the amount of a capital raise.

Entourage Effect did not respond to an MJBizDaily request for comment, and a Cookies spokesperson refused to discuss details.

But in their suit, the two Cookies investors say the company secured at least $5 million in debt financing from Entourage Effect Capital Opportunity Fund III.

They also hinted at overall financial trouble at the company.

“This taking on of more debt is representative of Defendants’ reckless spending that is out of proportion with its ability to pay, which leaves the company and its shareholders in a precarious position,” the suit alleges.

Cookies also raised $23 million through a stock-purchase agreement in which it sold shares to a “number of investors … that are either unidentified or identified as yet more affiliates” of Berling, Berner and the management team, according to the investors‘ suit.

That diluted both the voting power as well as the investment of existing investors, who attempted to convert their stakes into preferred shares and were denied, the suit alleges.

Still Strong

Outside investors who reviewed the lawsuits told MJBizDaily that Cookies’ brand image – which is virtually unparalleled in cannabis for its combination of apparent business savvy and street-level authenticity – might be undamaged for now.

In an email, Matthew Karnes, founder of New York-based cannabis financial consultancy Greenwave Advisors, brushed off the lawsuits as a “distraction,” pointing to Entourage Effect’s investment as a sign the company is sound.

“I think they would’ve passed on the opportunity if they believed this lawsuit had any merit,” he said.

As for the company going forward, though the lawsuits and media coverage “may cause some investors to pause” or conduct additional due diligence, Cookies remains “a well known international brand that has unique characteristics and appeal,” Karnes added.

Jesse Redmond, a managing director and head of cannabis research at Santa Barbara, California-based Water Tower Research, noted that the allegations address Cookies management’s competency as well as their ethics – both red flags for most potential investors.

But despite that, the brand’s appeal remains unparalleled, which would explain why an investor might not worry too much about litigation.

“I think the reason people have invested and may continue to do so, even with the turmoil, is that Cookies might be the most recognizable brand in cannabis,” Redmond said.

“There are not many brands where people will line up around the block for drops, and Cookies is one of them.”

Source: https://mjbizdaily.com/cannabis-company-cookies-faces-lawsuits-alleging-kickbacks-personal-enrichment/