Curaleaf—a major cannabis company in the U.S. with international expansion on its drawing board, has a few bubbling controversies that will just not die.

Curaleaf is currently the dominant U.S. cannabis company by market share. By design, the company has entered state markets (and increasingly international ones like Germany) where the barriers to entry are high. This is how it protects its position.

No matter its omnipotence, however, the scandals surrounding the company keep coming—including this summer—and there are some who are wondering about the ability of Curaleaf.

It could be that this new scrutiny is merely part of the reflected media glare on the cannabis industry in general thanks to both advancing legalization globally, not to mention the recent implosion of Juicy Fields. Indeed the deets on the self-destruction of the crowdfunding, e-growing company continue to be satisfyingly “juicy,” including recently revealed connections to German aristocracy to blood the hounds for more.

In part such scrutiny is also occurring because it is clear that the stakes are increasingly higher. It is also clear that no matter how enthusiastic one is about cannabis reform, the sleezier side of the industry to date has still not dissipated in any large measure.

No matter the reason, this summer’s sudden interest in cannabis scoundrels seems a bit like a repeat of the purging seen in 2019—of executives if not the companies themselves—and which affected large and supposedly indomitable companies including CannTrust and Canopy.

Whatever the immediate trigger, Curaleaf’s PR department has their work cut out for them.

Source of Funds: The Russian Connection

Sources of funding are increasingly an issue for the industry. In part this is because of the spectacular flameouts so far of other “innovative” strategies to raise cash. It is also because legalization creates a mandate for much cleaner sources of finance.

This is one of the biggest liabilities that Curaleaf faces. Here is why.

Curaleaf’s owners have long-standing and significant Russian roots. The rumors that they were facing sanctions this spring after Russia invaded Ukraine were rampant on social media (even though not true).

Here is what is not disputed. Company founders Boris Jordan and Andrey Blokh have had long standing business relationships with both Putin and sanctioned tycoon Roman Abramovich. Even if no direct link between these men and their cannabis endeavours can be traced to Russian oligarchs specifically, there are still plenty of questions about the source of funds behind the company. According to some experts, every business with historical financial links to Russian money should be looked on with suspicion (no matter the vertical). Oligarchic capital, as it is known, flows everywhere, and it is very possible that it has made its way into the global cannabis industry, even if not at Curaleaf.

That said, the company has been the target of this kind of allegation since Barron’s published the same in 2018. No matter how many assertions both Jordan and Blokh have made about their dual citizen status or their American patriotic leanings, the reality is that both men have been able to stay in business in the country even after Putin began to assert state authority over the private sector.

Those who oppose the company say that choosing Main Street cannabis over Wall Street cannabis is the only way to really drive such influences from the industry. Given how the state market (and now Europe) are proceeding with legalization, the mom-and-pop side of the industry is absolutely under threat from international pools of cash looking for profitable niche markets to invest in.

Labelling Problems

The company’s reputational issues do not stop with its founders, however. Its operations are increasingly in the spotlight, if not landing the company in court. And it is not a good look, specifically because it points to (at minimum) shoddy production standards. Specifically, in 2021, reports emerged that Curaleaf’s Select CBD brand contained psychoactive Delta 9 THC. The company claims that a single batch of products with THC was mislabelled. No matter the cause or whether it was one batch or multiple ones that were affected, hundreds of consumers became sick, including an Idaho man who suffered stroke-like symptoms before dying several weeks later.

So far, Curaleaf has settled 10 cases but not the wrongful death suit. Beyond this a new class action looms for the company from those whose claims have still not been addressed.

Outstanding Legal and Financial Liabilities

The problems do not stop here. Curaleaf is also entangled in a web of lawsuits regarding a failed CBD company.

It is also facing legal action for violating labour law in several U.S. states—and for particularly egregious infractions that appear to indicate that management, much less the founders, do not care about the welfare of either consumers or employees. Specifically, the company now stands accused of illegally collecting employees’ tips in violation of the Fair Labor Standards Act (FLSA)—an Illinois state law. In Massachusetts, the company was found to have violated labor laws when it tried to prevent employees from unionizing.

With all these reputationally damaging legal problems, there are also many, including investors, who are wondering if the company will manage to survive all of these problems. While Curaleaf certainly has raised a significant amount of cash, the vast majority has been spent on acquisitions. Even though the company continues to perform well financially—revenue was up 20% year-over-year for the first quarter of this year and operating income increased 21%—there are clearly clouds on the horizon, and all take cash to solve.

The Google of Cannabis?

Since the beginning of legalization, there have been wildly successful entrepreneurs who have carved a piece of history (if not a great deal of money) out for themselves with a vision to monopolize the nascent industry. However, no matter how big and bad they get, this is no guarantee of legitimacy, much less longevity or market control.

Canopy Growth, for example, blew into the European market in the middle of the last decade with bravado and bucks to spare. Yet within a few short years, they had failed to gain a German cultivation license, sold many of their earlier acquisitions, and saw several waves of exits for senior management starting with the firing of founder Bruce Linton by the board. This March it was delisted from the S&P/TSX 60 Index. Its stock has fallen 90% since it was added to the index in the spring of 2019.

The reality is that when full and final legalization comes, the rules of the road, which tend to favor Mad Max rather than Mr. Roger’s Neighborhood, begin to weed out those who cannot make a transition to legitimacy.

The trap doors are everywhere.

It may be that this summer, both investors and consumers, if not regulators beyond that, begin to make other choices.

Source: https://hightimes.com/business/curaleafs-curious-cannabis-industry-status/