Medical Pot Co. Board Calls Merger a Fraud

     SAN DIEGO (CN) – The new owners of the nation’s first publicly traded medical marijuana company acquired it through fraud, former board members say in a state court suit.
     William Martin and David Tobias say the Hemp Deposit and Distribution Corp. – doing business as CannaBank – and its president and founder, Michael Llamas, lied to them to acquire a controlling interest in Medical Marijuana, Inc. in 2010.
     CannaBank is a private equity firm that “specializes in capital allocation thru [sic] mergers and acquisitions in several core industries,” according to its website.
     Martin and Tobias in 2010 were board members of Medical Marijuana, which is organized in Oregon, based in San Diego and is the “first publicly held company vested in the medical marijuana and industrial hemp industries,” the suit says.
     As board members, each was a “large” shareholder in Medical Marijuana, Martin and Tobias say.
     In May 2010, Martin says Llamas sent an unsolicited email proposing to merge CannaBank with Medical Marijuana. Llamas and CannaBank would exchange debt-free assets for a “controlling amount of common stock” in Medical Marijuana, Martin says.
     Those assets included 10 properties plus “various patents, technology, intellectual property, and products in exchange for 260 million shares” in Medical Marijuana, Martin and Tobias claim in the lawsuit.
     Both sides agreed to the deal in March 2011, CannaBank also agreed to issue 30 million shares in Medical Marijuana to Martin and another 30 million to Tobias, the men claim.
     But after CannaBank obtained the 260 million shares in Medical Marijuana, they say CannaBank never issued the agreed-upon 60 million in combined shares to Martin and Tobias.
     Instead, Llamas and CannaBank “fraudulently obtained control of Medical Marijuana and then absconded on the obligations and duties under” the agreements, the lawsuit says.
     Medical Marijuana is a penny stock traded under the “MJNA” symbol and closed at 8 cents per share during after-hours trading on April 30. The company traded at a five-year high of 37 cents per share on Jan. 31, 2014.
     Based on its April 30 selling price, the 60 million combined shares Martin and Tobias say they’re owed are worth $4.8 million. The 260 million shares held by CannaBank are worth $20.8 million.
     Making matters worse, the men say the 10 “‘debt-free’ properties” pledged as part of the deal significantly were encumbered by “a storm of litigation” that was concealed by Llamas.
     According to the suit, Llamas has confirmed the combined 60 million in shares are owed to Martin and Tobias several times, but Medical Marijuana since “has issued plenty of shares for their own benefit.”
     Now, Martin and Tobias say it would take about 150 million shares to equal the value of the combined 60 million shares that they should have received years ago.
     Named as defendants are Medical Marijuana Inc., Hemp Deposit and Distribution, which does business as CannaBank, Llamas and Michelle Sides, who is a Florida attorney Martin and Tobias say assisted Llamas in executing the deal for Medical Marijuana.
     Martin and Tobias accuse Llamas and Sides of fraud, conspiracy, conversion, rescission, unjust enrichment, negligent misrepresentation, bad faith, gross mismanagement, breaches of fiduciary duty and contract and breach of employment contract.
     They also accuse defendants of violations of the California Corporation Code, Business and Professions Code, and the U.S. Exchange Act.
     Martin and Tobias seek recession of the CannaBank agreement, monetary judgment plus interest and punitive, incidental and additional damages and the transfer of 30 million shares in Medical Marijuana to Martin and another 30 million shares to Tobias.
     Attorney Jonathan McGee of the McGee Law Firm in Phoenix filed the complaint on behalf of Martin and Tobias.
     Officials for CannaBank did not reply to requests for comment by press time.
     McGee was not available for comment.