After a lifetime of cannabis activism, Paul Stanford was hoping to legalize marijuana in his home state of Oregon and take his business public. For over 20 years he has hosted a well-known cable access program in Portland that served as a launching pad to his multi-million dollar multi-state business, The Hemp and Cannabis Foundation (THCF) Clinics. The clinics were the first to open in most states with legalized medical cannabis and connected doctors with patients in need of state-legal recommendations. Since 2001, the clinics amassed around 250,000 personal patient files and medical records. The private patient files are now at the center of an international business controversy that may leave Stanford penniless.
In 2012, Stanford succeeded at placing The Oregon Cannabis Tax Act (OCTA, aka Measure 80) on the ballot, but it failed by just six percent of the vote. OCTA was considered more liberal than approved legalization laws in other states and would have allocated tax revenues to the proliferation of hemp farming. In 2014, he again sought funding for OCTA.
In April 2014, just three months before the signatures would need to be received by the state, the opportunity to fund the 2014 effort presented itself. Canadian venture capitalists interested in Stanford’s clinic business― and the lucrative American cannabis industry in general― presented Stanford with an offer to fund the signature drive in exchange for agreeing to work together to take his company public. Stanford would be sure to secure 55 percent of the shares of the new partnership for himself, his partner and his employees in an effort to protect his life’s work and their jobs.
Ultimately, money for the initiative did come, but not enough and not in time to secure the needed signatures. A competing measure, Measure 91, made it to the 2014 Oregon ballot and passed, legalizing recreational marijuana in the state.
Despite not making the ballot, the new partnership forged ahead. For the next two years, the team at Orange Capital in Vancouver worked with Stanford to expand his businesses and prepare to take his company public.
In mid 2016, the deal was called off and the Canadians assumed total control of Stanford’s entire company― even procuring a restraining order to bar him from interacting with his own businesses. His family, partner and longtime employees were fired, and of particular importance, a legal battle is now brewing over the clinics’ patient records, which may already be in commercial use in Canada. The Canadians, whose capital is largely generated through oil and gas exploration, are currently suing for full and permanent control of Stanford’s companies and are easily out lawyering him in court. Stanford maintains he was never paid a dime for his company’s assets and instead was continually lied to or kept out of the loop on important business decisions. The groups now controlling his businesses maintain Stanford was an irresponsible businessman, a liability to the business and unfit to lead it. They also claim full paid ownership of the business’s assets.
Just who rightfully owns Stanford’s companies is now a matter for courts to decide, in the balance hang over a quarter-million private personal patient records from multiple US states that may or may not be in use by publicly traded Canadian companies. And Stanford’s saga may be a beacon of what’s to come in the domestic market as public financing pushes the industry towards conglomeration, profit incentives and a market of FDA-approved pharmaceutical cannabis based products.
The Activist Meets Activist Investors
Paul Stanford has always been both a businessman and activist, at times a controversial one, but his main goal has always been pushing the public towards total acceptance of the cannabis plant for all of its uses; medical, industrial and recreational.
Stanford says his primary motivation for engaging with the venture capitalists was to fund OCTA.
“I had people coming to me for years saying they wanted to invest in my company and I said no, I don’t need investment in my company, I have grown it from absolutely nothing with no money invested… but we need money to put our legalization initiative on the ballot.”
Orange Capital was a hedge fund operating in both Canada and New York founded by Daniel Lewis, who is well-known as an “activist investor”. According to Investopedia, activist investors are “individuals or groups that purchase large numbers of a public company’s shares and/or tries to obtain seats on the company’s board with the goal of affecting major change in the company.” In particular, Orange Capital dealt in oil and gas exploration, specifically publicly traded Canadian companies amid the nation’s recent boom in oil production.
At first, Stanford and Orange Capital worked together to draft a business plan for expansion and audit the current businesses in preparation of an initial public offering (IPO) on the Toronto Stock Exchange (TSX). In addition to the clinics, the group planned to purchase farm land in both Oregon and Washington state and secure recreational dispensary licenses. They all assumed the deal would reap millions.
But then, the money for the farms didn’t show up in the promised quantities or on time. Stanford began using the revenues at the clinics to front the funding promised by Orange Capital to maintain expanded gardens in both states.
In late 2015, Orange Capital brought in Adira Energy Ltd., an oil and gas exploration company traded on the TSX Venture Exchange (TSXV) and formally announced intent to merge Stanford’s companies, under the new umbrella of Stanford’s Medical Agricultural and Applied Retail Technologies of British Columbia (SMAART BC). Adira made it clear from the beginning that Stanford’s database was of particular importance to the deal.
Adira Energy is a “junior” Canadian oil and gas exploration company and a smaller addition to the investment portfolio of billionaire George Soros. Soros purchased about 5 percent of Adira in 2012. That same year, Adira announced they had discovered significant oil reserves off the coast of Israel, generating excitement that has yet to pan out.
At the time Stanford met them, Orange Capital was being run in Vancouver by Martin Bajic and Talal Yassin, and billing themselves as a global investment firm specializing in start-ups and pre-IPO companies with its own private funding which they say ranges from $500,000 to $5 million and up to $50 million.Their focus has primarily been in mining and the oil and gas exploration sector. In the third quarter of 2014, Orange Capital’s assets amounted to $1.3 billion. By the second quarter of 2016 they were worth just $5.5 million. Orange had bet big on a turnaround of Bellatrix, a Canadian oil and gas exploration company. Orange Capital ultimately closed in February 2016.
In addition to the partnership with Adira, Scott Walters was brought in to be the new CEO of SMAART BC, a decision that had never been popular with Stanford. Stanford believes that when Walters was brought on, his shares were being diluted without Stanford himself ever signing a contract or being given the opportunity to form a board of directors. Stanford never received a satisfactory contract and never formally signed one.
Shortly after announcing the merger, the deal between Orange Capital, Adira Energy and Paul Stanford began to sour, but the Canadians were not leaving the deal without the patient database.
Money, It’s a Gas
In 2001, the Canadian government legalized medical marijuana under the Marihuana Medical Access Program (MMAP), which allowed patients with certain qualifying conditions to access and possess cannabis. Like Washington, Oregon and California, which had passed medical cannabis legislation in the late 1990s, commercial cultivation was not facilitated. Instead, patients who received a medical recommendation from a licensed physician chose designated growers, or DGs (aka “caregivers” in the USA), who provided the patients with the medicine they needed free of charge and sold their excess to retail dispensaries, which operated informally. Much of the North American west coast operated or still operates (for now) under similar cannabis schemes.
These caregiver and dispensary networks functionally allowed the patchwork of smaller-sized farmers and breeders to provide a genetically diverse stock of cannabis medicines to the market and for the consumers to experiment with and report the effects back to budtenders, who would pass the information back up the chain to breeders.These systems led to the current knowledge about more obscure cannabinoids like cannabidiol (CBD), cannabigerol (CBG), tetrahydrocannabivarin (THCV) and the “raw” cannabinoids found in unheated cannabis.
Yet, these farms and dispensaries have existed in legal gray areas since their inception. With a lack of regulation, pesticide and mold-laced products have made it to market. More importantly, in the United States, a lack of access to banking has created a volatile playing field worth billions but so unpredictable it is hard for small businesses to stay afloat amid the ever-changing tides.
But in the United States, the real turning point was the election of Barack Obama, who sailed to victory in 2008 with the support of the marijuana industry and cannabis activists, who saw in Obama a potential ally.
In 2009, Obama’s attorney general Eric Holder released the Ogden Memo, officially setting off the marijuana “Green Rush”. As the federal government pledged to look the other way in legal states, Wall Street investors began salivating over the money that would be generated from the coming marijuana boom. There was always just one major problem― cannabis would and still remains a Schedule I Controlled Substance, meaning it has no accepted medical use in the United States and is considered a highly addictive and dangerous drug. The federal classification has prevented direct investment in the majority of American cannabis companies.
In 2010, California’s Proposition 19, which would have made it the first state to legalize the recreational use of marijuana, was narrowly defeated due to infighting from pro-cannabis industry workers, growers and activists. By 2012, both Colorado and Washington had succeeded at legalizing marijuana and the headlines about the industry’s profitability have shown no signs of slowing since the first day of Colorado’s sales to the public on January 1, 2014.
In 2014, Canada passed sweeping reforms of its national medical marijuana program, the Medical Marihuana Purposes Regulations (MMPR). The legislation established a system where larger-scale licensed producers, or LPs, provided exact-prescribed amounts of dried ground cannabis flowers via the federal mail. There are about 40 distinct LP licenses, but a handful are conglomerates. Initially, the regulations removed the DG system in favor of mailed cannabis from the new LPs, but a successful court battle upheld the citizens’ rights to grow or designate a grower. Currently, there are hundreds of technically illegal dispensaries operating in Toronto and Vancouver which are constantly under attack by law enforcement and even some LPs.
In 2015, prime minister Justin Trudeau campaigned heavily on full legalization of marijuana and upon his victory has set a timetable of 2018 to realize the regulations. With fully-legal medical marijuana already in Canada and a guarantee of an opening of the much larger adult-use market, Canadian marijuana investment has boomed.
Although marijuana banking presented a financing nightmare for the American industry, a few groups were able to publicly list penny stocks for marijuana businesses that are not very valuable. There are few publicly traded companies dealing with the plant, and those that are listed have yet to generate the excitement of the Canadian stocks. In Canada, LPs are already being publicly traded and are so popular they have temporarily halted trading on the Toronto Stock Exchange (TSX).
The TSX is largely dominated by the real estate and oil and gas exploration industries. With fully legal marijuana promising to be the next multi-billion dollar industry in Canada, naturally the same investors are turning their dollars to the booming cannabis market. The largest LP, Canopy Growth Corporation (formerly Tweed) is listed as “WEED” on the TSX and in early February 2016 was worth $1.2 billion. With the purchase of another LP, Mettrum, Canopy Growth is officially the largest cannabis business in the entire world. Aphria Inc, another LP, is in the process of being graduated from the TSXV to the TSX by this May.
Canopy Growth has yet to turn a profit.
While the Canadian cannabis business is booming, LPs have turned their focus towards establishing dominant market shares in the United States as well. Where Canada has a total population of nearly 35 million, in California alone, which legalized marijuana in 2016, there are nearly 40 million people and a massive already-established market. A company commanding hold on both the American and Canadian markets could generate billions.
Scott Walters has been a key advisor or chief executive to most of the publicly traded cannabis businesses in Canada, but before that he worked in investment banking and hedge fund management for two decades.
“I spent 20 years with people where everything was about the next buck, the next deal, the next fuck, Walters told Sharp Magazine in 2015. “You wouldn’t like me. I didn’t like me.”
Today, Walters is running Stanford’s company and has likely licensed out use of Stanford’s patient database to Canadian cannabis companies. They work closely with the largest LPs.
Walters is also the current director of Supreme, another Canadian LP and the co-founder of a clinic business similar to Stanford’s, Canabo. Walters also sat or sits on various boards, such as Thelon Capital, which is traded on the TSX Venture Exchange as “THC”. He works closely with major LP’s such as Canopy Growth and Aphria through his clinics, which recommend their patients to the LP’s.
“The components of this new marketplace have such a number of facets,” Walters stated in a press release in his role at Thelon Capital. “Our focus is to provide financing, particularly royalty deals, as well as technologies and expertise. The market is likely well beyond the experience of many recent entrants who appear to be struggling with this complex opportunity.”
Walters acknowledges his clinic business is not the most profitable. He joked to Sharp Magazine that he “make[s] money every time someone pees in a cup… so I serve a lot of coffee.” But the point of Walters’ clinics isn’t to turn a profit, it is to generate data about effects and symptom relief in medical patients for pharmaceutical research and development. The larger the volume of patient data, the more valuable it is to his clients.
“It is incredibly valuable information,” Canopy Growth (formerly Tweed) executive vice president Mark Zekulin also told Sharp. “If it can finally let us understand not just anecdotally why a particular strain might work for insomnia while another might work for chronic pain, you can start to form the basis for a Phase I clinical trial.”
Walters told Sharp he is currently the only one creating this data for the Canadian LPs.
While medical markets have historically been supplied by small and mid-sized farms, as more sick people around the world move from synthetic pharmaceutical drugs toward natural alternatives, the race is on to create government-approved cannabis drugs that can be prescribed and publicly traded.
GW Pharmaceuticals, a publicly traded British company (GWPH), has standardized an orally consumed tincture of cannabis, or cannabis flowers infused into alcohol by soaking. Despite their product being botanically based (the most effective form of medical cannabis) it was permitted by the US Food and Drug Administration to begin the FDA-approval process and is currently in clinical trials for Sativex (Nabiximols) and Epidiolex.
Although cannabis tinctures are easy to make at home, they are currently impossible to be prescribed and profited from.
With GW Pharmaceuticals opening the door to the for-profit publicly-traded cannabis pharmaceutical market, the race is on in North America to produce similar drugs.
Scott Walters and MoreEtc Farms now manage Stanford’s businesses and claim exclusive ownership of the patient database, along with Adira CFO Alan Rootenberg. Rootenberg is the main plaintiff in the current court battle against Stanford and has been a longtime executive of Adira and many other similar funds in the oil and gas exploration industry.
The formal business address of More Farms is the Clinton Street transit station in southeast Portland, which is not a valid business address. Profiles were established on social media for Oregon’s More Farms in December 2015, just months before the deal with Stanford would be formally called off, suggesting Walters intent was to take and manage the database when he entered the deal with Stanford and Orange Capital in the first place.
If one calls the clinics today, Stanford’s voice is still on the company’s phone tree and the businesses operate in the same building, but Stanford isn’t even allowed in the front doors.
The Art of the Deal
The original deal in April 2014 was that if Orange Capital brought the money to put OCTA on the ballot, Stanford would agree to work with them to take his companies public. Stanford was promised $550,000 to secure the signatures and was told to begin hiring organizers and petitioners to move the effort forward. As time went on, the money still hadn’t come and the recent hires were expecting payment.
With less than a month to secure the needed signatures, a little known offshore fund in Belize, Bayview Equities, wired a $550,000 loan to Presto Quality Care, Stanford’s clinics business, to fund the initiative. The two contacts who introduced Stanford to Orange Capital each took a $25,000 finder’s fee. An additional $60,000 went to an accounting firm hired by Orange Capital to manage the deal and Martin Bajic and Talal Yassin took another $40,000 over the coming months to pay themselves for working on taking the company public. In the end the initiative received about $400,000, which came too little to late. OCTA didn’t make the ballot and Stanford was left to deal with the debts.
“By the time we got the money, we needed more,” Stanford said. “[Presto] should not have been brought into it, but at the time [Orange Capital] insisted.”
Stanford says the deal was structured as a loan to Presto Quality Care because the clinics had fronted a lot of the money for the initiative from the businesses, expecting to be paid back. Stanford’s attorney urged him not to sign the deal, but desperate to fund OCTA, Stanford moved forward.
“The business always supported the ballot,” Stanford said.
Stanford then says he paid all the back debts from the initiative and that Yassin had threatened to sue him for control of his businesses if he didn’t go forward with the public offering. They went forward with plans to go public.
In November 2014, the rival initiative that succeeded at making the ballot, Measure 91, passed and legalized cannabis in Oregon. Stanford says that despite his initiative not making the ballot, he was in full support of Measure 91 and planned his business expansion around it.
The companies were restructured under SMAART BC. SMAART BC is the full owner of SMAART Nevada, which owns the companies Stanford had incorporated domestically; Presto Quality Care (formerly THCF Clinics) now the Empower Clinics, The Hemp and Cannabis Company (THCC, the cultivation and product side) and the THCF Access Points (dispensaries that would capitalize on the name recognition of the nonprofit clinics). The investors would pay the non-profit, THCF, for its properties.
Stanford’s clinics, which had originally been wholly under an Oregon non-profit, the THCF Clinics, had lost their federal 501(c)3 status years earlier when it was determined the clinics didn’t qualify as a not-for-profit business. The clinics were separated from THCF and renamed Presto Quality Care. THCF still exists as a non-profit medical marijuana caregiver for Oregon patients.
With Oregon’s legal cannabis boom on the horizon, Orange Capital and Stanford devised a business plan that, in 2015, would expand the businesses into cultivation and dispensaries. THCC would be used to purchase properties across the Pacific Northwest to grow cannabis for legal markets. In early 2015, the business plan was approved and Stanford was told to go ahead and find the land and start planting; $300,000 would be wired immediately into the SMAART accounts to begin establishing the gardens. Future plans included establishing gardens in South America, specifically Uruguay.
As the growing season stretched into the summer, Stanford spent long hours on the road managing the gardens and was forced to lay off farm staff as he was unable to borrow more money from his clinics to support the projects. Again, he was waiting for the money he was promised to fund the projects. Eventually $50,000 was wired mid-summer, followed by another $100,000 closer to harvest. Stanford was then told the promised $300,000 was in Canadian, not American dollars, although at the current exchange rate the value of the Canadian dollars was closer to $230,000, well above the received US$150,000.
By the fall, it was clear the gardens’ harvests would not reap the profits the company had planned for. Walters, who had recently been brought in as part of the deal with Adira Energy, told Stanford they were “no longer interested in funding his hobby” and that they were done with the gardens and any of the responsibility that came with them.
In November 2015, Stanford went on a previously scheduled month-long trip to South America. During this time, Stanford believes fraudulent paperwork was filed in Oregon courts handing over control of his company to John Dougherty, a contact that had been brought in by one of the investors. Stanford says the paperwork giving Dougherty control of the company uses a series of 0’s for his tax identification and other business identification numbers.
When Paul returned to Oregon in December 2015, Orange Capital and Adira were eager for him to sign Scott Walters’s contract, securing his position.
Stanford, upon reviewing Walter’s contract, was shocked to find it reference the board of directors, articles of incorporation and the bylaws of the organization, although Stanford was continually told the documents did not yet exist and Stanford himself had never been given a contract or been allowed to assemble a board.
Stanford refused to sign Walter’s contract and still never has. To date, if a shareholder or board of directors meeting has been held, Stanford has not been made aware. Besides the business loans for the initiative and gardens, Stanford still hasn’t been paid a dime.
In March 2016, both parties brought lawyers into their business discussions and the rift seemed imminent.
Stanford says that without his knowledge the shares of SMAART BC were diluted in 2016 and again later that year despite the majority owner, Stanford, never setting a board of directors, calling shareholder’s meetings or being invited to one, or establishing contracts for executives.
Stanford is currently defending himself in Multnomah County courts in Portland, Oregon for control of his companies, but is afraid he will be unable to foot the bill the take back control of the company, and ultimately his patients’ records.
Doug McVay and Lisa “Mamakind” Adams contributed to the reporting of this article. Scott Walters was reached for comment and declined.
CORRECTION 2/24/2016: An earlier version of this article suggested the patient database was in use by Canadian company Ample Organics. Ample Organics has clarified their relationship to the data in question.
"We have no formal relationship with Scott Walters beyond a software license with MoreEtc. This license is currently a pilot project and is not yet active or deployed and is in the planning phases. No data has been put into the system to date. We are not deriving any revenue from this relationship presently. Furthermore, Ample Organics does not commercialize patient data and will never do so." - John Prentice, President and CEO of Ample Organics