$65 million awarded farmers in fraud case against Canadian, U.S. execs

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A group of Canadian and American business executives committed negligence, fraud and deceit when they left a group of Montana farmers stranded with 2018 hemp crops, a jury in Montana has found.

After deliberating for just three hours, the jury recently awarded $65 million in compensatory and punitive damages to 25 eastern Montana farmers – an amount larger than the plaintiffs had sought in the case. The judgment is the second-largest award ever granted by a jury in Montana’s civil courts.

After a company named USA Biofuels contracted with the farmers to grow hemp for CBD flowers, delivery of seed and down payments of $100 per acre promised to the farmers was delayed, according to the plaintiffs. Those obligations were later met by a company called Vitality CBD Natural Health Products Inc., a Canadian company that eventually merged with LiveWell Canada Inc., and a company called Gatineau to form a new entity, Eureka 93.

But the farmers never received payments for the crops they grew, after being promised $400-$600 per acre for the total 20,000 acres of hemp contracted.

‘Gambling farmers’ livelihood’

In addition to $9 million in compensatory damages, individual defendants, and the amounts they were ordered to pay included: USA Biofuels, Eureka 93, Vitality Natural Health and Surety Land Development, $10 million each; Kent Hoggan, Corey Shirley and Owen Kenney, $5 million each; and David Rendimonti, $1 million.

USA Biofuels was a shell company without assets or a bank account, attorney Ross Johnson, who represented plaintiffs in their suit against the executives, told the Montana Free Press.

“[The defendants] were gambling with the farmers’ livelihood, their land and their labor, for the shot that they might hit a big IPO. And when it went south, they just tried to ride off into the sunset with the hope that nothing would happen to them,” Johnson said.

With backing from Canadian cannabis giant Canopy Growth and from well-known venture capital group Canopy Rivers, Eureka 93 launched on the Canadian Securities Exchange (CSE) in July 2019. At the time, the company said it owned hemp processing assets in Montana and New Mexico, and described itself as “an integrated life sciences company focused on the cultivation, extraction, and distribution of cannabis and hemp-derived cannabidiol (CBD) through its Health Canada licensed Artiva facility in Ottawa, Canada and subsidiary operations.”

Quick exit from stock market

Failure to buy the crops led to the company’s commodities license, required to buy hemp from Montana farmers, being revoked. The entire executive management team including CEO, CFO and COO, and all but one board member resigned and abandoned the company. By September 2019, just three months after it had launched, Eureka 93 was de-listed from the CSE.

The Canopy Growth and Canopy Rivers deals were canceled in May 2020 after those two firms claimed the merger to form Eureka “breached a number of covenants” in their agreements and started legal proceedings.

At around the same time, Owen Kenney, a Eureka co-founder, Michael Mueller and Paul G. Smith resigned from the board of Eureka 93, with one of those positions being filled by Robin Crossman, CEO of Florida nutraceutical company Arisanna Group. At the time of his resignation, Mueller was identified as chair of Laurentian Bank of Canada and former head of Global Investment Banking at TD Bank Financial Group; Smith was identified as CEO of Frontline Broadband Inc.; he was previously chair of VIA Rail Canada’s board from 2010 to 2014.

Blame all around

“At that time, it was evident to the former Board and executive management team that the E93 group of companies were insolvent,” the company said in a December 2019 press release. Kenny then returned as a “co-CEO” with Seann Poli, according to the release.

In a defense trial brief, attorneys for the defendants argued that market forces – not fraudulent business practices – led to Eureka’s collapse.

“When it came time to go back into the market and sell the commodity, the market had so profoundly collapsed, there was no money to honor the commitments,” according to the brief.

“Thus, about everyone began blaming each other for the collapse, but the cause is clear — it is part of the human condition,” the brief said.

Hemp fields plunge

Montana farmers planted 22,000 acres of hemp in 2018, more than any other state that year. An oversupply had already become apparent in the global CBD market when Montana farmers drastically ramped up hemp farming to 60,000 acres in 2019, resulting in more crops that went unsold.

Total hemp fields in the state plunged to 12,000 acres in 2020, which saw Montana farmers switching to hemp fiber and grain. State officials estimated that while 80% of hemp grown in 2018 and 2019 was mainly for CBD flowers, only 20% of those growing hemp last year and this year are cultivating them for CBD flowers.

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