SEC Charges Eight Fees in Cannabis Stock Promotion Program

The Securities and Exchange Commission announced on Sept. 30 that it has levied eight charges in a stock promotion program that included the promotion of shares in Emerald Health Pharmaceuticals and High Times Holdings. The SEC says investors bought $80 million worth of securities after the promotions. Individuals received payments based on the number of securities sold.

Accompanying the SEC’s announcement was a complaint that alleged recidivist securities statute violator Jonathan William Mikula sold the securities of four issuers: Elegance Brands Inc. (now Sway Energy Corp.), Emerald Health Pharmaceuticals Inc., Hightimes Holding Corp. and Cloudastructure Inc. without advertising disclosing that he received compensation for the promotions. Mikula is said to have promoted the securities through Palm Beach Venture, a newsletter for which he was a writer and chief analyst, presenting the recommendations as unbiased and unpaid while secretly being compensated in the form of cash and lavish spending.

In addition to Mikula, the SEC’s complaint also charged Christian Fernandez and Amit Raj Beri, employees of Mikula who allegedly acted as middlemen for the advertising program. The gentlemen made millions of dollars from the promotions but hid the payments by submitting fake bills for consulting services. In particular, Beri acted as a middleman for cannabis companies Emerald Health and HighTimes. High Times has not been charged.

elegance marks

Beri has also been listed as CEO and CFO in various SEC filings for the company called Elegance Brands, which manufactured a product called Gorilla Hemp. Elegance was cleared by the SEC for a Reg-A offering, but had raised less than $1 million after nine months. When it was decided to promote Elegance through Palm Beach Ventures’ newsletter, Beri made changes to the offer but did not prepare a new offer statement with the SEC. Therefore, all securities sold after that date were considered unregistered. The complaint states: “At Mikula’s urging and in order to ‘facilitate’ the promotion, Elegance agreed to hire Person 1, an employee of Mikula, and pay him 3% of the investor funds raised through the promotion and give him 8% To provide .9 million shares of Elegance stock, which represented 10% of the Company’s outstanding shares.”

The complaint states that the newsletter published an article stating that gorilla hemp retails for $3.95 a can; that Gorilla Hemp Elegance could see a price increase of 2,630%; that Elegance has entered into distribution agreements for Gorilla Hemp with the largest adult beverage retailer in the United States; and that Elegance’s stock price is expected to rise 9,900% five years from now.

The complaint states that Elegance raised $20 million from the promotion and paid $350,000 to Person 1. The SEC statement states that Elegance has agreed to pay a penalty of $776,932; Beri has agreed to pay $960,314.96 in severance pay, $38,979.24 in prejudice interest, a $207,183 penalty, has consented to a 10-year ban and a conduct-based restraining order serving him Participation in certain promotional activities is prohibited.

In January 2022, Elegance renamed itself Sway Energy Corp. and signed a distribution agreement with Halo Collective (OTC: HCANF) earlier this year as part of its acquisition of H2C Beverages.

emerald health

Emerald Health reportedly made $30 million from the stock promotion campaign, which consisted of promotional items in the newsletter. Emerald Health CEO James DeMesa is accused of participating in the program and allegedly making material misstatements and omissions in SEC filings and other investor materials regarding the promotion and related payments. According to the complaint, Emerald Health co-founder Avtar Dhillon played a key role in the program promoting Emerald Health. A separate administrative filing against Emerald Health’s CFO, Lisa Sanford, is found to have engaged in the program through negligence.

In 2019, Emerald Health approached Mikula for a story in the newsletter. The complaint said Emerald Health was secretly transferring funds to Mikula by hiring Beri’s brother to allegedly provide consulting services to the company. In return, Beri’s brother would pass on part of his consulting fees to Mikula and keep part for arranging the fraudulent deal. The complaint noted that DeMesa had reservations about the program, but ultimately wanted the funds to support the company’s leadership.

Photo by anankkml/Getty Images

In February and March 2020, Mikula authored a Palm Beach Venture article titled “Cure Terminal Diseases and Give Us Over 4,900% Potential Profits,” which touted Emerald Health and was distributed to newsletter subscribers. In a quarterly update for its investors, Emerald Health noted that Palm Beach Venture recommended the company “as an attractive investment opportunity” without disclosing that the recommendation was a paid one. In late summer 2020, Mikula authored another Palm Beach Venture article, titled “The Next Aspirin,” which touted Emerald Health.

The SEC statement states that Emerald Health has agreed to pay a penalty of $517,955; DeMesa has agreed to pay a penalty of $103,591 and has agreed to a five-year suspension from serving as an officer and director, and Dhillon has agreed to a permanent suspension from serving as an officer and director.

high times

High Times was promoted by Palm Beach Venture between April 2020 and March 2021. According to the complaint, “Hightimes eventually entered into an agreement to pay Company 1, a Canadian company controlled by Individual 2, 5% of the funds raised by the Palm Beach promotion. Beri, Person 2, Fernandez and Mikula agreed that they would all receive a share of the funds that Entity 1 received from Hightimes. The purpose of using a Canadian company and an offshore account was to hide that payments would go to Mikula from Hightimes.” (Hightimes – using the combined words – is the legal name for the company. Most refer to the company however as high times).

High Times paid $150,000 for the promotion, but the complaint did not specify the number of securities sold as part of the promotion. However, if High Times agreed to pay 5% of the securities sold and then pay the individual $150,000, it could be inferred that at least $3 million was raised by this action. High Times did not respond to a request for comment.

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On Friday, the High Times filed a report with the SEC saying that on July 18, 2022, its independent auditor, RBMS LLP, declined to run for re-appointment except to audit the 2019 financial statements and the Complete filing of the Company’s financial statements Report on Form 1-K for the year ended December 31, 2019. According to High Times, RBMS classified the company as a going concern for the years 2015-2019. High Times also said it retained GreenGrowth to audit its financial statements from 2020-2021. There was no mention of the stock promotion program announced the same day.

The company also extended its Reg-A offering through January 2023. However, the offer is on hold until the company can submit audited and updated financial data.

The offering was halted in June 2020, but it was only in July 2020 that the Cannabis Law Report by Stephen Weiss, attorney for HighTimes Holding Corp., and Megan Penick of LA-based Michelman Robinson LLP confirmed that the Securities & Exchange Commission (SEC) stopped selling shares in the company. Attorney Megan Penick told Cannabis Law Report she wasn’t aware the company was still soliciting investments, although its website was still active.

In addition, company press releases constantly remind readers that the offer period has been extended and subscribers’ email inboxes have been flooded with offers to buy shares almost daily. According to Buhl, the main issue wasn’t the company’s promotional activities, but whether the company’s trustee agent, Prime Trust, processed any sales after the June 12 deadline. If no sales were settled after June 12, there was no securities breach. However, the SEC says in its complaint that Palm Beach Ventures’ promotion did not run until March 2021.

This article originally appeared in Green Market Report and has been republished with permission.