.Nickeled and Dymed

The collapse of Dionymed Brands, which traded on the stock exchange as DYME, highlights the factors at work in the great cannabis crash.

Before DionyMed Brands crashed and burned last October, when it still appeared to outside observers as a growing, apparently successful cannabis company, the first thing many people noticed about it was that it was downright bewildering. It had its fingers in several different parts of the business — cultivation, manufacturing, distribution, sales technology, home delivery — in several different states. And it went by a whole bunch of different names, including subsidiaries, brands, and names of acquired companies: DionyMed, DYME Distribution, Herban Industries, Rise Logistics, Winberry Farms, HomeTown Heart, Chill, and others.

“It was all really confusing,” said Chris Romaine, an Oakland photographer specializing in cannabis, who did work for DionyMed. “I was getting all these checks with different names on them.”

It’s far from unique for a diversified company to employ a multitude of different brand names, and there’s nothing inherently nefarious about it. Many cannabis companies in particular do that. But after such a company implodes, the plethora of entity names can make legal mop-up operations that much more challenging, and the panoply of names look a little less like marketing and a little more like subterfuge. Whether that’s the case with DionyMed can’t be known, at least for the moment, but it made Romaine wonder about it — not so much when he was still shooting DionyMed’s photos, but in retrospect. The company had piled up a lot of names over the short few years it was in business.

It also piled up a lot of debt. Romaine, who owns Kandid Kush Studios, is one of a large number of people and entities who are DionyMed’s creditors. The approximately $40,000 he says he is due is a pittance compared to the tens of millions the company owes its major creditors. Who will get what is now being determined, as the company is in receivership in Canada where DionyMed had issued stock, though most of its executives lived and worked in the Bay Area.

“Everybody I worked with there was really cool,” Romaine said. He took pictures for DionyMed’s cannabis-delivery platform, Chill, and for Winberry Farms, a pot grower and manufacturer based in Oregon, among others. For months, whichever entity he was working with paid him promptly and reliably: 50 percent up front and 50 percent upon completion of his assignment. “Everything always went really smoothly,” he said.

Until it didn’t. Last April, the people he was working with at Chill on what he called a “huge project” — taking product photos for the Web site — told him they didn’t have a check with them to give him his deposit. “I was uneasy, but I shot anyway,” he said. Afterward, “they said the check was cut, then they said it again. That went on for months.”

Romaine would never receive another dime from DYME, the company’s stock-ticker symbol as well as the name of its distribution arm. People on stock message boards made note of the irony in the late summer and fall, when DYME’s stock fell to just over 10 cents a share, having reached a high of $3.83 just the previous January.

It’s part of Romaine’s business to stay abreast of what’s happening in the cannabis industry, but even some finance professionals had missed what in retrospect look like signs of trouble. The fall of DionyMed is all in the public record, but to see the story, you have to read through a lot of press releases and dry accounts from trade publications. Amid the prosaic language is a rather alarming tale of what several people say was a mix of greed, hubris, and incompetence.

DionyMed was formed in 2017 by Edward Fields, who had spent his whole career before that in software. He was the CEO of ProductFactory, a marketing executive at Agile Software, and the founder and CEO of HotChalk, which makes educational software products. He left HotChalk in 2016 “to pursue opportunities in cannabis.”

Pursue them he did, with great vigor. Starting in 2018, the next year and a half was a whirlwind. Large sums of money were raised and borrowed. Companies were acquired. DionyMed began to bill itself as “a multi-state cannabis brands platform, supporting cultivators, manufacturers, and award-winning brands in the medical and adult-use cannabis markets.”

Fields began giving interviews, including video for cannabis-media sites. He used many marketing buzzwords and deployed the phrase “the cannabis space” a lot. He came across as basically knowledgeable, at least on the surface, and he was generally introduced as a mover and shaker — a real can-do kinda guy. In one video last February where he talked up the company’s stock, he claimed DionyMed shares offered investors a “long-hold experience.” Shares in DionyMed were trading that day at $3.73. Six months later, they were trading at 84 cents. Two months after that, they were worthless.

“We are very, very big in the space,” he told his interviewer. “Time is the most powerful weapon on our side.”

Fields did not respond to repeated requests for comment. Calls to various top DionyMed executives and board members similarly resulted in silence. Reached by phone, Michelle Sitton, the chief marketing officer, declined to comment, referring questions to the company’s attorney, Chris Wimmer, who never responded.

People outside the company, at least some of whom are in litigation with DionyMed or are planning to be, are generally themselves loath to say much, at least with their names attached. Romaine is one of an unknown, but apparently large, group of vendors and former employees who say they are owed money. One former, low-level employee of the company’s short-lived online storefront, Chill, said of Fields: “That guy is a scumbag.” This person chose not to elaborate. Another vendor, who asked that even his line of business be kept out of this article, said that, like Romaine, the people he worked with directly were fine folks but that the company “seems like it was a rip-off right from the start.”

That’s not necessarily so. Several people interviewed for this article who worked for or with DionyMed, most of whom didn’t want their names used, think Fields, like a lot of cannabis entrepreneurs, really wanted to build a business, but simply moved too fast. He didn’t quite understand all the risks, they said, especially when he was borrowing money and making acquisitions. On top of that, he had no experience in pot or anything like it. “He was a software guy who thought he was going to be this big pot kingpin,” one of them said. “But he didn’t know anything about pot. He thought it would be easy.”

In this, he was far from alone, as the past year has borne out. Since last August, the North American Marijuana Index, which tracks cannabis stocks, has fallen by half. Too many investors looking for a quick buck creates a bubble, as with Internet stocks in 1999, or housing in 2007. That bubble has now burst. Some of the biggest pot companies in the world, including many whose underlying business is still growing, have lost enormous amounts of assumed value. Layoffs have become widespread.

DionyMed went public in November 2018, raising $35 million. Like a lot of companies, it did a “reverse takeover” of a Canadian firm. “Plant-touching” cannabis companies are not allowed to trade on the major American exchanges, thanks to the continued federal illegality of pot. That led operators who desired to go public to Canadian markets, but to do so they had to be technically registered as Canadian companies. Often, shell companies were chosen or created for this purpose, but DionyMed chose an outfit called Sixonine Ventures, which was formerly a coal company.

At first, many of these stocks did well, leading others to pile in. There are benefits to being a public company, at least while your shares are rising. For instance, the cost of capital is much lower because “when your stock is performing, you don’t have to pay all-cash” for acquisitions, noted Ken Amman, chief financial officer of the Illinois-based Cresco Labs, in an interview last July with Marijuana Business magazine. At the time Amman said that, Cresco’s shares were trading at around $11. Last Friday, they closed at 6.69. That’s actually a lot better than many other of these reverse takeovers have done. Closer to home, the Oakland dispensary chain Harborside, which was late to the public-offering game when its stock debuted in June, has lost 88 percent of its value. It hit its peak at $4.51 just a few days after it went public, and closed Friday at 57 cents.

But if DionyMed took to the public markets to lower its capital costs, it didn’t quite work out. It kept borrowing money, and it kept making acquisitions. In December 2018, it bought HomeTown Heart, a well-regarded, delivery-only online storefront based in Oakland that was launched in 2015. The deal was for $18 million, with $6 million paid up front in cash and the rest to be paid out over time in cash and stock. It’s not exactly clear what happened since, but several sources said that at least some HomeTown Heart owners were left holding the bag. HomeTown Heart executives and owners either could not be reached or declined to comment on the record.

The next month, DionyMed made a deal with Acres Cannabis, a Las Vegas retailer. It presented the deal as a “strategic partnership” that would give the company an entrée into the lucrative Nevada market. But it was essentially just a licensing agreement: Acres would slap DionyMed’s brand onto some products. But according to DionyMed’s press release, it was all part of the company’s “national expansion plans.”

As 2019 dawned, and not even two months after DionyMed went public, the company secured a line of credit worth $40 million from a “syndicate of investors,” drawing $13 million right at the start. The terms were painful: the interest was the London Interbank Offered Rate — a basic rate of interest used in lending between banks, which at the time fluctuated between 2.5 and 3 percent —plus another 8 percent, plus various fees. The overall interest rate was “like a car loan for people with bad credit,” wrote Chris Parry, who covers cannabis stocks for Equity Guru, and who has been scathing about DionyMed all along.

In April, private investors took a share of the company in a private placement of $10.5 million, valuing the company well below what its stock was trading at, and DionyMed’s shares began to slide. The very next day, photographer Romaine started work on the “huge project” for which he would never be paid. Astonishingly, yet another private investment in June put $32 million into the company’s coffers, this time at a level that was 25 percent below what the already-deflated stock was trading at, terms that Parry declared were “usurious at best.” Shares slid more, and losses mounted.

But even as all this was happening, DionyMed was striking new distribution deals, securing cannabis licenses in Los Angeles and San Francisco, buying land, acquiring companies, and, ominously, delaying the announcement of its earnings and restating previously announced financial results — downward, natch.

The crash came on October 17. Fields, along with the interim chief operating officer, resigned after a creditor demanded immediate payment of $25 million in outstanding debt. That wasn’t possible, and the company went into receivership on Nov. 1. It’s not clear which business units are still operating. All the company’s web sites are still up, but nobody’s answering the phone at Chill, the Bay Area delivery platform, and sources say it ceased operations just a couple of weeks ago. Similarly, nobody answered the phones at the company’s Winberry Farms operation in Eugene, Ore. over the past week, but that unit might still be operating. One executive there, B.J. Maks, referred me to Dustin Jessup, whom he called “my boss.” Jessup, the president of Winberry, did not return calls.

A few months before Fields bolted, and the company imploded, came perhaps the strangest turn of events of all, followed by another bit of weirdness just last week. DionyMed had by then launched Chill, which competed with Eaze, the popular San Francisco platform for delivery operators. This meant that DionyMed was now competing with its own partner, since Eaze was the platform for HomeTown Heart. On June 5, DionyMed, through its subsidiary Herban Industries, filed a lawsuit against Eaze alleging that the latter was committing “wire fraud and bank fraud” by supposedly hiding the nature of credit-card transactions, disguising them as involving payments for non-cannabis goods, presumably because it can be tough for cannabis companies to get banks and credit-card processors to do business with them. Eaze countered that as a technology platform, it doesn’t handle payments at all, leaving that to its client storefronts.

The speculation was that DionyMed was trying to get out of its deal with Eaze and benefit its own competing platform. “It was really misguided,” said Elissa Hambrecht, chief operating officer of Fumé, which runs a number of delivery services in counties north of the Bay Area and is a client of Eaze. “I think the next day, they realized the mistake they made,” she said, referring to DionyMed. Endorsing Eaze’s statement on DionyMed’s lawsuit, she said: “If they really wanted to sue, they should have sued us.”

Then last week, TechCrunch reported that Eaze itself was in danger of running out of cash, had made some unannounced layoffs, and was working to get financing and start selling its own cannabis products for the first time — a higher-margin business than facilitating sales for other companies. As part of this effort, the East Bay Express has confirmed, Eaze would acquire HomeTown Heart from DionyMed. It’s unclear what that means for the legal dispute, but one source told TechCrunch that in acquiring HomeTown Heart, “Eaze effectively bought the lawsuit.”

As recounted in these pages last week, there are both similarities and differences between this cannabis bubble and the dotcom bubble that popped two decades ago. But what ties them together is hubris. Fields “saw himself as this big, swinging dick,” said one of his former associates, who asked not to be identified. In 1999, the Silicon Valley was so full of big, swinging dicks it was hard get across the room at any of the gigantic bacchanalias Internet companies threw back then. So far, the cannabis business as a whole doesn’t really look like that, but there are some elements of that attitude across swaths of the industry.

“Ed was 99 percent focused on vanity metrics for investors, versus focusing on building a real business,” said one person who worked for one of DionyMed’s business units. “Those of us operating the business repeatedly raised warnings about fundamental gaps between the business model and business operations, but we were always ignored in favor of rapid growth.” While this person noted “to be fair” that some of the problems were external — “dispensaries not paying their bills on time,” for example — it’s also the case that most distributors are currently facing the same challenge. “Ed never understood the business well enough to understand or account for these sorts of industry dynamics.”

Hanging on as long as possible, this person grew increasingly frustrated. “The story was always, ‘In two weeks, we’ll have more capital.'” But that capital never came, or at least never made it to where it was needed. “It’s still hard to tell whether Ed was actively misleading us, or whether he actually believed it.”

EDITOR’S NOTE: An earlier version of this story stated that a cannabis product from Winberry Farms was recalled because it contained pesticides. While the product was recalled, independent lab tests were actually inconclusive regarding whether the cannabis contained pesticides. Two initial lab tests of source marijuana from the grower Ard Ri exceeded the acceptable Oregon state limit for the insecticide known as Imidacloprid. The testing lab then reanalyzed one of the samples a second time, as permitted under state law, and the sample passed. The product was subsequently taken off the market because Oregon testing rules mandate an additional test by a second testing lab in such circumstances, and that test never occurred.

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