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But less than six months after that deal was sealed, Parallel’s underlying financial issues began to surface.

In September 2021, the plan to go public via the SPAC deal imploded. Ceres Acquisition Corp. declined to comment on that story, but Reuters reported at the time that the parties have mutually decided to refrain from the merger and that the SPAC had lost confidence in Parallel’s financial projections, which it had relied on to close the deal.

Difficulties accessing capital due to federal illegality have helped SPACs become a popular method for cannabis companies to access public markets in recent years, thanks to lower barriers than a traditional IPO. SPACs – also known as “blank check companies” – solicit investors with the express purpose of acquiring another company and taking it public. If the SPAC hasn’t made a successful acquisition within two years, investors are usually entitled to get their money back.

But they’ve come under scrutiny from federal agencies and lawmakers, who have raised concerns that many of the deals are based on questionable financial numbers. The SEC has proposed rules this would impose greater disclosure requirements for SPAC transactions, aligning them with more traditional IPOs.

The collapse of the SPAC deal, according to one investor, led Wrigley and other senior company officials to scramble to raise cash to pay off debt and keep the deal from collapsing Complaint filed in US District Court for the Southern District of Florida March.

The ultimate goal: to make the company appear attractive enough to lure a new buyer in the first half of 2022, the complaint says.

These plaintiffs allege that they were persuaded to provide $25 million on the understanding that the company would match an equal sum from other parties, including Wrigley itself.

Parallel officials told them that “cannabis industry players lit their phones and lined up unsolicited to buy the company,” according to the complaint.

But once they sent the funds in September 2021, it became clear, according to the complaint, that Parallel was in much worse financial shape than they had been told. The complaint alleges the following details: In August, the company had forecast sales of $618 million for 2022. But by October, that number had dropped to $492 million. Three months later, projected 2022 revenue had dropped to $362 million. This group of investors also claims that shortly after pledging the $25 million, they found out that Parallel was in the process of defaulting on more than $300 million in debt.

“His projections were an inflated fantasy,” the complaint reads. “It needed them [$25 million investment] to make his payments to other investors like Ponzi.”

The company’s lawyers declined to comment on the allegations.

It’s common to see outrageous forecasts in investment decks in the cannabis industry, in part because the pace of policy change is so unpredictable, said Matt Karnes, founder of Greenwave Advisors, a cannabis-focused financial analysis firm. Lucrative state markets like New York may seem on the verge of legalizing marijuana, but they end up taking years to do so. And even after a state has legalized cannabis, it often takes longer than expected to get markets up and running.

Over the past nine months, many large cannabis companies have lowered revenue targets or missed guidance, Karnes said. Parallel is “not out of line in that regard, it’s just the magnitude that goes deeper.”

Kaufman, the New York cannabis attorney, also notes that it’s not necessarily uncommon for companies to downgrade financial projections after securing funding, or to raise money that would help pay off previous investors.

“This is business. You see that all the time in the tech world,” Kaufman said. “At this stage in the proceedings, it will be very difficult to say” whether it was a Ponzi-like scheme, given that Parallel had an actual business.

Bargains and Insider Paydays

A second investor Complaint has been filed in the New York State Supreme Court March. Among this group of aggrieved investors is John Morgan, a prominent Democratic attorney and donor known as the “Pot Daddy” in the Florida cannabis world. This nickname comes from the fact that he funded the 2016 medical marijuana legalization campaign and funded a lawsuit that opened up the market to legal cannabis flower. Morgan did not respond to requests for comment on this story.

It’s likely that Morgan isn’t the only prominent figure among the disgruntled investors. Other plaintiffs in the lawsuit are investment vehicles registered in the British Virgin Islands and Cyprus — known international tax havens with strong protections of anonymity.