DD Support Board and Research Team

[scion]

Diego Pellicer faces subpoena, other problems in marijuana biz

By Seattle Times Staff
Originally published March 27, 2015 at 2:00 am | Updated March 27, 2015 at 10:16 pm
http://www.seattletimes.com/business/local-business/where-in-the-world-is-diego-pellicer/

Federal investigators have subpoenaed Diego Pellicer Worldwide, a newly public company whose marijuana-related business barely exists.

The Top 5 Things You Don’t Want to Say when introducing a new public company might be:

No. 5. We’ve received a subpoena from the U.S. Attorney.

No. 4. We’ve only got one real paying customer.

No. 3. We’re not sure when we can actually collect any money from that customer.

No. 2. We’re lending money to keep that customer running.

No. 1. We’re not sure what the U.S. Attorney wants, but in the worst-case scenario, our officers could be imprisoned and our investors hosed.

Diego Pellicer Worldwide, the company that says it’s “developing the world’s first ‘premium’ marijuana brand,” acknowledged those issues last week deep in its first regulatory filing after merging into a public shell company.

The Diego Pellicer name may be familiar because co-founder Jamen Shively got plenty of publicity, here in hometown Seattle and elsewhere, with a lot of grandiose declarations a couple years ago. “We are Big Marijuana,” he told one news conference, though he offered nothing to back it up. Shively even got former Mexican President Vicente Fox to show up for an event touting the company’s plans.

But Shively, who named the company after his great-great-grandfather, is no longer visible, and cultivating quality weed is not Diego Pellicer Worldwide’s modus operandi at this point.

The company says it is essentially a landlord for marijuana businesses until the federal legal issues around actually working with pot are resolved. It has leased properties in Seattle and Denver.

Yet it insists the brand name will somehow prove magical: “Diego Pellicer is to marijuana what Davidoff is to cigars, Godiva to chocolate and Starbucks to coffee,” declares its filing with the Securities and Exchange Commission.

Marijuana mania in small, speculative stocks has come down from its 2013-2014 high. “Buzzkill: Marijuana Stock Frenzy Looks Like It’s Totally Crashed,” was a headline last month on TheStreet.com.

And other companies have taken the same approach as Diego Pellicer: Not selling or growing marijuana, just renting facilities to the growers.

The litany of problems in Diego Pellicer’s filing does make it a standout, however.

The company says that last year it leased three properties in Colorado and one in Washington. It found an “appropriate” tenant for the Colorado properties but — oops — “this tenant was also in a development stage of operations and could not conduct operations until they received the proper licenses from the state.”

So Diego Pellicer booked $497,000 in revenue for that customer, but took a $497,000 reserve in case it can’t ever collect that rent. Landlord Diego Pellicer is also loaning the tenant money so it will develop the properties “to grow, process and sell their products” — and also has agreed to “underwrite the rental cost” until the tenant business becomes operational, possibly early this summer.

Not mentioned in the filing is why those three properties were available for Diego Pellicer to lease last summer: All three were raided by the Drug Enforcement Agency, which shut down the medical-marijuana dispensary that used the locations to grow and sell its products, according to reports at the time in The Denver Post. That has nothing to do with Diego Pellicer but underscores the volatile and uncertain state of the marijuana business.

In Seattle, the company’s only property — described in the regulatory filing as a 4,500-square-foot “flagship recreational MJ store w/cafe and apparel” — is a single-story building on Fourth Avenue South that appears empty and mostly unused, with its windows papered over and an old sign out front still advertising “Keystone Windows and Doors.”

A year ago it leased the property to Diego Pellicer Inc., a separate but affiliated company that intends to sell marijuana — if it ever gets a state license.

As for the subpoena: A spokeswoman for the U.S. Attorney’s Office in Seattle wouldn’t comment. Diego Pellicer’s filing, however, says the May 23, 2014, subpoena demanded, among other things, its banking records; documents relating to communications with potential investors; and the application by Diego Pellicer Inc. to become a marijuana retailer licensed by the Washington State Liquor Control board.

The SEC filing says that “based on limited discussions with the Department of Justice,” the feds are looking at whether the company produced or sold marijuana, and “whether investors or potential investors in the company believed they were investing in a company that would be engaged in the production, processing or sale of cannabis.”

The company believes it hasn’t broken any laws and is cooperating with the investigation, says the filing.

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http://www.seattletimes.com/business/local-business/where-in-the-world-is-diego-pellicer/