Bright Green Unicorn
Seeing Bright Green (Part 1)
What has four letters, rhymes with nothing, and has a stock chart that resembles a "Little Tikes First Slide"? If you guessed BGXX—the NASDAQ ticker symbol for Bright Green Corporation—you win.
News of Bright Green’s May 17th debut on Nasdaq reverberated through the cannasphere and beyond:
According to these reports, Bright Green “made U.S. marijuana industry history” by becoming “the first American plant-touching company to trade on a major exchange in the [U.S.].” The stock price soared. Within days, Bright Green was worth $7.2 billion—the same amount that Jazz Pharmaceuticals paid when it bought GW Pharma, the maker of FDA-approved Epidiolex, around this time last year. That made Bright Green the most valuable cannabis company in the world and worth more than nearly every multi-state cannabis operator trading on the pink sheets combined.
The company’s stock price has crashed since. Even today, though, it is worth over $400 million on paper. That made us wonder: Is BGXX a Bright Green Unicorn or a Bright Green Ripoff?
Bright Green’s Business Model
Bright Green’s business model is premised on its status as one of just “a few companies who have received conditional approval based on already agreed terms from the U.S. Drug Enforcement Administration (the ‘DEA’) to produce federally legal cannabis.” As proof of this “conditional approval,” the company points to a Memorandum of Agreement (“MOA”) it claims to have executed with DEA that it says will permit Bright Green to grow cannabis for federally sanctioned research. Because of this conditional approval, Bright Green claims it is “uniquely positioned to capture significant parts of the cannabis research supply market.”
Bright Green’s plan?
Build a $300,000,000 cultivation facility capable of producing 300,000 mature marijuana plants annually and processing “5,000 pounds of plant material per day, using supercritical CO2 extraction.”
Use its “first-mover advantage” to pump out truckloads of federally legal marijuana on a daily basis.
Sell that marijuana to DEA-registered researchers for use in federally-approved cannabis studies.
Profit.
There are at least two problems, though. First, the company has no first-mover advantage. Second, even if it did, its first move—building a $300,000,000 high-volume grow facility—would be an advantage-squandering blunder of epic proportions.
Bright Green Isn’t a First Mover
Bright Green’s claim that having an MOA with DEA gives it a first-mover advantage in the federally-legal marijuana growers market is bogus. For starters, according to Bright Green’s recently filed Prospectus, the MOA “is effective for a one-year term, renewable for up to four additional one-year terms.” The company says it executed the MOA in May 2021, meaning its one-year term is over. As far as I’m aware, Bright Green has never claimed it and DEA renewed the MOA for an additional one-year term. Thus, even if the MOA gave Bright Green some sort of first-mover advantage when it was in effect (a proposition I’ll refute shortly), it doesn’t anymore.
More importantly, though, even when the MOA was in effect, it didn’t allow Bright Green to grow marijuana legally under federal law. To do that, the company would need a “certificate of registration” from the DEA. See 21 C.F.R. 1301.13(a).
And guess what? DEA has granted six of them already. It even posts a convenient list of who holds them on its website. Bright Green isn’t on the list:
So, Bright Green isn’t the first mover. Or the second. Or even the sixth. It’s not just late to the party—it missed it entirely.
Bright Green doesn’t deny any of this in its Prospectus. Indeed, it acknowledges that it may never get a certificate of registration from DEA. It admits that:
It doesn’t have a DEA-approved facility yet.
It doesn’t have the necessary state licenses yet either.
Even if it had 1. and 2., DEA still might not grant the company the certificate of registration it needs before it can even start cultivating federally legal marijuana.
Truth is, even if DEA granted the company a certificate of registration, it still couldn’t put a marijuana plant in the ground. The certificate of registration is a requirement, but it certainly isn’t the only one. The company would still need a quota from DEA, for example. See 21 U.S.C. § 826 (requiring DEA to set production quotas for substances in schedules I and II to ensure their production is limited to the amount necessary to meet the medical, scientific, research, and industrial needs of the U.S. and then requiring DEA registered manufacturers to apply each year for an individual manufacturing quota).
The upshot of all this is that if Bright Green were a DEA-registered marijuana grower, it would have the opportunity to ask DEA for the right to grow a discrete amount of marijuana as necessary to meet a demonstrated, legitimate domestic need. At that point, were it ever to arise, DEA might allocate some of the aggregate production quota of marijuana to Bright Green at which point Bright Green could—at long last—go into its state-of-the-art grow facility and plant that limited amount of marijuana and no more.
With no certificate of registration, no state grow license, no DEA-approved facility, and no individual manufacturing quota, Bright Green’s claims of first-mover status are preposterous.
Bright Green’s “Business Model” Is Ridiculous
The only thing sillier than Bright Green’s claimed first-mover advantage is what the company plans to do with it: build a $300,000,000 super-grow-facility capable of churning out 5,000 pounds of marijuana per day. According to the company’s Prospectus (dated May 11, 2022), Bright Green expects to complete construction sometime in 2023. Assuming everything goes according to plan, Bright Green says it will then be poised to “capture significant parts of the cannabis research supply market.”
So who does Bright Green think is going to buy all that marijuana? In its Prospectus, the company identifies five broad categories of potential customers:
DEA-registered marijuana researchers who might, in the future, turn to Bright Green for a federally legal supply of marijuana to facilitate studies.
International researchers who might, in the future, want to study Bright Green’s marijuana.
Pharmaceutical companies that might, in the future, need a federally legal supply of bulk marijuana to use in the manufacture of potential future FDA-approved marijuana-based medicines.
FDA, which might, in the future, use Bright Green’s marijuana for its own research endeavors.
U.S. consumers who might, in a post-federal-legalization world, want to purchase marijuana-derived FDA-approved medicines from Bright Green itself.
A couple of things are apparent from this list. First, as of May 2022 (the date of Bright Green’s Prospectus), the company had only potential—not actual—customers. No doubt that is because Bright Green didn’t—and still doesn’t—have the licenses, facilities, etc. necessary to begin operations.
Second, several of the categories listed don’t yet (and may never) exist. The pharma companies listed third, for example, won’t ever exist unless and until FDA approves another marijuana-based medicine. The same goes for the U.S. consumers listed fifth. That consumer base will materialize only if the federal government legalizes marijuana, subjects marijuana-based medicines to FDA regulation, and approves medicines manufactured by Bright Green for marketing in interstate commerce. That’s a lot of ifs. And notice that even if Bright Green eventually sells to such consumers, it would be selling them a medicinal product—not the 5,000 pounds of bulk marijuana Bright Green plans to churn out each day from its yet-to-be-constructed mega facility.
Of the potential customer groups Bright Green identifies, only three actually exist today: DEA-registered researchers seeking a federally legal supply of marijuana for use in studies; international researchers seeking a supply of marijuana to facilitate their own research; and FDA. That’s a tiny pool of potential customers. According to Bright Green, there are just 575 DEA-registered researchers. Bright Green doesn’t say how many of them are registered study marijuana. Nor does it say how many of that smaller group are now or ever will be in the market for federally-legal marijuana to study. After all, DEA has already registered six companies to grow marijuana to supply researchers, which means many of the DEA-registered researchers that Bright Green is counting as potential customers already have a supplier of federally-legal marijuana for their studies.
As for international researchers, Bright Green doesn’t say how many, if any, it believes will be interested in importing their study material. And even assuming a few such companies exist, is it realistic for Bright Green to believe that more than one or two will prefer Bright Green over every other supplier worldwide? I mean, I guess that’s possible, but there’s no concrete reason to think it’s likely.
Furthermore, the customers Bright Green is targeting will need very little marijuana. Federally legal marijuana research doesn’t require much study drug. One researcher request I was privy to recently, for example, called for 20 kg of marijuana for an upcoming clinical trial. And while some DEA-registered researchers will surely need marijuana for more than one study, some won’t. In other words, generally speaking, researchers aren’t likely to be repeat customers of any particular supplier.
In sum, even if Bright Green eventually becomes a DEA-registered grower, its plan to throw $300,000,000 into a grow facility capable of producing 5,000 pounds of marijuana each day makes no sense. There simply is no reasonable basis for believing a market exists today (or will exist in the foreseeable future) for even a fraction of the volume of federally-legal marijuana Bright Green apparently plans to produce. Bright Green’s optimistic projections and speculations to the contrary might be enough to convince some investors to buy into the company's vision, but I can assure you DEA will demand much more than hopeful speculation to justify the kind of eye-popping individual production quota Bright Green would need to act on its fanciful vision.
What is going on here?
How could anyone think a company like this is worth $7.2 billion, or $400 million, or $400? Could it be that others don’t know as much as we do about the Controlled Substances Act, DEA regulations, and the “market” for federally legal marijuana for research? Without that knowledge, it’s probably difficult to understand just how disconnected from reality Bright Green’s claims about its MOA and the “novel market” for federally legal marijuana really are.
Or is there more to this story? Many reports refer, for example, to Bright Green’s listing on NASDAQ as an IPO. In fact, however, Bright Green opted for a direct listing. Direct listings allow insiders to sell stock but unlike IPOs, direct listings are not underwritten by investment banks. Nor are they preceded by “road shows” to gauge Wall Street interest. Instead, they rely on raw market dynamics without the benefit of any stabilization efforts by underwriters or traditional 180-day lock-up limitations on stock sales. This may have exacerbated the knowledge-gap problems discussed earlier.
The company’s decision to register as a “smaller reporting company” and an “emerging growth company” may also have played a role. Under applicable securities laws, companies qualifying for such designations are subject to looser oversight and fewer disclosure obligations. Bright Green’s Prospectus flags some of them, including:
“not being required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm,”
“reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements”
“exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved,”
“an extended transition period for complying with new or revised accounting standards” that allows Bright Green “to delay the adoption of some accounting standards until those standards would otherwise apply to private companies” and
other “exemptions from certain disclosure and other requirements that are applicable to other public companies that are not smaller reporting companies, such as providing only two years of audited financing statements.”
The bottom line is that the way Bright Green has gone public is unusual in a number of respects, and they all tend to reduce transparency and increase the likelihood of confusion over things like the laws affecting the company’s proposed business model or the nature of the “novel market” in which it intends to operate.
Here at On Drugs we don’t like that. Also, we subscribe to the motto of “watch what they do, not what they say.” And while digging into the SEC filings to write this article, I noticed one thing that was particularly peculiar:
Interesting. Wonder what those lawsuits are about. No DEA license, ridiculous business model, a direct listing, and not a day’s worth of revenue-generating activity—and already two lawsuits against the company and Lynn Stockwell, the owner of almost 70 million or 44% of BGXX shares:
So, I called in Matt, the resident trial lawyer here at On Drugs, to do some old-fashioned detective work.
Okay. What is really going on here (Part 2 + Matt)?
In our opinion, BGXX appears to be somewhere between points 2 and 3 in the 4-point plan memorialized in the “Washington Redskins” episode of South Park, i.e., “using the internet to raise money without having to pay back your investors”:
Just replace “Washington Redskins” and “Kickstarter page” in the above video with “BGXX” and “NASDAQ.” Don’t believe us? Let’s dive in.
BGXX Got Served
The court records from these two cases aren’t available on the internet. But it turns out, getting court records in New Mexico isn’t hard. We asked for them. And the New Mexico courts gave them to us. Getting public records is much harder with the feds. With the records in tow, let’s quickly break down the two suits.
BGXX v. Fikany
In the Fikany lawsuit, BGXX alleges that some time around February 2018, John Stockwell (husband of Lynn Stockwell), as acting CEO of Bright Green Group, met with John Fikany. BGXX alleges that the two agreed Fikany would become CEO with the goal of completing a transaction with the Acoma Pueblo to build a greenhouse on tribal land. The deal with the Acoma Pueblo fell through and Lynn Stockwell gave notice to Bright Green Group of her intent to take back control of the company and change strategic direction. BGXX is seeking a declaration that Fikany didn’t fulfill the terms of the agreement and therefore is not entitled to compensation.
Fikany denies BGXX’s allegations and brings counterclaims against BGXX, John Stockwell, and Lynn Stockwell. Fikany alleges that the Stockwells engaged in “identical and overlapping business actitivies without respect for, or recognition of, corporate formalities to distinguish the business of the Stockwells and the corporate entities.” He alleges that all three are liable because BGXX and its predecessor companies “were mere instrumentalities of Counter-Defendants John Stockwell and Lynn Stockwell.”
Fikany claims in 2017, he had been hired by BGXX and the Stockwells to work as CEO for all Bright Green entities. While he was employed, Fikany worked on a deal for Bright Green to develop a cultivation facility on tribal land with the Acoma Pueblo tribe and was working with John Stockwell to prepare the company to go public. Quoting e-mails, Fikany claims that John Stockwell formally offered him the CEO position, $1,000,000 in compensation, and $2.5 million in unrestricted stock. Fikany also lays out, in fairly detailed allegations, the work he did as CEO of BGXX. Among other claims, Fikany alleges he was wrongfully terminated, is due unpaid wages, and a victim of fraud.
Among other notable allegations in his complaint, Fikany alleges he was concerned that the valuations John Stockwell was putting forward was false, misleading, and “too aggressive.” In one paragraph, Fikany quotes him asking John Stockwell and Ed Robinson “how is it possible that we continue to radically increase our valuation from 1.5 [billion dollars] to 2.5 to 4.0 to 6.5[?]” Apparently, according to Fikany, Stockwell drafted a letter to investors containing the misleading valuation, and signed the letter with Fikany’s name:
BGXX v. Capussi
In the Capussi lawsuit, BGXX alleges that at an August 2017 shareholder meeting of Sunnyland farms—an earlier company owned and run by John Stockwell—a share swap transaction was approved by Lynn and John Stockwell. The share swap resulted in Capussi owning 108,000 shares of Bright Green Grow Innovations (BGGI), one of BGXX’s predecessor entities.
According to BGXX, Capussi refuses to sign any paperwork so that he can take possession of those shares. BGXX wants the New Mexico court to declare that Capussi does not own any shares of BGGI, or alternatively, to give Capussi the fair value of those shares at the time of the stock swap. In a third alternative, BGXX wants the court to order Capussi to sign the paperwork making him owner of the shares.
Capussi, for his part, denies the allegations and counterclaims that he has been denied information by BGXX to determine whether he should vote for the stock swap. Additional filings in the case reveal that BGXX is stonewalling Capusssi’s requests for any information about BGXX in the litigation. BGXX did say, however, that John Stockwell is “Chief Advisor” of Bright Green, whatever that means.
Sunnyland Farms—> Bright Green Grow Innovations, LLC —> BGXX
The Finaky suit should raise eyebrows. But for our purposes, the Capussi spat is where the better action is. You just have to dig a little bit.
The Capussi suit arises out of a bankruptcy related to John Stockwell’s prior business, Sunnyland Farms. Sunnyland Farms, Inc. was a New Mexico corporation that owned a large greenhouse near Grants, New Mexico. The company was owned by John Stockwell. After a large accidental fire at a greenhouse caused by negligent company employees, Sunnyland Farms filed for bankruptcy.
In bankruptcy reorganization, John Stockwell received nothing on account of his stock ownership. His wife, Lynn Stockwell, an unsecured creditor, elected to receive stock. She became the sole shareholder of the reorganized company. For those keeping score, (1) with John Stockwell as owner, Sunnyland goes bankrupt and (2) Sunnyland emerges from bankruptcy with his wife, Lynn Stockwell, as sole shareholder of the reorganized company. So far, so good.
Lynn Stockwell, as the new sole shareholder in December 2015, moved all the Sunnyland assets of the reorganized company to a company called “Bright Green Grow Innovations, LLC” that John Stockwell had organized that same month. By the time Capussi becomes a shareholder of the reorganized Sunnyland Farms company, the asset transfer had already occurred. But the stock swap had not, leaving Sunnyland as a shell company without assets. The stock swap is what causes the hullabaloo.
The bankruptcy court describes an August 2017 shareholder meeting to discuss the stock swap as follows:
A shareholder meeting of Debtor’s shareholders was convened on August 16, 2017, to consider the stock swap. Mr. Capussi attempted to attend the meeting with his lawyers. The Stockwells turned the lawyers away, saying they could not attend the meeting. Conflict and disagreement ensued. It seems clear, however, that Mr. Capussi objected to the stock swap. After Mr. Capussi and his attorneys left the meeting, Lynn Stockwell voted her 99.4% of shares to approve the stock swap.
“Conflict and disagreement” is an understatement. Of the many deposition and court transcripts we’ve had the pleasure of reviewing, this may be one of the wackiest yet. This is not “conflict and disagreement.” It is straight up calamity.
The basic gist is this. Capussi and his lawyer, Stephen Cheifetz, show up at the Sunnyland shareholder meeting to object to Lynn Stockwell’s stock swap. Stockwell, along with Jeremy Stockwell, the secretary of the company, refuse to let the lawyer attend. Over the course of 38 pages of transcript, the Stockwells, Capussi, and his lawyer repeatedly yell and speak over each other. The Stockwells also repeatedly leave the room and re-enter, 14 times. The Stockwells try to adjourn the meeting only to reconvene down the hall without Capussi’s lawyer. Eventually, they do, and (also eventually) Capussi makes all of his objections on the record.
Again, this summary does not do the transcripts (here and here) justice. It is wacky, made-for-television stuff.
At the second shareholder meeting down the hall, the two Stockwells execute the transfer. Interestingly, Lynn Stockwell recognizes one reason why transferring the stock to Sunnyland Farms was in the best interests of the company: Sunnyland Farms had been “used in law opinions to its detriment and has its history easily available on the internet making financing extremely difficult.”
Yeah, no kidding.
Sunnyland Farms—> Bright Green Grow Innovations, LLC —> BGXX
So why does all this matter? Well, where there is smoke, there is fire. And in my (Matt) experience as a trial lawyer and litigator, where there is a lot of smoke—where a party throws up all sorts of obstacles and nonsense to avoid disclosing basic information and to prevent a party’s lawyer from being present at a shareholder meeting—there is a dumpster fire to be found not too far away.
SEC regulations require disclosure of prior bankruptcy involving corporate officers. According to 17 C.F.R. § 229.401(f), a company’s S1 must identify bankruptcies that company directors were involved in at or within two years before the time of the bankruptcy filing. What did BGXX say?
This statement in an SEC filing is probably literally true. John Stockwell isn’t an executive officer or director of BGXX. John Stockwell is just “Chief Advisor,” whatever that means. It is his wife, Lynn Stockwell, who as “founder” of BGGI, the predecessor, owns around 44% of the shares in BGXX. She is one of the directors too:
And Lynn Stockwell only became involved in the bankrupt Sunnyland Farms enterprise as a director after its bankruptcy filing. John Stockwell is only “Chief Advisor.” Also, he was named as an inventor on one of BGXX’s patent applications, such as this one for a CBD extract, THC extract, tumeric, and ginseng blend—until he was removed as an inventor from the patent in November 2021, just weeks after BGXX filed a draft registration statement with the SEC to publicly list:
John Stockwell was the CEO of Sunnywell Farms, which once owned the assets of BGXX’s predecessor. Clearly, John Stockwell is deeply involved in BGXX’s affairs. He prepared BGXX’s discovery responses in Capussi, after all. But he isn’t a director of BGXX. He is “Chief Advisor.”
Of course, we aren’t the first ones to key in on the odd “John Stockwell issue.” On December 13, 2021, in view of the above facts, Capussi’s attorney asked BGXX lawyers to clarify whether John Stockwell is an officer or other employee of BGXX:
But the missing piece to our puzzle arrives six months later in May 2022—less than two weeks before BGXX debuted on the NASDAQ. In a May 4, 2022 reply filed by Capussi in support of a motion to compel disclosure of additional information from BGXX in the lawsuit, Capussi drops an atomic bomb:
That’s right. A Cease and Desist Order from the State of New Mexico Regulation and Licensing Department — Securities Division (page 115 of the PDF bundle).
If, for some godforsaken reason, you are still thinking about investing in BGXX, please, do us a favor: read this document. Here is the bottom line.
Verdict?
We’ve seen enough. Hopefully you have too. This operation looks like it ain’t got no Tegridy. Perhaps, despite all this history, you still want a piece of the first federally-legal-publicly-traded-cannabis-operation that has no DEA license in hand, no customers, no products, and no revenue. But our verdict is you’d have to be high on some Bright Green to want a piece of this action.
You can download the documents using the links on the BGXX v. Fikany and BGXX v. Capussi section headings.
Disclosure: Matt has a small short position on BGXX as of the time of this writing.