Insurance & Law: Cannabis Company Hit with “Failure to Launch” Claim


Kevin LaCroix  writes on July 26, 2021. Many fledgling companies aspire toward completing an IPO. Some succeed, but many others do not. Occasionally when a company falls short of its IPO plan, litigation results, in the form of a “failure to launch” claim. Kevin LaCroix Kevin M. LaCroix is an attorney and Executive Vice President, RT ProExec, a division of R-T Specialty, LLC. RT ProExec is an insurance intermediary focused exclusively on management liability issues. A recent example involving a California-based cannabis company illustrates how these kinds of claims can arise. As discussed below, these possibility for these kinds of claims has insurance implications. Background MXY Holdings (MXY H) sells cannabis products under the Moxie brand. In April 2019, Max H formed MXY D as a vehicle for holding convertible debentures in MXY H. A group of investors, including a number of foreign investors, purchased in MXY in a financing transaction that, among other things, provided that MXY H was to go public by May 17, 2021. The investors were to receive a distribution of MXY H shares at the time of the IPO. If the IPO was not completed by the target date, the investors’ funds were to be returned to them, with accrued interest. The financing transaction raised over $30 million. MXY D loaned the financing proceeds to MXY H. MXY H did not in fact complete an IPO by the target date. According to the subsequently filed lawsuit complaint, the parties, including executives from MXY H and representatives for the investors, attempted to negotiate a workout of the debt repayment. However, according to the complaint, five days before the deadline, MXY H’s CEO, Jordan Lams, resigned as the sole director and officer of MXY D. According to the complaint, this action was taken to “paralyze and freeze”…

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Source : Insurance & Law: Cannabis Company Hit with “Failure to Launch” Claim

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