CannLabs Terminates Core Relationship


Following up on yesterday’s report that CannLabs had closed its Colorado testing lab, we note that the company has filed a brief statement with the SEC via Form 8-K:

On November 24, 2015, Carbon Bond Holdings, Inc. (“Carbon Bond”), which is a wholly owned subsidiary of CannLabs, Inc., a Nevada corporation (the “Company”) terminated the Administrative Services Agreement and the Technology License Agreement with CannLabs, Inc., a Colorado corporation (“CannLabs Colorado”) effective immediately.  The Company and Carbon Bond are in the process of evaluating strategic relationships with other licensed cannabis testing laboratories in Denver, Colorado and other areas.  Carbon Bond will continue to provide consulting services to the cannabis industry as well as testing of hemp products.

The relationship between the publicly-traded company, CannLabs, Inc. of Nevada and CannLabs Colorado is explained in the company’s SEC filings.  CannLabs has failed to file reports for the quarters ending 6/30 and 9/30, but the last 10-Q, for the quarter ending 3/31, which was filed delinquently on July 8th, explains it:

The Company was incorporated as a Nevada corporation on January 10, 2006 for the purpose of designing and modifying motorsport racecars for its own use, providing race consulting services to other race teams and competing in organized racing events. On June 12, 2014, the Company’s wholly-owned subsidiary merged into the Company and the Company changed its name from “Speedsport Branding, Inc.” to “CannLabs, Inc.”

Carbon Bond was formed as a Colorado limited liability company on October 21, 2013. Carbon Bond was converted into a Colorado corporation on May 27, 2014.

CannLabs, Inc., a Colorado “S” corporation (“CannLabs Colorado”), was formed on April 19, 2010. CannLabs Colorado is a stand-alone cannabis testing laboratory. Under Colorado law, the holders of licenses for marijuana related businesses must be residents of the State of Colorado or all of the owners of an entity must be Colorado residents. Accordingly, the Marijuana Enforcement Division Laboratory License for CannLabs Colorado is held by CannLabs Colorado whose owners are our Founder and President, Genifer Murray, and our former Chief Information Officer, Steve Kilts, both of whom are Colorado residents. We believe it is the largest cannabis testing laboratory in Colorado based on our estimate of customers in the market and the number of customers for which CannLabs Colorado performs tests. CannLabs Colorado itself has no employees or equipment and provides cannabis testing as mandated by the state of Colorado, as well as other testing of cannabis as requested by its customers under the management of Carbon Bond. CannLabs Colorado controls the license to generate the revenues and Carbon Bond supplies the labor, equipment and technology utilized by CannLabs Colorado in order to provide testing services to the CannLabs Colorado customers.

We believe that the split follows our report regarding the lab’s problems with regulators.  On October 6th, we reported that the company faced sanctions for 44 violations of the law.  The issue apparently hasn’t been resolved.  Steve Kilts, who is one of the named holders of the license, sent the following email to Nga Vuong-Sandoval, an investigator at Colorado’s Marijuana Enforcement Division, on Monday morning:

Hello Investigator Sandoval,

Per our recent conversations about the company’s survival without the certification, we are now in a position where the staff must be laid off. If there is a way to obtain the certification in the next day or two it may be possible to bring everyone back in and pull this back together, but without the certification we have no business and must close the business. Again, the staff is being laid off today.

If we cannot obtain the certification in the next couple of days, we will need to know who to speak to about permanent shut down procedures. I’ve left several voicemails for you, so please call me back if there is anything we can do to make this happen and possibly save this. Thanks for your help,

While the company purports to operate a lab in Connecticut, we believe that this is not true and hasn’t been so since earlier this year, when it was closed.  The Connecticut lab was announced as being open in January, but the site in Hartford at 40 Weston Street, Suite 40D is currently listed as being available for lease, and there is no phone number for the operation except the Colorado number, which wasn’t being answered as of yesterday.

Breaking News by Alan Brochstein, CFA
Alan Brochstein, CFA
Based in Houston, Alan leverages his experience as founder of online community 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email

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