Company Statement Of Vireo Health and Minnesota Medical Solutions
Re: Investigation Stemming From Accusations of Former Disgruntled Employee
June 1, 2016
One month ago, Minnesota Medical Solutions, LLC (“MinnMed”) underwent a surprise inspection conducted by state officials at its facilities in Otsego and Minneapolis, Minnesota. This was followed by an inspection of the Vireo Health of New York facility in Fulton County, New York, by the New York State Department of Health. Then two weeks ago, a search warrant was also presented to MinnMed by the Minnesota Bureau of Criminal Apprehension (BCA). As we always do, we fully cooperated with our regulatory authorities and continue to do so.
To put this investigation into context, we wanted to provide detail that is not available in the affidavit.
The investigation was started, and the search warrant was issued, based on accusations made by a disgruntled former employee following termination. In early April, MinnMed terminated an employee. After being told that employment was ending, this employee made statements indicating the employee intended to harm our business. In addition, the employee intentionally tampered with important laboratory machinery prior to leaving the building. Although none of our products were negatively impacted by these actions, the employee adversely affected our operations and caused business disruption.
This disgruntled former employee filed accusations with state officials, accusations that he had never raised with MinnMed management or, to our knowledge, anyone else prior to the employee’s termination. These claims were the impetus for the state investigation, and we are confident the claims relied upon by regulatory authorities to begin the investigation will be found to be false. To date, no one has informed us that any accusations made by the former employee have been validated.
Inadequate inventory tracking software led to confusion over destination labeling. At the root of the issues raised is an inventory tracking system that does not fit our business needs as it is designed for the sale of plant material, not oils, and therefore some actions are not accounted for in this system. Having transfers with no destination is common in this system and only indicates that a precise disposition is not yet in the system. For example, when we send materials to a third party testing lab or for disposal as waste, no destination is listed because of a system limitation. For that reason, there are actually dozens of entries that have no destination listed, not just the small number of entries cherry picked by the disgruntled former employee.
Again, this inventory tracking system was not well built for an industry that focuses on cannabis extract products rather than dried flower. But other types of cannabis producers are also having problems with the system. As a March 25, 2016 article in an industry publication documented, many other companies have found that this inventory tracking system can “create inventory discrepancies,” among many other problems. For this reason, over 400 industry officials have signed a petition asking for significant enhancements in the product.
These growing pains are in part due to the fact that we are attempting to find an inventory tracking system that fits best with the first states in the nation producing medicines based exclusively on liquid extract rather than raw plant material. Even before the accusations about MinnMed were raised, we realized the inventory management system was inadequate, and therefore have been in the process of replacing it with a more robust system that is a significantly better fit with our type of business. Under our initial inventory tracking system, there were inadequacies that we sincerely regret, but it’s important to understand that these were bookkeeping entries, and nothing else.
Liquid waste materials were destroyed, not transferred. In this case, the materials mentioned in the accusations were being moved and isolated inside the Otsego facility for off-site waste disposal. A large amount of waste materials was being disposed of at the time, because a waste disposal vendor had not yet been identified in the state of Minnesota for incinerating liquid waste. Vireo’s Chief Security Officer — a law enforcement professional for over 23 years prior to joining Vireo Health — was an eyewitness to the disposal. Contrary to the claims of the disgruntled employee, MinnMed is unaware of any of the jars of liquid waste going anywhere other than the site of disposal, which occurred months later.
Vireo’s armored vehicle was transferred to New York for security reasons. As far as Vireo Health’s armored 2011 GMC Yukon Denali, it is true that the vehicle was permanently moved to New York at the time referenced in the affidavit. This was done because the New York medical cannabis program was about to launch, and in the opinion of our Chief Security Officer, the need for a highly secure vehicle was significantly greater in New York, as compared to Minnesota. The person who drove the vehicle to New York has assured us that the vehicle contained no cannabis-based materials of any kind.
Vireo Health is financially sound. As far as the claim that MinnMed was in some type of “financial distress,” that is also one of many inaccurate claims made by the former employee. Vireo Health is well financed for long-term success in a market we knew would develop slowly. We have raised a substantial amount in equity capital, and face no significant near-term financial threats.
Vireo New York was not facing an inventory shortage. Finally, at the time the former employee claimed that Vireo Health of New York faced an inventory shortage, the first crop had already been successfully harvested several weeks before, as noted in numerous news reports at the time, and the inventory of product was more than adequate to meet initial patient demand.
Out of respect for the investigation, the investigators and other state personnel involved, we do not plan to provide further comments on this matter at this time. We will continue to work with authorities to bring this matter to a close as soon as possible. In the meantime, patient care remains our top priority, and we continue to provide the highest quality products and support to our patients. We appreciate your patience, understanding and support at this time.
About Vireo Health: Vireo Health is a physician-led company dedicated to providing patients with best-in-class cannabis-based products and high quality care. Through its subsidiaries, Vireo Health cultivates cannabis in its environmentally friendly greenhouses, produces pharmaceutical-grade cannabis extracts in its state-of-the-art labs, and sells products through its network of retail dispensaries. Vireo Health is the national parent company of Vireo Health of New York, one of only five companies granted a license in the State of New York, and Minnesota Medical Solutions (MinnMed), one of only two companies granted a license in the State of Minnesota. For more information, visit http://vireohealth.com/.