Case 2:20-cv-03759-PSG-JC Document 1 Filed 04/24/20 Page 1 of 31 Page ID #:1
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`POMERANTZ LLP
`Jennifer Pafiti (SBN 282790)
`1100 Glendon Avenue, 15th Floor
`Los Angeles, CA 90024
`Telephone: (310) 405-7190
`jpafiti@pomlaw.com
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`Attorney for Plaintiff
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` -
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` additional counsel on signature page -
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`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`
`HOWARD ANDERSON, Individually
`and on Behalf of All Others Similarly
`Situated,
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`Plaintiff,
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`
` vs.
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`PHARMACIELO LTD., DAVID
`ATTARD, and SCOTT LAITINEN,
`
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`Defendants.
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`
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`Case No.
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`CLASS ACTION
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`COMPLAINT FOR
`VIOLATIONS OF THE
`FEDERAL SECURITIES LAWS
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`DEMAND FOR JURY TRIAL
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`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
`THE FEDERAL SECURITIES LAWS
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`Case 2:20-cv-03759-PSG-JC Document 1 Filed 04/24/20 Page 2 of 31 Page ID #:2
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`Plaintiff Howard Anderson (“Plaintiff”), individually and on behalf of all other
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`persons similarly situated, by Plaintiff’s undersigned attorneys, for Plaintiff’s complaint
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`against Defendants (defined below), alleges the following based upon personal knowledge
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`as to Plaintiff and Plaintiff’s own acts, and information and belief as to all other matters,
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`based upon, inter alia, the investigation conducted by and through his attorneys, which
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`included, among other things, a review of the Defendants’ public documents, conference
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`calls and announcements made by Defendants, public filings, wire and press releases
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`published by and regarding PharmaCielo Ltd. (“PharmaCielo” or the “Company”), and
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`information readily obtainable on the Internet. Plaintiff believes that substantial
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`evidentiary support will exist for the allegations set forth herein after a reasonable
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`opportunity for discovery.
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`NATURE OF THE ACTION
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`1.
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`This is a class action on behalf of persons or entities who purchased or
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`otherwise acquired publicly traded PharmaCielo securities from June 21, 2019 and March
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`2, 2020, both dates inclusive (the “Class Period”). Plaintiff seeks to recover compensable
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`damages caused by Defendants’ violations of the federal securities laws under the
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`Securities Exchange Act of 1934 (the “Exchange Act”).
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`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
`THE FEDERAL SECURITIES LAWS
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`Case 2:20-cv-03759-PSG-JC Document 1 Filed 04/24/20 Page 3 of 31 Page ID #:3
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`JURISDICTION AND VENUE
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`2.
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`The claims asserted herein arise under and pursuant to Sections 10(b) and
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`20(a) of the Exchange Act (15 U.S.C. §§ 78j(b) and 78t(a)) and Rule 10b-5 promulgated
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`thereunder by the SEC (17 C.F.R. § 240.10b-5).
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`3.
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`This Court has jurisdiction over the subject matter of this action pursuant to
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`28 U.S.C. § 1331, and Section 27 of the Exchange Act (15 U.S.C. §78aa).
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`4.
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`This Court has jurisdiction over each defendant named herein because each
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`defendant has sufficient minimum contacts with this District so as to render the exercise
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`of jurisdiction by this Court permissible under traditional notions of fair play and
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`substantial justice.
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`5.
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`Venue is proper in this judicial district pursuant to 28 U.S.C. § 1391(b) and
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`Section 27 of the Exchange Act (15 U.S.C. § 78aa(c)) as the alleged misstatements entered
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`and the subsequent damages took place in this judicial district.
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`6.
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`In connection with the acts, conduct and other wrongs alleged in this
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`complaint, Defendants, directly or indirectly, used the means and instrumentalities of
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`interstate commerce, including but not limited to, the United States mails, interstate
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`telephone communications and the facilities of the national securities exchange.
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`PARTIES
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`7.
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`Plaintiff, as set forth in the accompanying Certification, purchased the
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`Company’s securities at artificially inflated prices during the Class Period and was
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`damaged upon the revelation of the alleged corrective disclosure.
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`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
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`Case 2:20-cv-03759-PSG-JC Document 1 Filed 04/24/20 Page 4 of 31 Page ID #:4
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`8.
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`Defendant PharmaCielo, through its subsidiary, PharmaCielo Colombia
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`Holdings S.A.S., purports to cultivate, process, produce, and supply medicinal-grade
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`cannabis oil extracts and related products in Colombia and internationally.
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`9.
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`The Company is incorporated in Canada and its head office is located at 1
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`Toronto Street, Suite 805, Toronto, Ontario, Canada M5C 2E3. PharmaCielo’s securities
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`trade on the OTCQX Best Market (“OTCGX”) under the ticker symbol “PCLOF” and
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`previously traded under the ticker symbol “PHCEF.”
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`10. Defendant David Attard (“Attard”) has served as the Company’s Chief
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`Executive Officer (“CEO”) and as a Director during the Class Period.
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`11. Defendant Scott Laitinen (“Laitinen”) has served as the Company’s Chief
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`Financial Officer (“CFO”) during the Class Period.
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`12. Defendants Attard and Laitinen are collectively referred to herein as the
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`“Individual Defendants.”
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`13. Each of the Individual Defendants:
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`(a)
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`directly participated in the management of the Company;
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`(b) was directly involved in the day-to-day operations of the Company at
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`the highest levels;
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`(c) was privy to confidential proprietary information concerning the
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`Company and its business and operations;
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`(d) was directly or indirectly involved in drafting, producing, reviewing
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`and/or disseminating the false and misleading statements and
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`Case 2:20-cv-03759-PSG-JC Document 1 Filed 04/24/20 Page 5 of 31 Page ID #:5
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`information alleged herein;
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`(e) was directly or indirectly involved in the oversight or implementation
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`of the Company’s internal controls;
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`(f) was aware of or recklessly disregarded the fact that the false and
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`misleading statements were being issued concerning the Company;
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`and/or
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`(g)
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`approved or ratified these statements in violation of the federal
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`securities laws.
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`14. The Company is liable for the acts of the Individual Defendants and its
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`employees under the doctrine of respondeat superior and common law principles of
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`agency because all of the wrongful acts complained of herein were carried out within the
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`scope of their employment.
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`15. The scienter of the Individual Defendants and other employees and agents
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`of the Company is similarly imputed to the Company under respondeat superior and
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`agency principles.
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`16. The Company and the Individual Defendants are referred to herein,
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`collectively, as the “Defendants.”
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`SUBSTANTIVE ALLEGATIONS
`Materially False and Misleading
`Statements Issued During the Class Period
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`17. On June 21, 2019, PharmaCielo issued a press release touting the Company’s
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`Case 2:20-cv-03759-PSG-JC Document 1 Filed 04/24/20 Page 6 of 31 Page ID #:6
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`recent position in the stock market and announcing that the Company was “now trading
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`on the OTC Markets under the symbol ‘PHCEF.’”
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`18. On August 27, 2019, PharmaCielo issued a press release which announced
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`the Company’s second quarter 2019 financial results and touted its “maturing” oil
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`producing capabilities, stating in pertinent part:
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`“The first six months of 2019 have been incredibly productive for
`PharmaCielo, as the team in Colombia nears completion of the key
`foundational elements that will enable the Company to support the sale and
`export of processed oil,” said David Attard, Chief Executive Officer of
`PharmaCielo Ltd. . . . “Over the past several months PharmaCielo has been
`transitioning from our founding stage as we finalize the operational
`infrastructure and are now entering into a more mature operational phase
`with inventory, finished products (oils and isolate), distribution channels,
`sales agreements and, most recently, our announcements of international
`sales relationships and successful export.”
`(Emphasis added.)
`19. Also on August 27, 2019, PharmaCielo issued its “Management’s Discussion
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`and Analysis For the Three and Six Months Ended June 30, 2019” (the “August
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`Management’s Discussion and Analysis”).
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`20.
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`In the August Management’s Discussion and Analysis, PharmaCielo touted
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`its expanding production capabilities, particularly with regards to oil production, stating
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`the following, in pertinent part, about its operations and facilities:
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`Additional processing equipment now in place complements technologies
`previously installed and will immediately increase annual dried flower
`processing capacity in support of previously announced strategies for the
`expansion of hectares under cultivation, with a corresponding increase in
`finished oil production.
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`Case 2:20-cv-03759-PSG-JC Document 1 Filed 04/24/20 Page 7 of 31 Page ID #:7
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`The Company continues to expand the land area under active cultivation,
`currently at 12.1 hectares (capable in annual cultivation in excess of 0.48
`million kg) from 5.3 hectares at the beginning of the year, with additional
`cultivation expansion expected to continue throughout the balance of the
`year.
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`PharmaCielo’s nursery and propagation center, located in the municipality of
`Rionegro in the department of Antioquia, consists of 12 hectares of open-air
`greenhouses situated on a 27 hectare property, along with a manmade lake
`(natural water reservoir), ample cold storage, and industrial “plugging”
`systems customized to handle large-scale cutting operations. Each hectare of
`greenhouse contains 180 planting beds, each bed is 40.5 sq. meters (1.35 m x
`30 m). The total bedding area per hectare is 7,290 sq. meters and the entire
`nursery and propagation center contains approximately 1.3 million square
`feet of planting beds. This nursery and propagation center is capable of
`producing on a weekly basis, significantly more than 12 million cuttings (e.g.,
`clones) that would be required to supply 600 hectares of contract cultivation.
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`PharmaCielo is also currently constructing a research technology and
`processing center (“Research Technology and Processing Centre”), with
`the anticipated completion of construction in late 2019. Once complete, the
`Colombian National Food and Drug Surveillance Institute (“INVIMA”) must
`certify the center to ensure that it meets Colombian good and manufacturing
`standards. The Research Technology and Processing Centre will contain
`facilities to: (i) dry flowers naturally and by using drying machines; (ii) a
`milling area; (iii) extraction areas; and (iv) an area designed for testing for
`levels of THC and CBD levels in cannabis as well as for general compliance.
`To date, the Research Technology and Processing Centre costs have been
`USD$9 million and management projects that the completion of facility will
`require an additional USD$6 million.
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`(Emphasis added.)
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`21. On September 25, 2019, PharmaCielo issued a press release which
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`“announced that it has signed a United States sales agreement (the "Agreement") with an
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`Case 2:20-cv-03759-PSG-JC Document 1 Filed 04/24/20 Page 8 of 31 Page ID #:8
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`established multi-state distributor, General Extract LLC ("General Extract”).”
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`22. On November 25, 2019, PharmaCielo issued a press release which announced
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`the Company’s third quarter 2019 financial results (the “3Q 2019 Financial Results”) and
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`touted its expansion, stating in pertinent part:
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`Nearing completion of extraction and processing center (“RTC”), which
`will expand the Company’s extraction capacity to 265 tonnes of dried flower
`per year (processed equivalent volume of 28,900 kg of cannabis oil per year).
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`[S]aid David Attard, Chief Executive Officer of PharmaCielo Ltd. “Our focus
`in Q4 and through 2020 will be on a continued ramp up of our processing
`facilities and on generating revenue at commercial scale both through the
`expansion of global sales relationships, and the signing of commercial supply
`agreements in jurisdictions where we are present today.[”]
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`(Emphasis added.)
`23. Also on November 25, 2019, PharmaCielo issued its “Condensed Interim
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`Consolidated Financial Statements Three and Six Months Ended September 30, 2019” (the
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`“November Financial Statements”).
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`24.
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`In the November Financial Statements, PharmaCielo touted its expanding
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`production capabilities, particularly with regards to oil production, stating the following,
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`in pertinent part, about its operations and facilities:
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`PharmaCielo Colombia Holdings S.A.S. is developing a farm and a
`processing plant, located in Rio Negro the municipality of La Cieja
`(Antioquia), for the purpose of cultivating and sowing, as well as assembly of
`the cannabis oil. The farm includes greenhouses, offices and agricultural
`areas. As of September 30, 2019, the construction and assets in transit balance
`of $6,601,714 (December 31, 2018 - $3,066,880) represents the developing
`activities that have not yet been completed.
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`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
`THE FEDERAL SECURITIES LAWS
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`Case 2:20-cv-03759-PSG-JC Document 1 Filed 04/24/20 Page 9 of 31 Page ID #:9
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`The Company has an agreement with CNV Construcciones S.A.S. (“CNV”),
`a Colombian construction company, to pay CNV USD$32,314 to complete
`the construction of the Research Technology and Processing Centre in 2019.
`The construction of the Research Technology and Processing Centre is
`progressing with the anticipated completion of construction in late 2019.
`Once completed, the Research Technology and Processing Centre must be
`certified by INVIMA in order to ensure that it meets Good Manufacturing
`Practice (GMP) standards.
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`(Emphasis added.)
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`25.
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`In the November Financial Statements, PharmaCielo purportedly listed all of
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`its related party transactions but did not include the transaction with General Extract.
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`26. The statements referenced in ¶¶ 17-25 above were materially false and/or
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`misleading because they misrepresented and failed to disclose the following adverse facts
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`pertaining to the Company’s business, operational and financial results, which were
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`known to Defendants or recklessly disregarded by them. Specifically, Defendants made
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`false and/or misleading statements and/or failed to disclose that: (i) PharmaCielo engaged
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`in undisclosed related party transactions with General Extract; (ii) PharmaCielo engaged
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`in misleading transactions and loans with General Extract; (iii) PharmaCielo had
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`significantly overstated the efficacy and competitiveness of the Company’s business and
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`operations in South America, including Peru and Colombia; (iv) PharmaCielo’s Research
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`Technology and Processing Centre was never on-schedule and is delayed; (v) the Rionegro
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`facility is located on a floodplain and contaminated with mold and pesticides from its
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`previous tenants; (vi) PharmaCielo’s Cauca Department land has never been utilized by
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`Case 2:20-cv-03759-PSG-JC Document 1 Filed 04/24/20 Page 10 of 31 Page ID #:10
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`the Company and is idle; and (vii) as a result, Defendants’ public statements were
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`materially false and/or misleading at all relevant times.
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`THE TRUTH BEGINS TO EMERGE
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`27. On January 9, 2020, Marijuana Business Daily (“MBD”) published an article
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`entitled “New medical cannabis sales opportunities in Peru face downward price pressure
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`after winning company’s very low bid” (the “MBD Article”). According to that article,
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`“[t]he price offered by the winner of the first bidding process to supply medical cannabis
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`in Peru came in well below that of other applicants,” including PharmaCielo, which, “[t]o
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`comply with the purity requirement . . . offered CBD isolate in powder form,” and was
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`disqualified “because the company didn’t make an offer in ‘liquid’ form as required.”
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`28. On this news, shares of PharmaCielo fell $0.122 per share, or 4.80%, to close
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`at $2.42 per share on January 10, 2020. However, PharmaCielo’s shares continued to
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`trade at artificially inflated prices as a result of Defendants’ continued misrepresentations
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`and misstatements throughout the rest of the Class Period.
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`29. For example, on January 27, 2020, PharmaCielo issued a press release which
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`announced:
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`. . . that it has entered into a three-year agreement (the “Agreement”) with
`XPhyto Therapeutics Corp. (“XPhyto”) (CSE:XPHY; FSE:4XT),
`whereby PharmaCielo will supply medicinal-quality cannabis extract oils and
`isolates, including those containing THC, to XPhyto for analysis, further
`processing, product development and manufacturing at its European Union
`Good Manufacturing Practicecertified (“EU GMP”) facility in Biberach in the
`state of Baden-Württemberg, and thereafter for sale into the German market.
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`Case 2:20-cv-03759-PSG-JC Document 1 Filed 04/24/20 Page 11 of 31 Page ID #:11
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`Pursuant to the Agreement, XPhyto granted PharmaCielo 500,000 Common
`Share purchase Warrants (“Warrants”) with an exercise price of $2.00 per
`Common Share.
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`As a term of the Agreement, PharmaCielo will enter into an agreement (the
`“Purchase Agreement”) to purchase CAD $500,000 of unsecured convertible
`debentures of XPhyto (the “Debentures”), to fund expansion of its processing
`capabilities. The Debentures mature two years from the date of issue and bear
`interest of 8.0% per annum. The Debentures will be convertible by
`PharmaCielo into 500,000 common shares of XPhyto subject to certain
`XPhyto acceleration rights. The purchase of the Debentures is subject to
`approval by the Canadian Securities Exchange (the “CSE”). XPhyto will also
`grant PharmaCielo 500,000 Warrants with an exercise price of $1.50 per
`Common Share.
`30. The statements referenced in ¶ 29 above were materially false and/or
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`misleading because they misrepresented and failed to disclose the following adverse facts
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`pertaining to the Company’s business, operational and financial results, which were
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`known to Defendants or recklessly disregarded by them. Specifically, Defendants made
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`false and/or misleading statements and/or failed to disclose that: (i) PharmaCielo engaged
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`in an undisclosed related party transactions with General Extract; (ii) PharmaCielo
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`engaged in misleading transactions and loans with General Extract and XPhyto; (iii)
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`PharmaCielo had significantly overstated the efficacy and competitiveness of the
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`Company’s business and operations in South America, including Peru and Columbia; (iv)
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`PharmaCielo’s Research Technology and Processing Centre was never on-schedule and is
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`delayed; (v) the Rionegro facility is located on a floodplain and contaminated with mold
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`and pesticides from its previous tenants; (vi) PharmaCielo’s Cauca Department land has
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`never been utilized by the Company and is idle; and (vii) as a result, Defendants’ public
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`Case 2:20-cv-03759-PSG-JC Document 1 Filed 04/24/20 Page 12 of 31 Page ID #:12
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`statements were materially false and/or misleading at all relevant times.
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`THE TRUTH FULLY EMERGES
`31. On March 2, 2020, Hindenburg Research published a report (the “Report”)
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`explaining that PharmaCielo had failed to disclose: (i) transactions with related parties;
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`(ii) misleading business transactions and loans with General Extract and XPhyto; (iii) the
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`delayed state of its Research Technology and Processing Centre’s construction; and (iv)
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`the poor state of its Rionegro Growing Facility.
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`32. The Report noted the following, in pertinent part, regarding PharmaCielo’s
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`undisclosed related party transactions:
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`PharmaCielo recently announced a U.S. distribution deal with an opaque
`company called General Extract LLC. We found that this is yet another
`undisclosed related party deal, involving PharmaCielo’s former COO.
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`*
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`*
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`*
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`The company’s U.S. distribution partner is actually yet another undisclosed
`related-party deal with a company that appears to have limited to no credible
`operations.
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`*
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`*
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`*
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`But what the company did not disclose seems far more important: General
`Extract appears to be a related party entity with no credible operations run
`by PharmaCielo’s former Chief Operating Officer.
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`The articles of incorporation [] for General Extract, LLC show “John
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`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
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`Undisclosed Related-Party Deals: PharmaCielo’s New U.S. Distribution
`Deal with General Extract LLC Is Yet Another Questionable Deal with
`A Former PharmaCielo COO
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`

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`Case 2:20-cv-03759-PSG-JC Document 1 Filed 04/24/20 Page 13 of 31 Page ID #:13
`
`
`
`Knapp” as the company’s registered agent. Mr. Knapp was former “Chief
`Operations Officer” of PharmaCielo, per this 2016 regulatory filing [] with
`British Columbia Securities Regulators.
`
`
`*
`
`*
`
`*
`
`
`All told, nearly all of the key people at PharmaCielo’s new U.S. distribution
`partner General Extract (and its parent Redwood Green) appear to be
`related to PharmaCielo.
`
`(Emphasis added.)
`
`33. The Report noted the following, in pertinent part, regarding PharmaCielo’s
`
`transactions with General Extract:
`
`General Extract, Which PharmaCielo Described as an “Established
`Multi State Distributor” Appears to Have No Products and No Credible
`Operations Whatsoever
`
`Most “established” companies at least have a website.
`
`When we examined General Extract, we found that its website [] domain was
`registered on November 14, 2019, about 3 weeks after entering into its sales
`agreement with PharmaCielo.
`
`Along the same lines, the email address used by General Extract in its press []
`with PharmaCielo was a Gmail address [] (presumably because they didn’t
`even have a domain registered at the time)[.]
`
`
`*
`
`Despite the claim by PharmaCielo that General Extract is a “multistate” []
`distributor, we were unable to find evidence to confirm this. Nothing on
`General Extract’s website as of 3/1/2020 [] says anything about multi-state
`distribution, multiple locations, or suggests any clients exist other than
`PharmaCielo.
`
`We Visited General Extract in Colorado And We Found Its “Offices”
`Bore the Logo of a Different Company. Its Parent Company’s Office
`“Suite” Was Actually A Mailbox at A UPS Store
`12
`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
`THE FEDERAL SECURITIES LAWS
`
`*
`
`*
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`Case 2:20-cv-03759-PSG-JC Document 1 Filed 04/24/20 Page 14 of 31 Page ID #:14
`
`
`
`
`Our investigator, did, however, see people leaving various parts of the
`building around 4:50pm local time; some of whom were wearing grey
`sweaters with a logo that resembled a “Good Meds” logo. “Good Meds” is the
`other brand owned by Redwood Green and operated by John Knapp [], the
`individual listed on General Extract’s corporate documents [].
`
`
`*
`
`*
`
`*
`
`
`Instead, it appears that General Extract exists largely on paper.
`
`Undisclosed Related-Party Deals: General Extract’s Parent Corporation,
`Redwood Green, Is Also Replete with Related Party Ties to PharmaCielo
`
`General Extract’s parent company, Redwood Green [] also consists of
`multiple people tied closely to PharmaCielo.
`*
`*
`*
`
`All told, nearly all of the key people at PharmaCielo’s new U.S. distribution
`partner General Extract (and its parent Redwood Green) appear to be related
`to PharmaCielo. Most importantly, none of this was disclosed to investors
`when the company touted its “milestone” distribution deal.
`
`(Emphasis added.)
`
`34. The Report noted the following, in pertinent part, regarding PharmaCielo’s
`
`transactions with XPhyto Therapeutics:
`
`PharmaCielo’s other main partnership, a distribution deal with nanocap
`company XPhyto, appears to be little more than a shell game. PharmaCielo
`is supplying XPhyto with cash so XPhyto can turn around and buy
`PharmaCielo’s products.
`
`
`*
`
`*
`
`*
`
`
`Another Sketchy “Partnership”: PharmaCielo Is Paying a Company
`Called XPhyto To Buy PharmaCielo’s Product with PharmaCielo’s
`Money
`
`
`*
`
`*
`13
`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
`THE FEDERAL SECURITIES LAWS
`
`*
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`Case 2:20-cv-03759-PSG-JC Document 1 Filed 04/24/20 Page 15 of 31 Page ID #:15
`
`
`
`
`XPhyto’s financials show that the company was in apparent distress leading
`up to the deal. In the 9-month period prior to announcing the deal, XPhyto
`reported [] revenue of $45,000, operating losses of $5,351,789, and cash of
`only $791,030. In other words, they look to have been at the brink of
`insolvency.
`
`
`*
`
`*
`
`*
`
`When it boils down to it, this partnership appears to us to be a sham.
`PharmaCielo is paying a distressed company to “buy” its product. Aside from
`the splashy headline, the “deal” appears to offer no economic advantage.
`
`In a best-case scenario, we think PharmaCielo will get its own money back
`and have to hand over valuable product. So far, we haven’t seen any
`purchases by XPhyto as the partnership announcement [] was recent, on
`January 27, 2020.
`
`Realistically, given the state of XPhyto’s current balance sheet and its
`dwindling cash, we expect PharmaCielo will simply lose most of its
`investment in XPhyto with little to show for it.
`
`(Emphasis added.)
`
`35. The Report noted the following, in pertinent part, regarding PharmaCielo’s
`
`Rionegro greenhouse facilities:
`
`According to local sources, the Rionegro greenhouse facilities have issues
`with mold and residual pesticides from the flower-growing operation that
`preceded the company’s use of the facility.
`
`
`*
`
`*
`
`*
`
`
`The company’s main facility in Rionegro may be troubled with mold and
`pesticide contamination, likely originating from the flower-growing
`operation that preceded PharmaCielo’s assumption of the facilities,
`according to local sources we spoke with. In addition, Rionegro planning
`authorities say one-third of the land is unusable due to environmental
`restrictions and the risk of flooding.
`
`
`14
`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
`THE FEDERAL SECURITIES LAWS
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`

`*
`
`Financials and Operations: Reported Issues with Mold and Heavy
`Pesticides in the Company’s Rionegro Facility
`
`Additionally, a source that our investigator spoke with, a businessperson who
`is part of the flower-growing industry, said based on their recent knowledge
`and entry to the PharmaCielo facility, they believed the cannabis crop there
`was “suffering from a bad outbreak of the fungus botrytis (or gray mold.)”
`
`They said the fungus was a major problem with certain flower cultivations,
`especially daisy poms (pompoms) – which is the type of flower that our
`investigator was told was being cultivated on the property prior to
`PharmaCielo taking it over.
`
`
`*
`
`*
`
`*
`
`Case 2:20-cv-03759-PSG-JC Document 1 Filed 04/24/20 Page 16 of 31 Page ID #:16
`
`
`
`*
`
`*
`
`
`The other salient land issue is the flood risk from an adjacent stream. An
`officer at the Rionegro planning department explained about one-third of
`the 27 hectare facility could not be used for building or agriculture because
`it was on a flood plain and subject to strict environmental controls.
`
`(Emphasis added.)
`
`36. The Report noted the following, in pertinent part, regarding construction on
`
`PharmaCielo’s Rionegro Research Technology and Processing Centre:
`
`The company’s Rionegro cannabis oil processing centre [the Research
`Technology and Processing Centre], a key element of its plan to export oils,
`remains unfinished after almost 6 months of delays.
`
`
`*
`
`*
`
`*
`
`
`Financials and Operations: Cap-Ex Needs and the Company’s Delayed
`Oil Processing Centre
`
`
`*
`
`*
`
`*
`
`
`We also see from the same filing that despite the company claiming the oil
`processing centre was “nearing completion” in August 2019, by September
`15
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`THE FEDERAL SECURITIES LAWS
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`Case 2:20-cv-03759-PSG-JC Document 1 Filed 04/24/20 Page 17 of 31 Page ID #:17
`
`
`
`
`
`it estimated that over U.S. $7 million in anticipated capital expenditures
`would be needed in order to complete the project.
`
`The company has not yet announced whether the facility is completed. We
`contacted investor relations and asked about its status and have not yet
`received a reply. The facility does appear to be under construction, according
`to pictures posted by a development group [] associated with the project[.]
`
`The photos [] were posted around June 2019. Based on the timing, we
`anticipate that the external elements of the building are completed or close
`to being completed. We attempted to visit the facility to examine its progress
`but were unable to.
`
`In either case, investors should factor in the additional estimated $7 million
`cash burn from the cap-ex required to complete the facility. We also think the
`company should provide investors with an update on progress, with pictures.
`
`(Emphasis added.)
`
`37. The Report noted the following, in pertinent part, regarding PharmaCielo’s
`
`land in the Cauca Department of Colombia:
`
`The company announced it was building greenhouse facilities on newly
`purchased land in Colombia’s Cauca region in 2017. We visited the land and
`found the greenhouses don’t exist. The site is nothing more than an empty
`field covered in weeds. (We have photos and video)
`
`
`*
`
`*
`
`*
`
`
`The company’s key 3.6 hectare ‘operation’ in Colombia’s Cauca region is
`actually just an empty field (we have pictures and video). We confirmed this
`with local leaders of a farming co-op that struck a deal to grow cannabis with
`the company.
`
`
`*
`
`*
`
`*
`
`
`“There’s Nothing There, Just Weeds”: PharmaCielo’s ‘Greenhouse
`Facility’ in Cauca Doesn’t Exist
`
`
`16
`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
`THE FEDERAL SECURITIES LAWS
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`

`Case 2:20-cv-03759-PSG-JC Document 1 Filed 04/24/20 Page 18 of 31 Page ID #:18
`
`Our investigator visited the Cauca property in February 2020, led by a senior
`member of the cooperative. He saw that PharmaCielo’s greenhouse facility in
`Cauca, first touted 2 years ago, simply doesn’t exist.
`
`
`*
`
`Since the cultivation license was issued in November 2017, the person said
`there has been no further investment, no greenhouse has been built and
`not a single cannabis plant has been sown.
`
`(Emphasis added.)
`
`*
`
`*
`
`38. On this news, shares of PharmaCielo fell $0.5132 per share over the next two
`
`trading days, or 36.14%, to clo