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How a Failed CBD Investment Sparked a Legal Battle

A serial entrepreneur, hedge fund manager, and cannabis executive are at the center of dueling lawsuits around a CBD business that went bust.

After a CBD investment went awry, a legal battle erupted between a serial entrepreneur, a hedge fund manager, and a cannabis executive.  

On Wednesday, Patrick Horsman, a Miami-based serial entrepreneur who co-founded private equity firm Integrated Ag, filed a lawsuit against two investors in his cannabidiol company Integrated CBD: Brett Jefferson, Hildene Capital’s president and co-chief investment officer, and Ian Lev, chief executive officer of Hy Yield Scientific, a cannabis fertilizer company.  

The lawsuit alleges that after Integrated CBD started losing money, Jefferson threatened to contact CNBC’s American Greed program and pitch Horsman as “Patrick the scam artist.”   

The lawsuit is the latest in a string of claims related to Integrated CBD, which raised money in 2019 for a hemp growing and processing venture. Jefferson, via a private entity called BRJ Holdings III, filed a lawsuit against Horsman back in October 2020 alongside Lev and several others. They alleged that Horsman had lied about the prospects of the investment and used a Paycheck Protection Program loan to buy a private jet.   

The complaints all stem from cannabidiol, colloquially known as CBD. After Congress passed legislation in 2018 allowing for the cultivation of hemp in the United States, the CBD business boomed, according to Horsman’s lawsuit. The chemical, an active ingredient in marijuana (although one that doesn’t produce the “high” that THC does), began showing up in everything from gummy snacks to dog treats. 

Horsman wanted in on the game, and in early 2019, began to seek out investors for his new operating company, Integrated CBD, according to the lawsuit. Horsman has engaged in a long line of business ventures, his LinkedIn profile shows, founding more than five separate investment funds.  

In his lawsuit, Horsman claims that he raised $60 million for the CBD venture from institutional and accredited individual investors. Jefferson’s company BRJ Holdings III lent $2.5 million to Integrated CBD via a convertible note, according to the suit. (Hildene, where Jefferson serves as co-CIO, was not involved in the investment or legal process at all.)

Another $30 million in financing reportedly came from private equity firm Corbin Capital. Lev, for his part, invested $50,000 in the fund. 

But then the CBD business tanked, according to Horsman, whose lawsuit blamed increased regulations on the industry for the company’s misfortune.  

He alleged that Jefferson and Lev became upset after learning that the company was running out of cash.  

According to the complaint, BRJ Holdings III’s lawyer sent a letter to Horsman’s legal team in August 2020, demanding that he return all of their money. The next day, Horsman allegedly texted Jefferson, seeking to sort out the matter, but he said Jefferson was “unreceptive.”

The following week is when Jefferson allegedly sent the email to Horsman threatening to contact CNBC. He allegedly added: “Please note that I will also be contacting major media contacts I have to make sure that [sic] know about your antics… Patrick F--- You, we are going to war!!” 

But the October complaint from Jefferson’s BRJ Holdings III, Lev, and several other parties tells a different story.  

They allege that from the start, Horsman and Integrated CBD misrepresented the prospects of the CBD business, from how much land they were investing in, whether it was farmable, and Horsman’s own expertise on the subject. They also allege that the investments “unjustly” enriched Horsman.  

According to the lawsuit, BRJ, Lev, and other investors asked to see the business’ credit card statements after learning that the business was “crumbling.” They allege that their money was used to pay off credit cards in Horsman’s name. In his counter-complaint, Horsman said that those payments were for farm equipment and other business-related expenses.  

When confronted by Lev, Horsman allegedly said to him: “why do you care, you only lost 50 grand [sic].” 

The group including Lev and BRJ also alleged that Horsman received a PPP loan for his business, despite having laid off the company’s staff. They claimed that he used that payment to buy a private jet with the name of one of his investment firms, Horsman Holdings, on the side.  

“Our investigation confirmed much of what we feared — that we were fraudulently induced and repeatedly misled in connection with this investment,” a spokesperson for Jefferson said via email. “I am confident that the legal process will support our position and am not surprised by Patrick’s desperate attempt to salvage himself given what he has to answer to.”

Horsman, for his part, alleges that the loan was not used to pay for the jet, but instead was first garnished by a creditor, then repaid by his firm.  

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Both lawsuits are still winding their way through an Arizona state court.  

The lawsuit filed against Horsman and several other defendants in 2020 alleges fraud and constructive fraud against Horsman, and civil conspiracy and negligent misrepresentation, unjust enrichment, estoppel, and many other allegations against the others involved.   

Meanwhile, Horsman is suing Jefferson for false light invasion of privacy, intentional infliction of emotional distress, defamation, and civil RICO, or racketeering activity. He is suing Lev for aiding and abetting civil RICO. He further alleged that the two engaged in civil conspiracy and intentional interference with business expectancies. 

Both lawsuits are seeking punitive damages from the defendants. 

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