This article has been revised and corrected from the original version to add additional context.
A series of lawsuits pending in Los Angeles County Superior Court accuse the Sawtelle-based weed company Pineapple Express – trading over the counter as Pineapple Inc. and Pineapple Express Cannabis Co. – and its affiliated private management company Pineapple Ventures of fraud, tax evasion, breach of contract, unauthorized stock sales and an unlawful detainer for a storefront.
In statements to the Business Journal, Pineapple Express’s chief executive Matthew Feinstein said these claims are inaccurate and will not be proven through litigation.
Several investors claim they have not seen the dividends or income repeatedly promised by Pineapple Ventures’ management and are out hundreds of thousands of dollars as a result. The publicly listed management team that sends quarterly updates, the investors allege, don’t actually operate the dispensary.
Vincent Mehizadeh, who goes by the name Vincent Zadeh, is accused of orchestrating the company. Further, some sources have accused him of pocketing the storefront’s income, stock sales and payroll taxes for himself.
Zadeh’s email signature names himself as a “senior adviser” to Pineapple Express. Almost all pending litigation against Pineapple Ventures and Pineapple Express name him as a key operating figure. Investors and a court-appointed receiver who temporarily took over Pineapple Express’s flagship Hollywood store showed the Business Journal numerous emails from Zadeh coordinating financials.
Ted Lanes, the court-appointed receiver who was involved last year in the company’s Hollywood dispensary amid a lawsuit with its social equity holder, said he worked directly with Zadeh during that time. Lanes has worked as a court-appointed receiver for other cannabis companies before. Pineapple Express, he said, is unlike any other case.
“I’ve seen mismanagement, I’ve seen people cut corners, (I’ve) seen people do what they have to do to survive. I’ve never seen this level of just flat-out fraud,” Lanes said. “I mean, the lawsuits tell you all you need to know.”
Lanes added that the claims of fraud he is aware of are still allegations at this time.
The financial trail
Currently, Pineapple Express has two listings on bizbuysell.com, an online sale exchange for businesses. The company’s postings are for a location at La Brea and 6th Street, as well as locations supposedly in the Arts District.
On these pages, the company reports over $4.8 million in revenue and a cash flow at almost $1 million.
According to Lanes and the social equity license holder for the Hollywood dispensary, the weed company’s actual financials tell a completely different story – one with overwhelming liabilities and substantial back taxes.
“It just seemed like money was water in a bucket with holes in it,” said Josh Eisenberg, the social equity license holder. “It just didn’t matter how much more money they got. It just kept leaking out. It never lasted.”
Social equity license holders essentially won a lottery program either from the state or from Los Angeles to operate a legal cannabis business.
Eisenberg filed suit against Pineapple Ventures and Zadeh in October, claiming Zadeh took control of Eisenberg’s storefront, withheld financial information, illegally raised funds through unauthorized share sales and enacted a predatory lease. He and his legal team won the court-ordered appointment of a receiver in December of last year, bringing in Lanes to investigate the Hollywood and Vine location.
In his report filed at the end of last year, Lanes wrote that meetings with employees, a third-party payroll service, the California Economic Development Department and the Internal Revenue Service all confirmed significant amounts of payroll taxes – $351,073 – were unaccounted for.
Additionally, Lanes reported that the dispensary had not filed any state or federal income tax returns. According to a document from the California Department of Tax and Fee Administration, Pineapple Express had been approved for a payment plan with the agency for an unpaid balance of $616,359, with interest set to accrue on any unpaid taxes until full payment.
Lanes’ own unaudited financial accounting in his receiver’s report totaled nearly $1.69 million in tax liabilities at the end of last year.
Eisenberg settled with Pineapple Ventures in January, but he has a continued hearing on June 6 after alleging the company violated the settlement agreement and is not allowing him to walk away with his social equity license.
As part of the settlement, Eisenberg signed a letter stating some of his allegations in his lawsuit “may have been incorrectly asserted and are not accurate.” Additionally, Eisenberg stated Zadeh held no role as an officer or director for neither Pineapple Inc. or Pineapple Ventures.
This letter was sent to the Business Journal by Feinstein as part of his response to Eisenberg’s claims. According to Eisenberg and his attorney, sharing of the document violated the settlement agreement, as the parties agreed to keep it confidential.
In a statement to the Business Journal, the chief executive of the publicly traded Pineapple Express Cannabis Co. Matthew Feinstein said this tax matter was limited to Eisenberg’s case, and the company is paying its tax bills.
“We are in active payment plans with the municipalities in question related to the Hollywood dispensary that owes tax liabilities,” Feinstein said. “It is absolutely no secret that the legal cannabis industry in California is way behind on its tax obligations.”
According to Eisenberg, Pineapple Express may be further behind than previously outlined in the receiver’s report.
Throughout this litigation process Eisenberg held on to Pineapple Express’s passwords for its Economic Development Department portal and its California Department of Tax and Fee Administration account.
According to his findings, the company hasn’t made a single payment to the state this year, even as state employment taxes have been withdrawn from paychecks.
“Josh does have access to the California Department of Tax and Fee Administration, the dispensary account, and they are substantially underreporting their cannabis excise and sales taxes and were not keeping up with the payments due on the agreement that they made,” said Dan Yourist, founder of Westwood-based Yourist Law Firm who is representing Eisenberg in the ongoing litigation.
As of the Business Journal’s deadline, the Hollywood and Vine location remained open.
Investor’s experiences with the company
Meanwhile, investors Loren Tarquinio and his wife Anna Torino sued Pineapple Express Inc., Pineapple Ventures, Zadeh, Eisenberg, Feinstein and managing director Jaime Ortega last November for breach of contract, breach of fiduciary duty, fraudulent inducement and a request for accounting.
The duo had first invested $200,000 in the operation three years ago, buying a 2% stake from Pineapple Ventures.
The couple’s complaint included the corporate presentation to investors, and the financials both Tarquinio and Torino had initially signed on to.
Pineapple Express sent projected annual net income for the Hollywood and Vine store for 2021 and 2022 – estimating money would jump from $3.97 million to $6.25 million per year.
Monthly income for investors was projected to be in the thousands. The dispensary was sold as a prime location at “the highest trafficked (intersection) in all of Los Angeles and likely the nation.” Zadeh was not mentioned in any documents. The couple signed on.
They, like many investors, signed a shareholder agreement with “Put Rights,” which compels the company to buy back all shares at 110% of the purchase price, and monthly dividends from the company’s net cash earnings.
Tarquinio said they received just one monthly payment from Pineapple Express.
The couple mailed their put notice to all the defendants in their suit in March of last year. Their lawsuit includes an email confirming the receipt of the notice, but alleges no payments were ever sent.
“They ghosted,” Tarquinio said. “They offered everybody terms for their investment of the put option. That was a guarantee in the contract.”
Tarquinio suggested to the Business Journal that Zadeh’s hand in operating the company could violate his 2017 settlement with the Securities and Exchange Commission that barred him from serving as an officer of a public company; Zadeh settled charges that his former company, marijuana consulting service Medbox, reported false revenue. He paid more than $12 million in penalties.
In an email, Zadeh disputed that claim and said the company he works for, Pineapple Consolidated Inc., is a private operation.
“I can hold any position I want of officer, director, founder, chairman and owner of any private company I please. My restriction has to do with holding an officer or director position in public companies,” he said. “Furthermore, that agreement was signed on a non-admission basis. I signed so I could be left alone. None of the SEC allegations were ever proven.”
Catherine Kleve, a business owner in Minnesota, has a similar investor story.
She found the company in an online forum and was presented a panel of executives with what she described as impressive credentials – including one executive who apparently boasted four master’s degrees. She sunk $500,000 into the company in June 2021.
“They were slick as ever,” Kleve said. “They provided data, renderings of their new store and it was just amazing.”
At first, she received dividends on time, but slowly the money began to arrive later, and within a few months she said the payments became unpredictable. She began asking questions, communication became more sparse and soon all payments came to a halt.
Kleve has sent her put notice asking for 110% of her initial purchase back, but said she hasn’t seen any money. She would file a suit, but noted she could not afford to.
She has since contacted the SEC and the FBI.
“It’s a scam. They are very cruel,” Kleve said. “This is my life savings. I can’t believe the way they’ve acted. It is just absolutely the most disgusting thing ever.”
In response to investors’ allegations and Tarquinio’s suit, Feinstein said claims of money mismanagement and fraud are inaccurate.
“These are allegations that are completely unproven,” Feinstein said. “Fortunately, litigants in this country actually have to prove allegations contained in lawsuits. They won’t be able to prove those allegations.”
Dividend payments cannot be paid, he said, because the Hollywood dispensary is not yet profitable. As far as the put notices, Feinstein said given the economic circumstances at that time, the company could not have honored the requests.
Tarqunio and Torino have a court hearing in June. Ortega, the director of Pineapple Ventures, and co-defendant in the couple’s case, recently filed for bankruptcy. Tarquinio has reported Zadeh to the SEC but has not heard back personally from reports filed with law enforcement.
Pineapple Express is still mapping expansion, and a lease for a Van Nuys location recently added to its legal case count after its landlord, Haul LLC, filed for an unlawful detainer in March from $73,900 in unpaid back rent. Zadeh was a guarantor on this lease.
