A Convicted Thief and a Chiropractor Claim Their Pot Company Medbox Isn't a One-Hit Wonder
At BC Wellness Center, a small retail shop in Black Canyon City, two black vending machines sit side by side behind a counter, where they can be accessed only by employees.
Instead of Famous Amos cookies or soda pop, packets of buds and various cannabis-infused edibles and juices sit tucked into the rows of dispensing trays.
The machines are the flagship product of Medbox, one of the hottest companies in the burgeoning industry of legal marijuana.
Medbox stock, available for purchase by the public, rates near the very top of the Marijuana Index, an information source for investors on pot-related companies. It's a billion-dollar company — largely because of a stroke of luck during one fateful week in November 2012, when Medbox's stock price skyrocketed.
Though the price fell sharply after the unlikely meteoric rise, it's stayed at roughly 10 times the price each share traded for before its sudden inflation. As of mid-April, the California-based company had an estimated value of nearly three-quarters of a billion dollars. And roller-coaster-style fluctuations have put it at higher than a billion in recent months.
Judging by its stock, this company truly is big time.
Its products and services, however, aren't as impressive.
Medbox machines are by no means in widespread use in Arizona's 80 medical-marijuana dispensaries.
One drawback of the devices, as the unit at BC Wellness Center demonstrates, is that customers can't use them legally.
When a registered medical-pot user decides what strain or "medible" to buy, an employee taps a keyboard, the machine's spirals turn, and the product drops out, to be retrieved by the employee.
Patients can't access the machines themselves, even though "when we met up with Medbox, that was one of the selling points of the box," says John Ferneau, one of the dispensary's owners.
But last year, when state officials gave the dispensary a final inspection before it opened, they spotted the machines in one corner of the shop and asked, "What's that?" Ferneau recalls.
He told them it was a vending machine for pot.
"They said, 'No, no, no — behind the counter!'" he says. Ferneau told the officers that putting it behind the counter would be "breaking the purpose of the machine. They said, 'We don't care.' I said, 'You're kidding me, aren't you?' We spent all this money for the machine, and the customer can't use it."
Buying a cola this way at a convenience store wouldn't be very convenient — or practical for employees who would have to stock the machine so they can dispense the product to themselves to sell.
One of the two units doubles as a refrigerator, but refrigeration is necessary in the short term for only some infused food and drinks, not the pot buds. And the space inside, because of the vending mechanisms, is much more limited than a fridge.
Weighing, labeling, and storing the pot in the Medbox machine "can be time-consuming," says one of the dispensary's bud-tenders. "It's probably no different than putting it on a shelf. But it's a smart shelf."
The machine is connected to the dispensary's computers, duly logging every product sold from it. This is the point-of-sale function, similar to that of other point-of-sale software programs used by Arizona dispensaries, run as nonprofit companies with boards of directors.
Yet no dispensary system's point-of-sale software connects directly to the Arizona Department of Health Services, which oversees medical marijuana. Rules created by the agency require dispensaries to log information about each sale into the state's computer system, which also verifies the validity of patient ID cards.
The tight regulation of medical marijuana in Arizona includes seed-to-sale reporting requirements and surveillance video of employees reviewable by DHS regulators.
State health department director Will Humble says he wouldn't know whether a Medbox-affiliated dispensary is more or less efficient at monitoring an inventory of cannabis than any other dispensary. He's concerned only whether dispensaries comply with state rules, and Medbox affiliates (including BC Wellness Center) haven't brought themselves to Humble's attention.
Another partner at the Black Canyon City shop, California resident Bill Sutterlin, who comes to Arizona monthly to help run the dispensary, says he likes the extra "monitoring" provided by the Medbox machines. It makes the business more professional by adding a layer of security, he says. He pays a monthly fee to Medbox for maintenance and other services, including double-checking inventory. Medbox has been good about fixing problems that come up, he says.
But the machine isn't crucial to the dispensary's operation, Sutterlin acknowledges: "We could do without it."
The bud-tender runs down some of the difficulties of using the machines instead of a system of easily accessed bins and shelves found at other dispensaries. For instance, each shelf in the machines isn't wide, making it difficult to stock them with large items. If the dispensary were to decide to increase offerings substantially — perhaps by adding twice as many cannabis strains — the machines wouldn't have enough room.
"Medbox would be more than happy for us to buy another one," she says. But the dispensary could run a dual system, with some products in the machine and some out.
This might defeat the overall purpose of the machines: monitoring inventory.
Another constraint is that the buds must be packaged in predetermined amounts.
"You have to break up buds into exactly one gram," says another BC Wellness employee. He prefers the system used by some dispensaries in which pot is treated more like produce and weighed in front of customers, with buyers paying for slight overages.
It's not a glowing review of the Medbox product from one of the two Arizona dispensaries in which New Times was able to verify the existence of working Medbox machines.
Marijuana is the latest buzzword among risk-taking investors and those seeking a quick buck.
Illegal everywhere in the United States for decades (with a couple of exceptions), pot now is legal for medicinal use in 21 states and Washington, D.C., and legal for people 21 and older in Colorado and Washington state. Other states, and some cities, are preparing to legalize or decriminalize use of the plant. And polls show the majority of Americans believe it should be legal. Cannabis remains listed as a Schedule I drug under federal law, not approved for medical or casual use, but the legalization movement in states has allowed pot to creep like a vine into mainstream American institutions — such as the stock market.
Besides the dispensaries that actually sell marijuana, many pot-related companies have sprung up in the past few years to take advantage of new and lucrative business opportunities. Some, like Cannabis Science, a Colorado firm hoping to cash in on marijuana's tumor-fighting properties, have seen a smidgen of success, but most firms struggle.
Medbox machines at BC Wellness.
Among these peer companies, Medbox is a superstar.
But the company's unusual in ways not worth bragging about.
Vincent Mehdizadeh — founder, inventor of the dispensing machine, senior strategist, and (until his recent resignation) chief operating officer — is a convicted felon. He pleaded guilty last year to stealing from immigrants by offering them bogus legal services, avoiding a prison sentence when he paid $450,000 in restitution to victims.
Medbox owns no factories, no buildings. It rents a West Hollywood office. Last year, it had revenues of $5.2 million but didn't turn a profit. It ended the year with about $300,000 in the bank.
What Medbox does have, though, is impressive stock.
The public company's value on April 23 — based on the number of outstanding shares multiplied by the stock's worth — equaled nearly $700 million, according to stock-price websites.
The Medbox stock sensation was created by happenstance, the result of a favorable mention of the company in a widely read website.
Medbox's tangible assets — it has seven full-time employees — don't suggest it has the profit-making ability to be as valuable as its stock price says it is.
Mehdizadeh, 35, claims that nearly 200 of his machines have been sold in Arizona, California, and other states. None has been sold in Colorado, a state that's second only to California in medical-marijuana stores and that has dozens of non-medical-marijuana stores since voters legalized pot for adults. And state restrictions on the machines' use mean none is accessed directly by customers, despite their intended design.
Another source of Medbox's revenue has been business consulting. More precisely, the firm helps people get into the dispensary business.
Mehdizadeh and his partner, Bruce Bedrick, a former Scottsdale chiropractor, have touted their success in Arizona, saying most of their Arizona clients ended up with dispensary licenses.
The firm was one of several in this state to provide the service after voters approved the Medical Marijuana Act in 2010. Though owning a pot shop may be a pipe dream of marijuana aficionados, opening and running one takes business acumen and money.
Each store needed an investment of several hundred thousand dollars, plus the know-how to navigate an obstacle course of landlords, building contractors, zoning departments, city codes, state requirements, and accounting procedures. The process took nerve, too, because the federal illegality of marijuana means a dispensary operator's hard work and money could be taken away overnight in a police raid.
Medbox, through Bedrick's Kind Clinics subsidiary, was one of the companies that shepherded hopeful businesspeople through the process, matching up people with capital to those with expertise in running businesses or with special knowledge in the cultivation of top-grade cannabis.
Medbox-affiliated groups won 20 of the 97 dispensary licenses available in a state lottery for the licenses held in August 2012.
Yet the firm's success rate is complicated by the fact that nearly half of the licenses it helped obtain so far are unused.
And Medbox's automated dispensers, its main product, rarely are seen in Arizona pot shops.
Despite this, the company makes bold predictions about its future.
Medbox aims to be nothing less than an institution in the marijuana industry. It has formed new subsidiary companies, it says, to cover the waterfront: security, banking, hemp-oil concentrates, and related services. This year, it partnered with a firm that makes vaporizers. It brought Mitch Lowe, former president of Redbox and co-founder of Netflix, onto its board hoping to shore up credibility and appeal to more investors.
Yet if the company is going to be even bigger in the future, why did CEO Bedrick sell several million dollars' worth of his own Medbox stock?
This is one of several "red flags" that Stephen Barnes, a well-known Phoenix investment adviser, says he sees when he looks at the firm.
Barnes wonders: "Why would you sell it today when, allegedly, it's going to be worth so much more?"
The founder of Medbox generally goes by the name Vincent Mehdizadeh.
In U.S. Securities and Exchange Commission filings, however, he calls himself P. Vincent Mehdizadeh.
The P is for Pejman, listed as his true first name in a 2013 plea agreement with the Los Angeles County District Attorney's Office — a deal that allowed him to escape serving four years in prison. A civil complaint filed in a California court by theft victim Abdul Ahmed states another a.k.a. for Mehdizadeh: Vince Zadeh.
Ahmed's ongoing lawsuit refers to the bogus "J.D." title Mehdizadeh used in the past, which suggested he'd attained a juris doctor degree and was a lawyer. In fact, the only schooling his résumé mentions is his 1997 graduation from Beverly Hills High School. Another example of his use of the title remains online in a testimonial for a web-marketing company he once used.
One of Mehdizadeh's corporate alter egos is Vincent Chase Inc., a holding company for his many shares of lucrative Medbox stock. It's the name of a fictional character on the defunct HBO show Entourage.
Whatever he calls himself, and in spite of the black marks on his record, Mehdizadeh's a whiz at business who made millions for himself and other investors in Medbox. The company's success story is the stuff of penny-stock fairy tales, its share price having zoomed to truly astonishing heights.
Sporting a close-cut mustache and beard, Mehdizadeh has appeared in TV interviews as a hoodie-wearing California dispensary owner and later as a suit-wearing chief operating officer of a rising public company.
Since Mehdizadeh announced in 2008 that he planned to place his newly invented automated marijuana dispenser in the Los Angeles dispensary he owned at the time, Herbal Nutrition Center, news outlets have been friendly to the concept. The idea of a vending machine stocked with marijuana is highly controversial — and photogenic.
Mehdizadeh came up with the idea for his machine in 2007, seeing opportunity in the unregulated California dispensary scene. Customers would verify their identities and qualifications to purchase medical pot by pressing their fingerprints to a scanner on the apparatus, patent drawings show.
The public was intrigued by the concept, even though the idea of a proliferation of stand-alone pot vending machines was far-fetched from the beginning.
"Mehdizadeh says any user approved for medical marijuana and registered in a computer database at his dispensaries can pre-purchase the drug and then use the machine to pick up," states an Associated Press story from January 30, 2008.
The U.S. Drug Enforcement Agency took notice, too. Mehdizadeh's two dispensaries were raided, his machines confiscated. He later got them back and kept promoting the product.
"I threw everything into developing the whole project," he tells New Times.
He was firmly entrenched in the industry during its watershed moment in 2009, when President Obama chose by executive order to allow legal-marijuana businesses to flourish.
In 2011, Mehdizadeh and his partner, Bedrick, acquired a public company, changed its name to Medbox, and began selling stock a year later under that name in less-regulated over-the-counter markets.
Rarely will a so-called penny-stock company make anyone very rich (other than those who started it, as the recent movie The Wolf of Wall Street depicts). And then there's Medbox.
As its stock history shows, Medbox began offering shares to the public on August 3, 2012, and its price remained under $3 for months, often going weeks with no trading. Then, on November 13, 2012, Marketwatch, a popular financial news website, mentioned the company prominently in an article about buying into marijuana-related firms. A green rush ensued, with hundreds of people reaching out to grab a piece of Medbox, driving up its stock price to more than $200 a share within two days.
That week, the company was worth more than $2 billion on paper. As Mehdizadeh noted in the title of his allegedly soon-to-be self-published autobiography, Self-Made, he was a "billionaire" as majority shareholder.
But the rocket-like price was bound to fall, and Medbox moved to prevent too many buyers at the peak from getting burned. The company released a statement admitting to investors that the stock price was an exaggeration "not based upon present business economics."
The price closed the next day at $20 a share, but generally it's been higher than that since. Medbox's stock history, since the peak, shows that investors occasionally have driven up its share price to about $100. Medbox continues to garner publicity through news reports and a steady stream of press releases. Usually, its stock price fluctuates between $20 and $30 a share — considerably more than before the Marketwatch story.
Pre-weighed canisters of marijuana buds inside a Medbox machine.
The explosion in stock price meant a lot of desired publicity — and some not so desired. It meant that early investors, particularly Mehdizadeh, suddenly were much wealthier than they'd expected. But as the company admits in a published statement, if Mehdizadeh tries to sell much of his stock holdings — or even if investors believe he might — "the market price of our common stock [might] drop, even if our business is doing well."
Question is: Can Medbox keep the gravy train rolling?
The company's big plans include trying to help open dispensaries in Nevada and Illinois and increasing the scope of what it does. But it could face heat.
In January, the Financial Industry Regulatory Authority reissued a warning on marijuana-related companies, describing "pump and dump" schemes in which company representatives talk big to create a buzz among potential investors. Then, when the price of stock goes up, they sell shares for much more than they paid for them. The regulatory authority didn't mention Medbox, but the firm has its critics.
Alex Left, an activist and stock market short-seller whose corporation-gossip website sometimes makes news, accused Medbox of financial wrongdoing in one report and dared the company to sue him. (It hasn't.)
Over recent months, Medbox has been the target of another writer, Roddy Boyd of the Southern Investigative Reporting Foundation, who wrote lengthy articles about it published on September 30, 2013, and on April 17.
A week before Boyd's most recent article appeared, Mehdizadeh resigned as director and COO of Medbox, saying in a news release he'd done so to make the company "less prone to attack."
With a stock as volatile as Medbox's, every story or tweet might affect share prices. As it stood in mid-April, Medbox had 44 million shares outstanding, with most belonging to Mehdizadeh.
On April 11, Boyd tweeted that "SIRF is prepping a follow-up to a story we wrote on $MDBX. We submitted questions last night to the CEO, and this morning he quit."
Mehdizadeh disputes the timing of his resignation, saying it happened before he received Boyd's questions. Either way, records show, Medbox's stock lost a few dollars per share in value after the tweet and hadn't fully recovered as this story went to press — that is, it remained under $25.50 per share, the closing price the day before Boyd's tweet.
Vincent Mehdizadeh's recent theft conviction distinguishes him from most other businessmen managing a company worth hundreds of millions of dollars.
The June 21, 2013, plea agreement and subsequent news releases by the California agencies involved in the case are available online and show that Mehdizadeh pleaded guilty to two counts of grand theft and admitted to a "special allegation of engaging in a pattern of related felony conduct involving takings in excess of $100,000."
In addition to the hefty resitution order, he was sentenced to five years' probation.
His father, Parvis Mehdizadeh, 78, was convicted of a misdemeanor violation of "failing to obtain a bond required of those providing immigration assistance." He received two years' probation and a three-day jail sentence, with credit for three days.
Authorities say Mehdizadeh portrayed himself as a lawyer, or falsely claimed he was working with one, in dealing with immigrant clients of a legal service he once ran. They say he and his father stole thousands of dollars from immigrants seeking green cards, loan or bankruptcy help, and divorces, yet often provided no services.
"Many . . . victims were forced to leave the country because of their failure to file appropriate documents," according to the L.A. County Consumer Affairs department.
Abdul Ahmed, who had worked with Mehdizadeh on trying to get a California medical-marijuana dispensary open, lost the most and received the most in restitution. Mehdizadeh was ordered to pay him $250,000 as part of the plea deal. Ahmed is suing Mehdizadeh and one of his companies, Sniperalla Investments Inc., in L.A. County Superior Court.
All told, officials received 47 complaints against Parvis' company, Active Lawyer Referral, though not all of them were part of the criminal case, says Kirk Shelton, the Consumer Affairs Department's spokesman.
During the time of Mehdizadeh's crimes, he fell far behind on his federal taxes. His 2010 Chapter 7 bankruptcy filing shows that, among other debts, Mehdizadeh owed $1.6 million to the IRS. He had $2,000 in cash on hand at the time of the filing, records show.
Thanks to Medbox, he's been able to pay his debts.
Despite Mehdizadeh's resignation from Medbox's board earlier this month, he remains its largest shareholder and senior strategist.
Mehdizadeh denies the story put out by L.A. County: "I never, ever defrauded immigrants."
He once worked at a law firm as an office manager, he explained in an e-mail, and the immigrants testified that the lawyer at the firm, not him, had defrauded them. The county went after him because he had lots of money, Mehdizadeh alleges. Plus, he claims, a Consumer Affairs agent had it in for him and tried to get him indicted on a "pump and dump" scheme involving Medbox.
He sent New Times a copy of a letter his lawyer sent to Consumer Affairs in December, insisting that a news release be retracted because, among other things, it said Mehdizadeh defrauded immigrants when he actually was convicted of grand theft. If the release isn't retracted, the lawyer threatened, Mehdizadeh might sue.
The department hasn't retracted the news release. In fact, Shelton gave New Times the link to the release last month when he was asked for information about Mehdizadeh's conviction.
Though Mehdizadeh says he never misrepresented himself as an attorney to anyone, a claim disputed by California authorities, he admitted to New Times: "I did exaggerate my education simply to fit into the fast-paced office environment I was working in."
One of his immigrant victims tells an interesting story about dealing with Mehdizadeh.
Among several Japanese immigrants on the L.A. County DA's Office's plea-deal list of a dozen victims, he described Mehdizadeh as a smooth talker who made numerous promises he didn't keep. The victim maintains that Mehdizadeh did nothing after receiving checks for several thousand dollars.
Mehdizadeh "told me that he was not a lawyer, but he said he was . . . working under this lawyer," the victim says.
The lawyer, Thomas Lee, resigned as an attorney in 2011 with "charges pending," according to the California Bar Journal.
The Japanese victim says he met Lee once or twice but dealt primarily with Mehdizadeh, who promised to help with a green card and other immigration issues. At one point, the victim says, he was delayed from coming back to the United States from Japan because Mehdizadeh had failed to prepare a document he needed to obtain a visa renewal.
"I called him like crazy but could never get hold of him," the victim says. After resolving the problem and returning to Los Angeles, the victim went to Mehdizadeh's office and says he found it "cleared out."
Bruce Bedrick was arrested in New Mexico and slapped with a federal indictment in 1992 for possession of marijuana with intent to sell. The indictment was dismissed two years later when a judge suppressed evidence in the case, ruling that it had been illegally obtained
Bedrick calls the case a "bad misunderstanding," but he wouldn't elaborate.
He admits he smoked weed recently in the new vaporizer his company is pushing — but he says it was a cannabidiol-rich strain of pot that didn't make him high.
Product samples on a counter.
Bedrick's the CEO of both Medbox and MDS. He's also founder and chief operating officer of a dissolved Arizona corporation called Kind Clinics, which he called Medbox's "marketing and licensing arm."
Frequently seen dressed in blue scrubs or a white smock, the longtime Valley chiropractor makes presentations to prospective dispensary clients and numerous news media appearances.
Like his partner, Bedrick has had problems with the IRS, records show.
A federal tax lien was filed against him in 2008, showing that he still hadn't paid $88,000 in taxes from 2002 and 2004.
Bedrick also was ordered to pay about $31,000 to Citibank in 2010 for an unknown reason.
Perhaps unknowingly, Bedrick helped Mehdizadeh prop up his phony attorney credentials. In an April 3, 2013, presentation to would-be dispensary owners in Boston, the video of which remained on YouTube, Bedrick describes Mehdizadeh's background as "running law firms — he's got a law background."
Bedrick and Mehdizadeh first hooked up in 2009, the latter says.
A native of Pennsylvania who obtained a chiropractic license in Arizona in 1997, Bedrick practiced on and off in the state. He says he recently moved permanently to Florida.
Years of working long hours with professional athletes and others needing chiropractic therapy, combined with injuries to his shoulder and knee, spurred Bedrick to look for another business opportunity.
The medical-marijuana movement and the growing number of dispensaries in California at the time intrigued him, he says. By 2009, he sought a way to get in on the action. One of his chiropractic patients, he says, told him about an early version of the Medbox vending machine.
"I reached out and called Vince, and the rest is history," Bedrick says. Mehdizadeh made him exclusive distributor of Medbox in Arizona.
Mehdizadeh was, at the time, promoting his machines along with his consulting business in California. Dozens of businesses bought units, he says. Bedrick contacted him, he recalls, hoping to start his own dispensary in California.
Then, Arizona voters passed Proposition 203 in November 2010.
A day after the state voted on the Medical Marijuana Act, Bedrick and his father, Alec Bedrick of Wyncote, Pennsylvania, created an official corporate entity, Kind Clinics, in Delaware. More than a week later, after votes were fully counted and Prop 203 was declared a winner, the Bedricks registered the company to do business in Arizona.
"He'd meet with clients and be part of the whole atmosphere," Mehdizadeh says. "In 2011, his role [in Medbox] became more pronounced."
Ever the entrepreneur, Mehdizadeh conducted a reverse merger, using his Prescription Vending Machines firm to acquire a public company called Mindful Eye. They changed the company's name to Medbox (Bedrick's idea, Mehdizadeh says), and it began selling stock under that name a year later.
"To make it worth Bruce's while, I gifted him some shares of mine," Mehdizadeh says.
Records published by Citron Research (and acknowledged as accurate by Bedrick) show that Mehdizadeh gave his partner 500,000 shares on October 8, 2012. It was a generous move. The stock was selling for $2.75 a share at the time, meaning the gift, in theory, was worth $1.4 million.
Mehdizadeh notes that neither he nor Bedrick sold any of their shares when the stock price reached its high of $215 per share in November 2012.
"I held my shares, and so did he, all the way throughout 2013, up until November and December, when we both realized, 'Hey, let's get on a sale program.'"
According to a statement about the executives' stock sales put out by Medbox in early April, "Mr. Mehdizadeh used his personal shares over the last few years in many ways to directly and indirectly benefit the company. As a non-reporting pink-sheet company during the period in time referenced, Mr. Mehdizadeh had no obligation to document private share sales/transfers."
Mehdizadeh chose not to elaborate on the statement. "I haven't really sold any shares in the public market," he says. "As the founder, I feel like I need to set an example."
Not that his CEO followed the example.
Bedrick sold about 60,000 shares in late 2013 and early 2014, according to the aforementioned filings. The statement acknowledges that Bedrick sold shares "for a limited period spanning from the end of October 2013 through February 2014."
He tells New Times that the amount he earned from the sales was much less than the $4.5 million mentioned in Citron's article — but he won't say precisely how much he made.
"There was an opportunity to sell into an up-trending market," Bedrick says. "I sold way less than I was allowed to sell."
Anyone would have done the same thing, he insists.
Medbox-affiliated clients may have landed 20 dispensary licenses in Arizona, but there's no doubt that the company benefited partly from sheer luck: After all, in Arizona, the granting of the licenses came down to a drawing in a random lottery held by the state in August 2012.
Although 29 pre-selected geographic locations for dispensaries had only one applicant, 404 groups applied for the 68 locations seen as more desirable, necessitating the lottery.
Like any good lottery player, Medbox made sure to buy plenty of tickets, in the form of Bedrick's opening several Arizona corporations in his name and then amending corporate filings with the names of clients.
When state officials picked ping-pong balls out of the lottery machine, many of Medbox's clients were winners.
But the process of developing dispensaries wasn't easy, and relations between Medbox and its Arizona clients weren't always harmonious.
In one ongoing lawsuit, Medbox is suing former clients David Pieser and Theodore Brinkofski over their dispensary, north of Kingman.
Pieser, who declined to speak to New Times, met with Bedrick in mid-2012 to discuss obtaining a license for a medical-pot shop near Dolan Springs, records show. The men agreed that Mehdizadeh's company "would receive 50 percent of revenue generated from the cultivation facility" and that Pieser would receive the other 50 percent, according to Medbox's amended complaint, filed November 8, 2013, in Maricopa County Superior Court.
After inking a deal, Mehdizadeh brought in Theodore Brinkofski, a 23-year-old Cornell University student, as a partner for Pieser.
Construction of the dispensary was delayed until July 2013, and during that time, Brinkofski had reservations about the deal and asked Medbox to return $115,000 he'd put into the project. Medbox did so and then replaced Brinkofski with another partner for Pieser: Harp Nijjar, a Canadian citizen who moved his family to Arizona for the project.
But after the dispensary opened in August 2013, Brinkofski decided to stay in the project with Pieser, and they both objected to Nijjar's presence.
Medbox is suing for the return of $375,000 it says it lost in the deal.
Pieser and Brinkofski countersued for breach of contract, saying Medbox caused "unreasonable delays" in the opening of the dispensary and that Brinkofski had to spend at least $35,000 to bring in a new contractor to finish the build-out of the retail space.
In a motion to dismiss Medbox's case, the dispensary partners argued (ironically, since they now a run a medical-marijuana clinic) that the deal with Medbox violated federal marijuana law. The countersuit also claims that the for-profit companies involved in the case are involved in an "illegal scheme to make profits off of Arizona's medical-marijuana laws. They appear from their pleadings to be selling shares of a nonprofit dispensary's profits to their 'clients,'" which made the deal violate Arizona law, too, Pieser and Brinkofski's motion states.
Evidence that the company aggressively worked on behalf of some clients can't be denied. A lawyer hired by Medbox on behalf of several clients successfully sued the state to allow more time for some dispensaries to set up.
The company will continue to help its Arizona clients whose dispensary applications have been delayed, Mehdizadeh says. But, for now, with all the dispensary licenses in Arizona already allocated, no more consulting services are needed. Medbox has no active sales program trying to put its machines in existing Arizona dispensaries. It's focusing on other states but so far hasn't seen the success it's had in Arizona.
In Massachusetts, which last year selected dispensary companies based on the quality of their businesses and applications, Medbox clients got skunked. It filed seven applications for dispensaries on behalf of clients, but none was selected out of more than 100 reviewed.
New business might come the company's way, which could ease any investor fear that the stock price might plummet.
Mehdizadeh says Medbox has pre-orders for more than 200 machines that can be installed if permits sought in Washington, Illinois, San Diego, and Nevada are issued. He says contracts worth $20 million to the company also are in the works, though he admits that Medbox will make that money only if licenses are granted to clients, "which cannot be guaranteed."
After looking at some of the company's SEC filings at the request of New Times, investment adviser Stephen Barnes isn't convinced that the company can sustain itself, saying it has too many issues for his liking.
"It shares characteristics of previous companies that have been failures — it's still bleeding cash, executives [are] selling stock, and it has a ridiculous valuation," he says. "How is it going to get to profitable?"
It's doubtful that states with some form of legalized marijuana will allow customers to use Medbox machines directly — Arizona long has prohibited liquor stores and bars from dispensing beer in vending machines.
Medbox must evolve to survive. But even if it doesn't, Mehdizadeh and Bedrick have done well for themselves.
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