The tension appears to be getting high inside the headquarters of Medbox, the marijuana vending machine company headquartered at West Hollywood’s posh Piazza del Sol building on Sunset Boulevard with a statement by current management dismissing one by the company’s founder.
In an Oct. 31 filing with the Securities and Exchange Commission (SEC), Medbox revealed that a former employee had sent a letter to the SEC alleging improper behavior by a consultant to Medbox who once was employed by the firm. Medbox founder Vincent Mehdizadeh stepped down from his role as chief operating officer of the company in April of last year and took the position of senior strategist, only to move to the role of consultant last month. Mehdizadeh retains a major stake in the company as its founder. The filing did not disclose the nature of the allegation. Medbox also revealed that in August its accountants had been served a subpoena by a federal grand jury.
A statement released in the name of Medbox on Nov. 3, quoted Mehdizadeh as saying: “The former employee vowed to retaliate against the Company in any way he could after his illegal cash demands of the company were ignored. It now appears that writing a letter to government agencies filled with factual inaccuracies and blatant falsehoods was the most effective way to facilitate that goal.”
But on Nov. 7, Medbox filed a statement with the SEC signed by Douglas Mitchell, its chief financial officer, in which it said the Nov. 3 press release quoting founder Mehdizadeh “was not authorized by Medbox, Inc. … for distribution.” It referred investors instead to the Oct. 31 statement.
Medbox said its board of directors has formed a committee to investigate the allegations to the SEC and the impact on the company, whose stock is traded over the counter, of the federal grand jury subpoena. Medbox stock, which has traded for as much as $215 a share in 2012, was trading at $8.80 a share on Friday. Mehdizadeh told WEHOville in an interview in August that the company hoped to be on the NASDAQ exchange by the end of this year. Such a move would let it raise capital from the public and investment funds.
Mehdizadeh isn’t the only Medbox employee to step down from a full time job and become a consultant. Its CEO, Bruce Bedrick resigned in July and has been replaced by Guy Marsala. Bedrick remains a consultant to the company. Thomas Iwasski last month resigned as the company’s chief financial officer but also remains a consultant.
Mehdizadeh does, however, have the most controversial reputation of the three former officers who now are consultants. A report last fall by the Southern Investigative Reporting Foundation, a non-profit business investigative journalism group, said Mehdizadeh’s Herbal Nutrition Center marijuana dispensary had been raided by the federal Drug Enforcement Administration in 2007. Roddy Boyd, author of the SIRF report, also said Mehdizadeh “was accused of posing as a lawyer and a real estate agent at different times … A search of Los Angeles area criminal records databases shows that from 1997 to 2007, Mehdizadeh was arrested or pleaded no contest for breaking and entering, solicitation, trespassing and credit card fraud. He declared bankruptcy in July 2010, after landing up to his neck in back taxes owed to the Internal Revenue Service.”
Mehdizadeh is said to have posed as a lawyer for an organization called the Active Lawyers Referral Service, which allegedly referred people to lawyers who didn’t provide the services they were paid for. The SIRF report said he also worked with his father, Parviz Mehdizadeh, to offer legal services to immigrants, billing them for work they didn’t do. The Los Angeles County Department of Consumer Affairs said in June 2013 that Mehdizadeh and his father had pled guilty to charges of grand theft in relation to both situations and agreed to a settlement in which they would repay clients nearly $500,000 in lieu of a jail term.
The SIRF report also questioned the background of a number of senior officials in Medbox’s early years. The company subsequently reshuffled management, naming Guy Marsala, former president of EZ Lube Inc., the automobile service company whose Southern California locations are now owned by Valvoline, as CEO, president and chairman of its board. This spring it added two outside directors to its board — Mitch Lowe, a founder of the Redbox video vending machine and a co-founder of Netflix, and Ned Siegel, former U.S. ambassador to the Bahamas. More recently it announced that Jennifer Love, former assistant director of the security division of the Federal Bureau of Investigation, has also joined its board.
Medbox has garnered publicity in the business press for the Medbox, which is a marijuana vending machine that resembles one of those contraptions into which one would push dollar bills or drop quarters for a bag of potato chips or a candy bar. Mehdizadeh invented the Medbox dispensing machine in 2008 and retains the patent on the machine.
Medbox isn’t accessible by the general public. The refrigerated and armored machine, which sells for $25,000, actually sits behind the counter at licensed marijuana dispensaries and acts as an inventory control system. Rather than making marijuana easier to buy, Medbox is all about making sure that owners of the growing number of dispensaries in the United States are able to follow the still-restrictive laws governing the sale of the drug. The machine can identify the fingerprint of a patient with a state-issued medical marijuana card. It tracks what a customer has purchased, and it keeps records of marijuana inventory and sales on which states collect taxes.
The company appointed a special board committee composed of Love and two other independent directors, as well as CEO Guy Marsala, to investigate the allegations made in the letter to the SEC by the unidentified former employee and the federal grand jury document subpoena served on the accountants.