Asterra Labs v. MC Nutraceuticals: A $2.5M deal

They say, “Don’t bite the hand that feeds.” So, why would an unprovoked debtor sue their lender? Of course, companies require tools to protect their intellectual property and employees, or prevent invasive reverse takeovers. A prominent US cannabinoid wholesaler filed a lawsuit against its business partner, alleging similar complaints. On the other hand, litigation can be part of a more shady business strategy. After all, a court can strike down debt if a lender breaches contractual agreements, with a catch. Asterra Labs answered the complaints against it with a countersuit that asserts its partner, MC Nutraceuticals, rather engaged in a Ponzi Scheme.

Who is who?

As far as the full suit establishes, MC Nutraceuticals was founded in Texas in 2020. Jeffrey A. Worley has acted as the CFO since the company's formation. He co-owns the entity alongside his son, Bret, who serves as the President and CEO. They further established MC Nurtraceuticals, pLLC (SIC) in Colorado and later formed a parent company, MC Global Holdings LLC, held in Texas. According to our data, Bret worked for his father’s financial consultancy before entering the hemp and cannabis scene in 2018.

Asterra Labs had its beginnings in 2019 under the name Chiron LLC, whose founders come from a pharmaceutical background. Republican Representative John Bell IV, now former House Majority Leader of North Carolina currently sits as President of Asterra, the Defendant and Counter-Plaintiff. Named in the complaint against Asterra is its early investor, Rise Capital, which is led by Harry Smith. We found a pitch deck that suggests terra — Latin for earth — simply means that their cannabinoids are derived from the Earth.

The complaint and counter

MC claims that Asterra tried to overtake its inventory and staff. Worley’s company acted as the purchaser and operated with a $2.5 million line of credit, as per the agreement between the two companies. MC alleges that its partner was not fulfilling orders as per the contract. To provide assistance and training, MC sent its own employees — privy to purported company secrets and practices that fall outside of the agreements — to Asterra’s facility in North Carolina.

It claims that Asterra began squeezing them out of the arrangement by utilizing Ryan McConnell, the employee, beyond the scope of the contract. Whereas the countersuit against it alleged that MC obtained substantial credit by, in part, advertising large revenues without disclosing copious amounts of unpaid debt.

One of the nine counterclaims involved the use of relationship ties between its President and CEO, Bret Worley, and Caroline Wiles — the daughter of Donald Trump’s Chief of Staff — as a token of trust. Lisa Burkhardt Worley is Bret's mother and the founder of Pearls of Promise Ministries. Caroline's grandfather, Pat Summerall, and the matriarch of the Worley family were one step apart in their broadcasting careers throughout the 1980s and 90s in Texas. 

Summerall partnered with John Madden for CBS Sports in 1979 and spent 22 seasons with the network. Vern Lundquist was once known as Summerall's sideman. The two men co-announced the 1983 World Series of Golf alongside five other CBS broadcasters. Lundquist was Lisa Burkhardt Worley's internship supervisor at WFAA-TV in Dallas,

The suppliers

Asterra further discusses the supply of THCp, which is derived from chemical synthesis on a market scale. According to the suit and our own research, MC acquires some of its non-hemp-derived cannabinoids from a Chinese manufacturer based in Shanghai. These are distributed through a subsidiary of Hause LLC, which owns the “Spectrum Labs” trade name in Colorado and has family connections to Rosemary Distribution LLC.

A select few cannabis cultivars do express THCv, CBDv, and CBC. These cannabinoids are often produced for the market through synthesis starting from non-hemp materials, though. Precursors such as carvone or menthadienol can be, in part, plant-derived. Divarinol, used to produce varins, is instead made via chemical synthesis. The suit also lists Santobiotech [SIC] as a supplier for the minor cannabinoid wholesaler. Sanobiotec is a cannabinoid manufacturer based in Lithuania that employs semi-synthesis in some of its processes. But, Asterra did not identify the specific cannabinoid(s) supplied to MC by the biotechnology firm — or the timeframe.

Bret has personally asserted to this author in public LinkedIn comments that their THCv is isomerized from hemp-derived CBDv. He made those claims, however, before MC settled with the Attorney General of Colorado with a $50,000 fine pertaining to its advertising practices. Still, MC admits in the suit that its partner was ‘founded to produce CBD and high-quality hemp-derived products’, contrary to non-hemp-derived materials offered by the listed manufacturer in Shanghai, Minstar Chemical Co. Insiders, however, confirmed with us that Sanobiotec has not worked directly with the wholesaler for a period of time.

MC draws out further claims through denial

Defending itself, MC issued a broad rejection against eight of the nine counterclaims due to their non-particular nature. Some of those claims also failed to provide enough specificity to prove fraud, according to the rejection. It further suggested that the filings failed to provide enough details regarding any steps taken to conceal financial instability. It claims that it was never forced to reveal full financial records and that its creditors should have ignored any unofficial revenue projections stated by its executives.

In its following submission, Asterra claimed that MC Nutraceuticals displayed a pattern of previously undisclosed bank fraud. Although, they provided a thin list of exogenous references. Last year, as one example, First Citizens Bank issued a $1M line of credit to MC Nutraceuticals. Asterra Labs alleged that MC hid former balances showing negative cash flows to negotiate a deep-pocketed loan.

Can MC choose a new dance?

MCN failed to issue a response by the deadline, which was September nineteenth. Asterra Labs requested a default one week later, which would force the court to make its decision without a trial. MC responded a day later asking for an extension due to its excusable neglect despite an eight-day deadline breach. If the extension request is overturned, MCN will likely have to pay the $1.6M in owed dues plus attorney and administration fees.

Texas is the namesake for the Two-Step, a corporate dance found in the legal filings of many North Carolinian LLCs. A company can split into two under some state laws and absorb litigation through its lesser LLC. The minor LLC is put into bankruptcy in hopes of clearing debts that it cannot pay. Money, however, remains safe in the parent entity.

Jeff Worley is a resident of Texas and Asterra is owned and operated in North Carolina by residents of the state. This would give MC Botanicals, as a separate entity, a chance to Texas Two-Step their way around the countersuit. Unfortunately, the dance might fail given the amended document issued by the counter-plaintiff.

Asterra Labs included both MCN entities as part of a larger unit held under its parent company, MC Global Holdings. They further included Bret and Jeffrey Worley — the sole operators, directors, and executives of MCG — as individuals acting in their own capacity. Finally, any attempt to deny an alleged pattern of bank fraud might, as a possible example, draw out further evidence in the suit regarding the financial backing acquired by the Worleys prior to forming MC Nutraceuticals.

We reached out to Sanobiotec but did not receive a response for comment.

The parties involved in the case have only filed claims. At the time of writing, the existence of trade practices allegedly held by MC is at dispute with denials of their substantial existence by Asterra Labs. On the counter defense, MC has denies claims against it, including but not limited to: fraud, RICO, and unfair and deceptive trade practices.

Sources

1. MC Botanicals LLC v. Asterra Labs, LLC (5:25-cv-00400)