California’s two leading distributors Herbl and Nabis and one of its top concentrate makers, Raw Garden, are locked in a nasty legal battle over Raw Garden’s switch from Herbl to Nabis early this year.
On January 7, John de Friel, CEO of Raw Garden parent company Central Coast Agriculture, announced that the company would be switching to Nabis, with whom “we have worked diligently behind the scenes.” Herbl sued days later alleging breach of contract, unfair business practices and other claims.
California requires all brands to use a distributor (or self-distribute.) As WeedWeek recently discussed, Herbl operates a traditional distribution model akin to alcohol, where it takes ownership of its partners’ product and dedicates a sales staff to moving it.
Nabis, which has announced plans to expand to New York, provides clients with an online marketplace and logistics services but does not do sales or marketing.
Herbl needs to believe in its brands, since it’s selling their products. Nabis, which has several times as many brand partners, and courts smaller clients, has no stake in any one brand’s success.
- For brands with statewide ambitions, the choice between HERBL and Nabis can come down to whether or not they want to build out a California sales team or give that job to Herbl.
- Each company distributes more than 10% of the products sold in California and requires exclusive relationships with brands.
The lawsuit’s details, reported here for the first time, offer a look at the rivalry between two key companies in the California cannabis industry, and their relationships with one of the state’s top brands.
Herbl and Raw Garden entered a four-year exclusive distribution partnership in fall 2019. As part of the agreement, according to HERBL’s amended complaint, against Raw Garden’s and Nabis’ parent companies, Herbl devoted resources to the partnership and hired a sales team of at least six for the Raw Garden account.
- Herbl says it hit the sales and distribution goals for 2019 and 2020 but tensions set in in 2021 as they tried to establish targets for the year.
- Herbl says it believed they had reached an agreement, but in late April Raw Garden announced it wanted to restructure their partnership, take sales in-house and transition Herbl’s sales team to Raw Garden.
- This required Herbl to modify its normal business model, but it says it strove to facilitate the transition for its client.
- The complaint further alleges that beginning in 2021, “Nabis and Raw Garden began working together to arrange for Raw Garden to prematurely terminate” its agreement with Nabis. Nabis, it alleges, “encouraged Raw Garden’s management to breach the agreement.”
- Late in the year, Herbl claims Raw Garden said it was committed to Herbl as it was “diverting, or preparing to divert product shipments to Nabis.”
- Herbl, which alleges Nabis had “previously induced another Herbl supplier to breach” its agreement with Herbl, sent Nabis a cease and desist notice in December 2021.
- Raw Garden CEO de Friel terminated the agreement with Herbl and announced its partnership with Nabis on January 7.
In a counter suit, Nabis and Raw Garden claim Herbl was “incompetent, unorganized and incapable of following through on the key terms of the agreement.”
Specifically, their allegations include that Herbl:
Fell short of sales goals in the disputed year 2021;
Did not maintain the minimum agreed upon six person sales team when a larger team was needed;
Didn’t deliver products during an agreed upon three-day window after a retailer’s order;
Missed payment deadlines. (Raw Garden claims Herbl has an outstanding invoice for a redacted amount.)
Leveraged Raw Garden to support its other brands. (The ability to control one’s own sales is one of the central arguments Nabis makes to prospective clients.)
CCA claims it had “no choice” but to end the partnership with Herbl, and had begun exploring working with Nabis as a “backup plan.”
Its court filing contains a December 31 text message from Herbl CEO Mike Beaudry to a Raw Garden executive, a week before Raw Garden ended the relationship. It suggests the relationship has soured:
In a brief statement to WeedWeek, Nabis co-CEO Vince Ning said its business model “creates a fairer and more equal marketplace.”
In a brief statement to WeedWeek, Herbl CEO Beaudry said his company’s investment in Raw Garden helped take it “from humble beginnings to statewide scale and penetration.”
Spokespeople for Raw Garden didn’t respond to requests for comment.
The case is proceeding in California state court, Santa Barbara County.