Castnet wants repayment of the loans made to Celestial plus interest, as well as an accounting to determine commissions owed.
A North Carolina marketing company is taking legal arms against a cannabis shop, claiming the shop’s owner reneged on a deal to transfer partial ownership after a successful marketing campaign led to unexpectedly high sales.
Castnet Marketing LLC filed a lawsuit last month against Celestial Wellness LLC and its majority member, Tylere White, in North Carolina state court, according to Law360. The case was transferred to the North Carolina Business Court last week.
Castnet and Celestial entered into an agreement on June 15, 2023, where Castnet would provide marketing services in exchange for a stake in the hemp shop, according to the complaint. The contract stipulated that Castnet would receive a 10% membership interest upon signing, with additional interests of 15% at $2.5 million in sales, 10% at $3 million, and 14% at $3.5 million, for a maximum potential stake of 49%.
“Castnet worked diligently to perform under the contract, and the sales of Celestial dramatically increased to the point that it was obvious before the passage of even one year that several, if not all, sales milestones would likely be met, and that, accordingly, Castnet would become a significant owner of Celestial, and that Castnet would be entitled to significant commissions,” the complaint stated.
However, Castnet alleges that Celestial’s management then sought to terminate the contract prematurely to prevent Castnet from reaching the ownership milestones.
“In May, 2024, Celestial, through White, informed Castnet that it wanted to ‘exit’ the contract or to ‘dissolve’ it,” according to the complaint. “Castnet rejected the proposal.”
The situation at that point began to escalate, according to Castnet’s account.
“In a lengthy in-person meeting, White, acting on behalf of Celestial, demanded that the contract be terminated and that Castnet sign a new contract with substantially less favorable terms for Castnet,” the complaint said. “White went so far as to state that ‘Nobody is leaving this room until this is signed,’ referring to his proposed agreement to exit the existing contract.”
Castnet also accuses White of deliberately delaying “substantial orders” to prevent reaching sales milestones. The lawsuit alleges such actions constitute a breach of fiduciary duty, as Castnet claims to be at least a 10% minority member in Celestial, and would have been a 25% minority member absent White’s alleged misconduct.
According to the complaint, Castnet made loans to Celestial as per the terms of their contract. As of June 29, 2024, the principal and interest due on these loans totals $75,154.
The contract also included provisions for commissions, with Castnet to receive “12.5% of all new sales of CW (Celestial) product for which it is responsible.” A benchmark was established defining new sales as all monthly sales above $105,000. Castnet reported receiving those commissions for October through December 2023.
Additionally, the complaint stated that as a minority member of Celestial, Castnet was owed a fiduciary duty by White personally as the majority member. Castnet claims this duty was breached through “bad faith negotiations, breach of contract, and unfair trade practices.”
Castnet is seeking various forms of relief, including repayment of the loans made to Celestial plus interest, and an accounting to determine commissions owed, which it estimates at least $68,198 for January through March 2024. The lawsuit also includes claims for unfair trade practices under North Carolina’s Unfair and Deceptive Trade Practices Act.
Castnet is seeking damages, treble damages, punitive damages and attorneys’ fees. The firm has also requested a jury trial.
While marijuana remains illegal at the state level, the dispute involves hemp and CBD products, which are currently the only legal cannabis-derived products commercially available in North Carolina outside of tribal lands. Celestial Wellness claims to have “The very best THCv, Delta 8 , CBD Hemp Products on the web,” according to its online site. It also sells marketed forms of THCA.
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