A startup company with plans to develop payment processing technology for the cannabis industry is now on the brink of collapse after a partnership breakup, according to a lawsuit the company filed Aug. 23 in the U.S. District Court of Northern Illinois.
Emerging Industry Technologies, doing business as Spence Labs, and its attorneys at Kasowitz Benson Torres LLP are demanding a jury trial for their complaint against Fidelity National Information Services Inc. (FIS) and its subsidiary Worldpay. FIS is a billion-dollar public corporation that provides financial services technology on the international stage.
According to the lawsuit, Spence formed a partnership with FIS under which Spence would develop financial technology for legal cannabis dispensaries—which are often forced to operate all-cash businesses without access to safe banking in the federally illegal industry.
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As part of the partnership, Spence was to serve as FIS’s exclusive preferred provider for this technology, according to the plaintiff’s attorneys.
Now, in what the lawsuit refers to as “corporate catch and kill,” the plaintiffs filed fraud and breach-of-contract claims they say have put Spence out of business.
“Despite widespread publicity and the many months of negotiations, due diligence, and promises that preceded it, and the well-defined material terms that resulted, FIS now refuses to move forward with the parties’ commercial agreement and partnership,” Spence attorneys wrote in the lawsuit.
These negotiations began in the fall of 2021 on the heels of states like Arizona, Montana, New Jersey, New York, New Mexico, Virginia and Connecticut electing to legalize adult-use cannabis in the prior 12 months, and several other states choosing to reform their laws around legalizing medical cannabis at that time.
“At first, FIS considered fully acquiring Spence to incubate, grow, and invest tens of millions of dollars into a company and brand that would be FIS’s gateway into processing payments for the cannabis industry—an otherwise untapped market for FIS,” Spence’s attorneys wrote in the lawsuit.
Instead of an acquisition agreement, FIS chose to pursue a minority investment and partnership with Spence while acting as an arm’s length intermediary for the development of the financial technology, according to the lawsuit.
Specifically, the plaintiffs claim that FIS was “proudly touting to the market” that it had aligned with Spence to deliver conventional payment methods to the cannabis industry through a fully integrated suite of digital payments. Furthermore, FIS provided Spence access to its virtual testing payment platform “sandbox” to ensure Spence’s products would integrate seamlessly with FIS’s payment infrastructure, according to the lawsuit.
In turn, Spence spent “countless hours” and millions of dollars on coding and dedicated all of its resources to develop the products that FIS was promoting to the cannabis industry, according to the plaintiff’s attorneys.
After Spence shared its blueprints to the cannabis industry and introduced FIS to its potential clients in the space, FIS “began its slow and evasive exit towards repudiation,” according to the lawsuit.
Under a new CEO, FIS eventually informed Spence that it would not do any business with the company because of a previously undisclosed cannabis policy that involved cutting ties with what the defendants perceive to be “riskier industries,” according to the lawsuit. That’s when Spence and other startups like it were abandoned, the attorneys wrote.
“As alleged in the complaint, FIS induced Spence Labs into fully committing to FIS, then FIS brazenly breached their partnership agreement, destroying the up-and-coming startup,” Andrew L. Schwartz, partner at Kasowitz Benson Torres, said in a statement provided to Cannabis Business Times. “We look forward to recovering the significant damages that Spence has suffered as a result of FIS’s egregious behavior.”
During partnership negotiations, FIS valued Spence at a minimum of $25 million, according to the plaintiffs. But, after “being forced” to terminate its employees and cease development operations as a result of FIS’s “misconduct,” Spence’s value is now effectively zero, according to the lawsuit.
In turn, Spence Labs now seeks to recover the financial damage it has encountered as a result of FIS’s “breach of contract and fraud,” according to Kasowitz Benson Torres LLP.
Spence.fis Complaint by Tony Lange on Scribd
