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This Flag Indicates That THCZ Aims To Plunder Your Gold!




In spite of loud objections to OTCmarkets' designation of Totally Hemp Crazy as "Caveat Emptor" and claims of coming rescission, the skull and crossbones aren't going anywhere.

Written by Janice Shell

April 6, 2015: Last Thursday morning, Totally Hemp Crazy (THCZ) shareholders awoke to an unpleasant surprise: OTCMarkets had slapped a Caveat Emptor warning on the stock.  Many leapt to the conclusion that the action was prompted by complaints submitted by a "short boiler room," whatever that may be. Typically, boiler rooms push worthless stocks on the unwary; no one has ever heard of one exhorting people to short. But then, the delusional will concoct any scenario to appease their own fantasies.

Some message board posters confused the imposition of the skull and crossbones with a regulatory action.  OTCMarkets is, however, not a securities regulator.  It is a quotation service and electronic trading platform.  At its website, OTCMarkets explains its Caveat Emptor policy.  The most common reason for a CE warning is promotion or spam without adequate current information, but that is not the only possible reason.  Others include an investigation of fraud or other criminal activities of which OTCMarkets has become aware, and undisclosed corporate actions.

Totally Hemp Crazy and Rocky Mountain High

We last wrote about THCZ on 23 February.  That day, the stock closed at $0.0351.  It subsequently rose, at first slowly, and then, beginning on 19 March, far more dramatically.

THCZ, 29 February-2 April
As the chart indicates, it had only one red day in ten sessions. That isn't normal for any stock.  In the course of those ten sessions, THCZ's stock price climbed from $0.063 to an astonishing $0.32 intraday, with its highest close--on April Fool's Day--at $0.2931.  Bid support was exceptionally strong.

As we noted in our earlier article, THCZ's founder, Jerry Grisaffi, has a dismal record with earlier private and public companies. Tuna hotdogs, a proposed chain of barbecue restaurants, vodka made in Texas were all failures.  In 2013, THCZ's predecessor company, RXTB, filed for bankruptcy; it exited Chapter 11 in July 2014.  Since then, Grisaffi and Tom Shuman, a beverage industry veteran who now serves as CEO, have developed a line of hemp-infused soft drinks intended to appeal to health-conscious consumers. These products--lemonade, iced tea, and an energy booster--contain hempseed extract, which is legal in all 50 states. The company says its drinks contain "zero THC," marijuana's active ingredient. So what's the point? Hemp does contain omega 3 and 6 fatty acids, and plant proteins, which, according to THCZ, are "nutritious."

   » Related: THCZ = Totally Crazy

The drinks are now on sale at Amazon, and are also available through Mr. Checkout wholesale distributors.  THCZ's hemp beverages are not unique.  Last year, the company marketed a hemp drink called Chillo, which is also sold by penny company Dewmar International (DEWM), and Mr. Checkout distributes a potentially competitive product called DuBe Energy Shot.  For investors, the biggest feather in THCZ's cap is Rhino Marketing, which has been hired to bring awareness to the product.  Rhino helped launch Red Bull, and THCZ shareholders find that very promising indeed. What they don't realize is that Rhino has represented a lot of other products that nobody has ever heard about.

Why did OTCMarkets act?

OTCMarkets' imposition of the dreaded skull and crossbones put an abrupt end to THCZ's run; the stock closed Friday at $0.137, down 53.26%.  As of Wednesday's intraday high, the company's market cap was $94.4 million, an outrageous figure given the $39,204.64 total assets claimed in its quarterly report for the period ended 31 December 2014.  Many shareholders, unpersuaded by logic, responded to OTCMarkets' action with allegations of a "short attack," convinced that short sellers had somehow bamboozled OTCMarkets into believing a major paid promotion was underway.
  
While several minor newsletters, including Penny Stock Locks and its sister newsletters, pumped THCZ at the end of March, they disclosed no compensation.  Around the same time, Sierra World Equity Review "predicted" that the company was in acquisition discussions with Dr Pepper Snapple Group, but only the newest newbies take Sierra--which as far as we know has never been right about anything--seriously.  Certainly OTCMarkets doesn't.  In addition, the company quickly issued a press release making clear that the "prediction" was "incorrect" and that "no such discussions have ever taken place."

If a paid promo didn't prompt the caveat emptor warning, what did?  While no short seller cabal convinced OTCMarkets to act, it's possible that shorting activity was on the rise.  As of 27 February, short interest was 243,166 shares; as of 13 March, 685,472 shares.  Not a big deal, even if the float of 152 million shares hasn't increased since it was last reported on 31 December.
  
But what if short interest jumped in the past few weeks, along with THCZ's stock price?  Since we're not FINRA, we don't have the necessary data, but it's possible someone set a trap for careless market makers shorting to provide liquidity.  That happened a year ago, when Cynk Technology (CYNK) insiders, who controlled the float, initially sold into the market, and then cut off the supply as MMs who'd legally shorted naked into buying demand tried to cover.  CYNK briefly soared to nearly $15, which gave it a $6 billion market cap, before an SEC suspension stopped the music and left many players without chairs.

THCZ's float isn't as tightly controlled as CYNK's, but it has a couple of interesting note holders, and they've recently converted significant amounts of those notes to common stock.
  
Roy Meadows and Donna Rayburn

THCZ is a Pink Sheet listing, not an SEC registrant.  Until late today, its most recent OTCMarkets filing was the company's second quarter report for the period ended 31 December 2014.  In it, we learn that Jerry Grisaffi has 51% voting control by virtue of his 1 million shares of Class A preferred stock.  The rights and preferences of the Class A stock are not specified, which in itself should be a red flag.  In the previous quarterly report, filed on 18 November, Tom Shuman is said to own 8% of the company--21 million shares--but that information is not contained in the newer filing.  By the end of the year, the outstanding had increased by about 30 million shares, but it isn't clear whether Shuman was no longer an 8% owner, or whether whoever compiled the report simply left that out. This should be disconcerting to any serious investor.

During the quarter ended on 31 December, Roy Meadows partially converted a note he held, and 14 million shares of common stock were issued to him.  Over the years, Meadows, now in his mid-70s, has been involved in a number of unsavory penny stocks, many of them associated with Big Apple Consulting (later Boost Marketing), its founders Marc Jablon, Eddie Vakser, and more.  Among them were Artfest International (ARTS; registration revoked), PBS Holding, Inc. (PBHC), 3D Eye Solutions (TDEY) and IJJ Corp. (IJJP), all of which used Big Apple's dubious services and were subjects of Pump & Dump schemes.  Before he created the company in 1998, Jablon worked for Meadows at the latter's Stockbroker Relations, Inc. and Stockbroker Presentations, Inc.  He learned the tricks of the promo trade from Meadows, and reciprocated by including him in deals involving Big Apple. Although Big Apple, Jablon and associates weren't sued by the SEC until 2009, the agency was looking at them, and at Meadows, as early as 2001.

Donna Rayburn
Donna Rayburn is Roy Meadows's daughter, and publisher of Opportunist Magazine, which calls itself "The Voice for Small Cap Companies."  It was in fact Meadows who first incorporated a company by that name in Florida in 1995.  He seems to have abandoned it quickly, but it reappeared a decade later as one of the entities controlled by Rayburn's Markham Woods Press Publishing Company.  She employs her brother James at Opportunist, but plays the market with her father.  She was formerly chairman of the board of ASF Group (now American Seniors Association Holding Group; AMSA); Meadows was a note holder, and the DLJ Family Limited Partnership, controlled by Rayburn, was a major shareholder.  The company attorney was Guy Jean-Pierre, who was sued by the SEC in 2012. Jean-Pierre also represented Big Apple, and a number of companies associated with Big Apple, such as IJJP. Rayburn and Meadows are also note holders in New World Gold Corporation (NWGC) and Andes Gold Corporation (AGCZ).  The full list is much longer, but readers will have the idea by now. Meadows and his associates are bad news.

The new THCZ attorney letter and more about Meadows and Rayburn

Jerry Grisaffi reacted quickly to OTCMarkets' application of the Caveat Emptor warning.  In mid-morning on 2 April, he put out a press release declaring that the company had hired no promoters and had no intention of hiring any.  The Eversull Group, run by Texan Jack Eversull, has long worked investor relations for THCZ, but evidently Grisaffi doesn't consider the firm to engage in what the authorities might consider objectionable pumping.  Eversull has represented dozens of OTC companies, almost all of whom have been the subject of major promotions, including Interactive Leisure (IALS),  Zentric, Inc. (ZNTR) and the previously suspended, Caveat Emptor tagged, Evcarco Inc. (EVCA). In this complaint filed on Ripoff Report, Eversull was blasted for his involvment in the Texas Hill Country Barbeque (THCB) scam, a deal which also has connections to Jerry Grisaffi.

To reinforce the message, the company's attorney David Seeberger filed two letters with OTCMarkets. The second was a revised version of the first, to which Seeberger had added a list of stock issuances since 2 July 2014.
  
We learn that although Grisaffi has voting control of THCZ thanks to his Class A preferred stock, he owns only 3.65% of the commons.  Tom Shuman still has his initial 21 million shares, which now constitute 7% ownership.  Seeberger himself holds 2.72%, and Mark Ussery, a vice president and director, 1.9%. These are unusually small holdings for officers and directors of a penny company.  
More interesting is the list of people and entities to whom stock has been issued.  Roy Meadows evidently did three separate conversions, of 12 million, 14 million, and 18 million shares.  Donna Rayburn is named as well; she was issued 12 million and 14 million shares.  Between them, Rayburn and her father received a cool 70 million shares from their note conversions.  Usually note holders convert because they intend to sell.  Were Meadows and Rayburn unloading as THCZ's stock price climbed to nosebleed territory?  That would make sense--nobody ever went broke taking a profit--but we have no way of knowing.
  
Seeberger says in his letter that he spoke to all greater-than-10% owners of THCZ, and concluded that "any sales of the securities by Insiders within the twelve-month period prior to the opinion have been made in compliance with Rule 144."  What he meant was that the sellers referred to waited till the one-year holding period specified by Rule 144 had expired before making any sales.  That seems entirely possible; after all, we don't know when Rayburn and Meadows lent the company money.  We also don't know whether their notes have been fully converted, or whether there's more, perhaps much more, to come.  We do know that THCZ raised its authorized capital from 400 million to 600 million shares on 23 March, a move that suggests additional conversions are on the way.

Just after lunch on Monday, 6 April, Grisaffi and company counsel felt it desirable to expand on their earlier announcements and disclosures.  The stock had dropped nearly 45% at the open, and though it made a partial recovery, was still deep in the red.

Intraday chart, 6 April
Grisaffi's press release, and the accompanying financials for the period ended 31 March 2014, gave encouragement to buyers.  The financial report showed an improvement in the company's cash position, and its total assets had risen to $723,858.  The cash appears largely to have been raised through the issuance of convertible notes and the sale of stock.  The good news is that the company has begun to sell its product; the bad news is that it booked a net loss of $344,712.63 for the quarter.  Revenues for this past quarter were $67,663.51.  In his PR, Grisaffi said confidently that he expects next quarter's sales to be "in excess of $700,000." We're not sure how Jerry extrapolates $67K worth of sales over two weeks into $700K over a quarter, but even if the projection is correct, how would this come close to justifying a $94 million market cap? Or even a $9.4 million market cap? Remember that the $700K number does not represent profit or even net revenue.

Unfortunately the report is not compliant with U.S. GAAP, though OTCMarkets says that such filings should be.  There are no notes to the financial statements, which makes them to some extent incomprehensible.  The cash flow statement is particularly problematic.  What are "Convertible Notes Payable Plus"?  Plus what?  In addition, convertible notes are financing activities, not operating activities, as the report claims. What is the reduction in Additional Paid In Capital? Without notes, we have no idea, but it seems possible it was merely included to make the numbers balance.  If THCZ wants to be taken seriously, it ought to find itself a serious CPA.

David Seeberger also produced a third iteration of his attorney letter addressing the Caveat Emptor. It differs from the earlier versions in two important ways.  First, he says specifically that with regard to information about stock issuances, "I have been advised by Jerry Grisaffi, and am relying on his statements and representations without other or further investigation, and with no reason to question such statements and representations…"  In the second of last Thursday's letters, he claimed he'd spoken personally to the insiders who received stock.

The list of stock issuances has also been expanded to show what stock is still restricted and what stock is not.  It's made clear that all of the stock resulting from Meadows's and Rayburn's conversions was issued free trading, because their debt was properly aged; that is, more than one year old.  We still don't know whether Grisaffi's 1 million shares of Class A preferred supervoting stock is in any way convertible.

In their respective communications, Grisaffi and Seeberger speak as if they're certain that OTCMarkets applied the skull and crossbones because it suspected the rise in THCZ's stock price was caused by a paid promotion.  They don't, however, say specifically whether OTCMarkets told them that.  Usually when OTCMarkets decides to raise the Jolly Roger there really is a big and widely publicized pump job  going on.  In this case, there wasn't, and that would presumably not been difficult for OTCMarkets to determine.  Back in 2012, Opportunist Magazine interviewed Grisaffi, but that's too long ago to count.

Is it possible that Roy Meadows and his own decades-long career as a stock promoter are the real problem?  He may not be openly touting THCZ now, and it's impossible to say whether he's up to anything else that OTCMarkets, and perhaps FINRA or the SEC, might regard with suspicion.  
Shareholders spent the long weekend wondering what will happen this week.  Many feel the Caveat Emptor was wrongly and unfairly imposed, and hope for its quick removal.  Skeptics wonder if an SEC suspension may follow in the days or weeks ahead.  The regulators are always unpredictable, and we don't have a crystal ball, so we'll wait and see along with everyone else.

Jerry Grisaffi and friends
Obviously Grisaffi, like his shareholders, badly wants the skull and crossbones to go away.  But in our view, that is unlikely to happen anytime soon.  Back in the late '90s, the SEC made a special point of alerting investors to over-the-top promotional statements like, "This stock is the new Microsoft!" The agency still believes such suggestions are inflammatory and misleading.

Commenting today on the CE, Grisaffi said, "Investor excitement about the potential for the product being the next 'Red Bull' has generated record volume and share price all-time highs last week, and that triggered OTCMarkets.com to place the company on alert.  We believe the Caveat Emptor legend will be removed in the next few days."

The "next Red Bull"?  Really?  Sounds like a promotion tactic to us and a comparison definitely intended to generate interest in the stock, especially considering the preposterous nature of the statement. If Jerry wanted to convince OTCmarkets that there was no pumping going on, perhaps he should have kept his big mouth shut.