Kathleen McLaughlin
The Bulletin

Investors in a Deschutes County hemp farm are suing their former partner, saying the farm floundered while he used its assets to obtain CBD oil worth more than $500,000.

Baker’s Ranch Botanicals filed a lawsuit July 25 against several corporate entities affiliated with Michael Peter Schook and Schook individually. The suit seeks $950,000 in damages.

Schook, meanwhile, faces 21 felony charges in Colorado, where investigators believe he grew marijuana, made marijuana concentrate and led a distribution ring that used FedEx to sell the product out of state, according to an April 2018 Douglas County grand jury indictment. The charges include racketeering, conspiracy, money laundering and distribution of marijuana concentrate. He’s set to be arraigned Aug. 19, according to the district attorney for the state’s 18th Judicial District.

Schook declined to comment.

Schook is listed with the Oregon Department of Agriculture as the contact for two other Deschutes County hemp farms, which are registered to Four Seasons LLC.

The Oregon Department of Agriculture doesn’t yet have the legislative authority to require background checks on people participating in the industrial hemp industry, said Sunny Summers, cannabis policy coordinator. Nor are hemp license holders required to notify the state of pending criminal charges.

The 2018 Farm Bill, which paved the way for a legal hemp industry, says states may not allow people with controlled-substance felony convictions in the past 10 years to participate, Summers said. Oregon could pass legislation in 2020 that would bring the state into compliance with forthcoming U.S. Department of Agriculture regulations, she said.

Michael Hughes, attorney for Baker’s Ranch Botanicals and a related holding company, PSBS Holdings, said he couldn’t comment on the case because of ongoing investigations.

Schook’s three former partners, Joseph Phelps, ­David Seelinger and Natale Buonfiglio, are executives with EmpireCLS, a luxury chauffeur company headquartered in New Jersey. They had no experience with cannabis or farming, according to the lawsuit.

A 50% owner of PSBS Holdings, Schook was responsible for setting up and running cannabis production and processing, according to the suit. He stood to receive 40% of the profit. He was also paid an annual salary of $75,000.

The partnership agreement that Schook signed in August 2017 precluded him from working for or consulting with other cannabis or hemp businesses, according to the suit.

Baker’s Ranch received its license to produce hemp at 25890 Alfalfa Ranch Road in May 2018. Around the same time, the lawsuit alleges, Schook, his daughter ­Tiffany Stewart and Four Seasons entered an agreement with former Oregon state Sen. Charlie Ringo to produce hemp at 21625 Butler Market Road. (Ringo also was majority owner of a recreational marijuana farm, High Cascade Farms, which lost its license in September 2018 as a result of an investigation into an illegal marijuana hash oil operation.)

None of Schook’s partners was aware of the Butler Market Road hemp farm, according to the suit. Baker’s Ranch bought 25,000 hemp seeds at a cost of $27,000 for the 2018 growing season. Schook’s former partners also spent about $230,000 on fertilizer and other farming inputs and labor.

By late July 2018, there were about 2,500 plants growing in the field at Alfalfa Ranch, according to the suit. Schook informed his partners that many of the seeds didn’t germinate.

In August that year, the partners discovered Schook had been arrested in Colorado and faced felony charges. When confronted with the information, he maintained his innocence, according to the suit.

In September, Schook told his partners that the plants never developed flowers and would not be marketable.

Concerned about the criminal charges, the PSBS Holdings partners removed Schook from the companies on Oct. 8 but kept him as an independent contractor to run the farm. He had the option of returning to the companies if the criminal case had a favorable outcome.

Baker’s Ranch started auditing expenses shortly after reorganizing the company and found irregularities, the suit says. The farm had received two Kubota rototillers, one of which had an invoice listing the Butler Market Road property. A $7,500 invoice from Oregon Valley Farm labor had been altered so that it would be addressed to the Alfalfa Market Road farm, not the Butler Market Road farm.

When confronted, Schook said his daughter was working on a hemp project with an investor at the Butler Market address and he was trying to help her, according to the suit.

On Oct. 23, the partners fired Schook as a contractor and ordered him to move out of the house on the Alfalfa Market Road farm.

In July, the suit alleges, Schook had hemp biomass from the 2018 growing season processed at My CBD Supply Co. in Las Vegas. The suit doesn’t indicate the source of that information but goes on to allege that Schook received approximately 60 kilograms of CBD oil — valued at $10,000 per kilogram — from the processor. He sold some of the CBD oil and returned the rest to CBD Supply to be sold by the processing company, the suit alleges.

Baker’s Ranch alleges that Schook either made the CBD oil from hemp produced at the Alfalfa Market farm, or that he diverted inputs and money from their farm to produce the hemp at the Butler Market farm.

— Reporter: 541-617-7860, kmclaughlin@bendbulletin.com