Chicago Cannabis Fintech Claims FIS Killed Its Company

Chicago Cannabis Fintech Claims FIS Killed Its Company

Chicago-based cannabis financial technology company Spence Labs is suing tech biggie Fidelity National Information Services (FIS) (NYSE: FIS) claiming the company backed out of a partnership deal that essentially killed the company. Law360 reported that Spence Labs filed the case on August 23 in the United States District Court for the Northern District of Illinois accusing FIS of a corporate catch and kill.

Spence claims in its case that billion-dollar financial products company FIS had convinced Spence to enter into a partnership that would help it capitalize on the need for financial technology in the cannabis industry. Spence alleged that after many months of negotiations, due diligence, and promises that preceded it, and well-defined material terms, FIS was refusing to move forward with the parties’ commercialagreement and partnership. The result was that Spence Labs, which had been given a $25 million valuation by FIS, had been forced to lay off all its employees and ceased to have any value.

How It Began

Before meeting FIS, Spence had already built and offered certain technologies for cannabis payment processing through its proprietary technology and mobile payments platform. The company opened in 2019, was incorporated in 2020, and processed its first transaction in a dispensary in Illinois that year.

Spence said it had facilitated compliant and transparent financial transactions between multiple parties in non-cash transactions at state-legalized cannabis dispensaries. However, Spence did not own or operate a payment network and relied on regulated financial institutions, sponsor banks, or payment processors to assist in the transfer and movement of funds.

FIS would’ve solved the payment problem for Spence by giving the company access to FIS’s payment processing connections (e.g., credit/debit card networks and sponsor banks, which FIS represented would initially be Fifth Third Bank).

According to the complaint, the parties began discussing a partnership in 2021. At first, FIS was going to acquire Spence Labs, instead, FIS decided to pursue a minority investment and partnership. However, the deal came with strings attached.

Spence claims that FIS required it to undertake several large remediation measures that were tailored for the Spence-FIS commercial partnership. The complaint stated, “FIS also required Spence to agree to, among other things, restrictions on its ability to conduct business with FIS competitors. To accomplish this, FIS offered to (and did) invest $4.5 million dollars in Spence, under the pretense that the money would be used to develop and build up Spence’s infrastructure to support the partnership’s products.”

The complaint goes on to say that the two companies engaged in extensive due diligence and negotiations. Spence was to be the exclusive preferred provider for FIS in the cannabis industry and FIS would be the exclusive payments provider for Spence. They agreed to a 50/50 share of the revenue. The financial products were to launch in April 2023.

The court document claims that the two companies continued to move forward with the partnership and had several public statements about the deal. Indeed, the partnership was announced at the MJ Biz conference in November 2022. Spence said that it paused all of its other projects to focus on the FIS deal. The complaint stated, “Spence spent countless hours and millions of dollars on coding and engineering to build out new infrastructure to accommodate the new “card-first” products and platform, which would only be possible through a partnership with FIS.”

Spence Gets Kicked To The Curb

It seemed the process was moving along when Spence claimed that FIS began slow-walking the partnership by ghosting the company by not answering emails. Behind the scenes, FIS was struggling. Top leadership left, employees were laid off and the stock price plunged. In July 2023, FIS said it was spinning off the payments company Worldpay, which was the payments processor Spence was depending on.  FIS detailed how it “signed a definitive agreement to sell a majority stake in its Worldpay Merchant Solutions business to private equity funds managed by GTCR [a Chicago-based private equity firm] in a transaction valuing Worldpay at $18.5 billion.

The new CEO at FIS also began employing a new strategy that seemed to abandon Spence. By March 2023, FIS began to walk back its partnership agreement. Indeed, the complaint stated that Spence’s application for a merchant account with Worldpay was denied. In addition to that FIS had a new cannabis policy that Spence now violated.

The complaint alleged, “After leveraging Spence to secure a foothold in the market and acquire crucial information and contacts, FIS kicked Spence to the curb, while the newly spun-off Worldpay could pursue the same cannabis opportunities that the parties had agreed to partner on, just by itself, or with another partner under more favorable terms or circumstances.”

How It’s Going

Spence claimed, “As a result of FIS’s actions, Spence—which had reworked its business model, spent substantial resources building the partnership products announced by FIS, and provided FIS with equity in Spence under generous terms—was forced to turn down all the business opportunities that followed the announcement, lost or terminated employees that were hired to accommodate the partnership, lost its existing and long-standing partnerships (including with its sponsor bank), and suffered substantial reputational damage.”

The company went on to claim that Worldpay continues to suggest it is working with cannabis companies despite telling Spence it had a no-cannabis policy. Spence also alleged in its complaint that FIS did the same thing to another cannabis fintech company but did not disclose that name. The company is asking for a trial and monetary damages.


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