Lab equipment giant ensnared in sprawling $300M fraud case over failed testing tools

Cannabis testing laboratories across multiple states are alleging that scientific equipment giant PerkinElmer sold them faulty testing devices that couldn’t perform as promised, costing lab owners more than $100 million collectively.

In January, 26 laboratory companies across 10 different U.S. states, as well as Ontario, Canada, filed a joint complaint in Suffolk Superior Court against PerkinElmer U.S. LLC and PerkinElmer Health Sciences, the latter of which has since rebranded as Revvity (NYSE: RVTY).

The case highlights a pattern of problems that reach past isolated technical issues to what plaintiffs describe as systemic deception in the cannabis testing sector.

After obtaining a California cannabis testing lab license in 2016, Doug Scott began investing millions to convert a former Fresh Express research center in Salinas for his companies at the time, American Biotech Testing and American Biotech Laboratories, which are parties in the lawsuit. Before making the move, he had spent decades in laboratory sciences for other industries.

Scott paid around $700,000 for what PerkinElmer salespeople dubbed a “turnkey solution,” including $400,000 for a specialized mass spectrometer known as the QSight 220. He had planned to purchase an additional $3 million worth of equipment from PerkinElmer before discovering the issues.

“(PerkinElmer said) their instrument could identify all 66 pesticides or more,” Scott told Green Market Report. “No one else had that capability at the time.”

Scott’s plans were interrupted when he was hit with a cancer diagnosis, which required immediate treatment. During the treatment, he discovered a devastating truth: The cannabis testing equipment couldn’t perform as promised. California requires cannabis testing at parts per billion, but Scott’s equipment could only reliably test at parts per million – making compliance impossible.

“It’s like flying a small airplane … compared to sending a missile up to the moon,” Scott explained. “It’s a significant workload to go down to parts per billion versus parts per million.”

What he came to find was that “internally (PerkinElmer knew) that the 220 wasn’t sensitive enough and should not be sold,” Scott said. “They knew this and sold it to me anyway.”

As it turns out, Scott wasn’t alone. All the labs report nearly identical problems:

The lawsuit argues the pattern reveals a “coordinated deceptive marketing and sales effort” rather than isolated incidents. The collective damages sought by these labs amounts to at least $296 million.

Internal company emails cited in the lawsuit suggest PerkinElmer knew its equipment couldn’t meet regulatory standards. For example, according to the complaint, a January 2021 communication acknowledged PerkinElmer’s instruments couldn’t meet Florida requirements, and bluntly stated: “1/10th pull it out not going to work.”

Another email warned: “As more states come online and present stricter laws for detection, we are quickly approaching a situation where the one instrument solution will likely fail… First FL, now MI.”

By May 2023, PerkinElmer executives appeared to widely acknowledge issues on a recorded call, saying: “Some of these deals that we found out about were not above board and presented internally in a certain way…”

One of the other cannabis lab executives affected, Thomas Gromis, who runs High Sierra Analytics and is also party to the lawsuit, told GMR that PerkinElmer blamed “operator error” for his lab’s problems while knowing the issues were widespread and unsolvable.

For Scott, the situation quickly became financially untenable in early 2018. A leasing company connected to PerkinElmer, Sweet Leaf Madison Capital, charged 18% interest on $600,000 for lab equipment financing, which resulted in monthly payments of around $28,000 – payments that came on top of maintaining an 11,000-square-foot facility with operational expenses of $60,000 to $70,000 monthly.

“I had to keep paying that while we tried to validate (equipment that couldn’t be validated),” Scott explained. “That’s the crux of the problem.”

When Scott questioned Sweet Leaf about whether other labs were experiencing similar problems, he was told he was the only one. Despite having been a successful entrepreneur for decades, Scott found himself sleeping on the floor of his lab for over a year after his cancer treatment. In late 2020, Sweet Leaf repossessed his equipment, and by January 2021, Scott was forced to vacate his American Biotech facility completely.

After the repossession, Sweet Leaf sued Scott in June 2021 for $945,000 – more than double the $450,000 that he believed he owed. At nearly 70 years old, Scott was ultimately forced to file for personal bankruptcy.

It wasn’t until late February 2021, after losing his lab, that Scott discovered dozens of other lab owners with remarkably similar stories.

The emotional and physical toll has been equally devastating, Scott said. Aside from financial ruin, Scott said he was diagnosed with severe post-traumatic stress disorder and experienced panic attacks which required hospitalization.

“I’d be comatose in bed for three days,” Scott said. “My 96-year-old mother would call the police and fire department because I couldn’t move.”

Scott’s mother, who had invested in American Biotech, became so distressed by his condition that she developed what doctors diagnosed as “broken heart syndrome,” he claims – a heart condition triggered by severe stress where the heart muscle is overwhelmed by a massive amount of adrenaline.

Who’s responsible for the issues, however, isn’t straightforward anymore either, as PerkinElmer restructured into two separate entities in 2023. The company rebranded its diagnostics division as Revvity while selling certain assets to New Mountain Capital, which formed PerkinElmer U.S. LLC. Revvity reported $3.35 billion in 2023 revenue, down 14.83% from 2022, with the company now hovering at around $97.57 per share.

Neither company has publicly responded to the lawsuit’s allegations. Attempts to reach either were unsuccessful.

Scott believes the restructuring doesn’t erase responsibility. He said PerkinElmer aggressively pursued cannabis testing business against established competitors like Agilent and Waters.

“They saw a huge opportunity but were late to the game,” Scott said. “They got aggressive, making deals (and) said things they shouldn’t have said.”

This isn’t PerkinElmer’s first testing lab controversy. In 2022, California terminated a $1.7 billion no-bid COVID-19 testing contract with the company after a state report found “significant deficiencies” with the Valencia Branch Laboratory, including documentation problems, inadequate record-keeping and training issues. California Gov. Gavin Newsom, who had originally supported the lab and the lucrative government deal, quietly canceled the contract after the state already shelled out $716 million.

The case is part of larger picture in a nascent industry still swimming through murky regulatory waters. In addition to PerkinElmer’s alleged fraud, some labs have been accused of participating in shady practices such as diversion of product on behalf of operators, and there’s no national or international standards for testing processes just yet.

In Massachusetts, labs are currently battling over competing testing methods, and one cannabis producer recently faced recalls despite using state-approved labs.

In a letter to California Attorney General Rob Bonta, Scott drew parallels to the Theranos fiasco – another case where promised technology couldn’t deliver what was sold.

Scott has since turned the page on the cannabis chapter of his life. Connecting with fellow lab owners for the lawsuit against PerkinElmer gave him a sense of validation after years of isolation. A 2022 trip to Indonesia with his son marked a turning point, he said, and he returned to surfing and running while channeling his energy into a new business venture involving desalination and hydrogen tech. And his cancer is in full remission.

“I’m out of wine (and) cannabis. I can’t be part of it anymore,” Scott said. “But my health is good. My cancer’s gone.”