Snackable marshmallow brand Smashmallow has emerged victorious in a legal battle against an equipment manufacturer that failed to deliver on its promises. The brand, created by food and beverage investor Sonoma Brands Capital, was awarded $21 million plus attorneys’ fees after a lengthy trial. Smashmallow, known for its clean-label snacking marshmallows featuring gourmet flavors and resealable packaging, attracted significant funding from various partners. However, the brand faced challenges when it sought to scale up production using specialized machinery.
Sonoma Brands Capital founder Jon Sebastiani explained that the company had entered into a contract with Tanis Food Tec to build a proprietary machine capable of producing Smashmallow at scale using organic cane sugar. However, the machine arrived late and did not meet the volume targets or quality standards promised in the contract. Additionally, it created flammable airborne particles, posing a fire risk and health and safety issues. As a result, Smashmallow was unable to meet production capacity requirements and incurred significant damages.
Sebastiani emphasized the numerous violations and breaches of contract that occurred throughout the process, leading to the decision to wind down the business and pursue litigation. The jury trial lasted five weeks, during which Sebastiani personally testified for almost five days. The jury overwhelmingly found Tanis responsible for breach of contract, resulting in the $21 million ruling, which includes attorneys’ fees.
Sebastiani expressed his determination to pursue every last dollar owed to Smashmallow, estimating the total owed to be closer to $30 million when considering the expenses incurred in building the manufacturing facility around the faulty machine. He highlighted the importance of a well-drafted contract and the persistence to hold accountable those responsible for failures.
Reflecting on the experience, Sebastiani acknowledged that additional precautions could have been taken, such as personally inspecting the machine and monitoring its production. However, he trusted Tanis based on its reputation and the samples it provided, which were later revealed to be produced by hand.
Sonoma Brands Capital, founded in 2015, initially focused on incubating and investing in food and beverage brands but has since expanded into other sectors. Sebastiani mentioned the recent investment in Bachan’s, a Japanese BBQ sauce brand experiencing significant growth. Sebastiani also noted the changing landscape of food investments, with a greater emphasis on profitability and delivering margins. He warned that many smaller brands may face a “day of reckoning” without a clear exit strategy or profitability.
The legal victory for Smashmallow serves as a reminder of the importance of contractual agreements and the need for diligence in ensuring the delivery of promised equipment. It also highlights the challenges faced by emerging brands in the competitive and evolving food industry.