Legal Archives - Page 2 of 9 - Green Market Report

Cynthia SalarizadehCynthia SalarizadehSeptember 16, 2020
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6min7220

National Expungement Week (N.E.W.) 2020, the third annual week of awareness across the U.S. that offers expungement and other forms of legal relief to some of the 77 million Americans with criminal records will take place September 19-26, 2020

Adapting to address COVID-19 health and safety concerns, N.E.W. 2020 will continue its vital work through a mix of online and in-person clinics, workshops, and events – featuring crucial supportive services including pop-up food pantries and voter registration at select locations.

N.E.W. 2020 clinics will cover all 5 regions of the U.S., representing states including California, Colorado, the District of Columbia, Florida, Hawaii, Illinois, Kentucky, Massachusetts, Missouri, New York, New Jersey, Oregon, Pennsylvania, South Carolina, and Washington. Besides record clearing services, legal advice, and education, N.E.W. 2020 will continue its mission to restore individuals and communities through wraparound services focused on key areas of relief exposed by the ongoing pandemic, including reparative justice, voting rights, housing, and food insecurity.   N.E.W. 2020 is made possible by Canopy Growth Corporation, local sponsors, partner organizations, and a tireless community of grassroots organizers working directly with disenfranchised communities.

“Our year-round work never stops, and we are determined to use this week to inspire communities to take action, clear records, and restore the rights of some of the 77 million justice-impacted people in the U.S.,” says LaTorie Marshall, the founder of National Expungement Week.

N.E.W. is a permanent assistance network for marginalized communities nationwide, which has helped over 1,000 people start to clear or seal convictions on their records. More than 3,000 people have also received related social services offered at N.E.W. clinics and events, including employment resources, voter registration, and health screenings. Since its launch in 2018, the grassroots network has generated a public benefit of over $10,000,000.  

N.E.W. 2020 is powered by people of color, supported in full solidarity by Cage-Free Repair, and brought to communities through a dedicated group of community organizers and activists.  The collective advocates for uniform legal relief laws and automatic expungement policies nationwide and raises awareness for the 44,000 legal and socioeconomic barriers that exist for the disenfranchised.  Though not cannabis-specific, mitigating the impact of the War on Drugs is a key focus, as it works to put marginalized communities directly in touch with valuable services and resources.  N.E.W. has also created an online toolkit to further their expungement efforts year-round.

N.E.W.’s partnership with Code For America continues in a number of forms in 2020.  Code for America’s National Day of Civic Hacking (September 12, 2020) will focus on the social safety net, and those efforts will be amplified by the wraparound services offered at N.E.W. events one week later. In time for one of the most consequential election cycles of a generation, N.E.W. 2020’s push for voter registration also coincides with National Voter Registration Day, which takes place on September 22, 2020. 

For more information on N.E.W. 2020, including a full list of locations and events,  please visit www.nationalexpungementweek.org

 


StaffStaffSeptember 11, 2020
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4min4150

The Marijuana Policy Project announced that the Nebraska Supreme Court has ruled that the medical marijuana ballot initiative supported by Nebraskans for Medical Marijuana will not appear on the November 2020 ballot. The decision came in response to a lawsuit filed by opponents arguing that the measure violated the state’s single-subject rules.

The state isn’t considered a very large market as compared to other states. It was projected to have sales of roughly $30 million by 2024 by Canaccord analyst Bobby Burleson. Nebraska currently has 79 hemp farming licenses with 1,675 outdoor acres permitted for farming and 465,807 square feet of approved greenhouse space.

Matthew Schweich, deputy director of the Marijuana Policy Project said, “This is an outrageous and deeply flawed decision by a group of activist judges. This ruling means that sick and suffering medical marijuana patients, including veterans, will continue to be criminals in Nebraska when they try to live healthier lives. This ruling tramples on the constitutional rights of over 190,000 Nebraskans who signed the petition and deprives the voters of Nebraska of their opportunity to decide this issue at the ballot box.” MPP has worked on the campaign since its inception and was instrumental in getting the signatures.

Nebraskans for Medical Marijuana submitted over 190,000 signatures in support of the amendment in July. The Court’s decision overturns Secretary of State Bob Evnen’s decision to certify the initiative after a similar legal challenge was submitted by opponents in August.

Nebraskans for Medical Marijuana

We just heard and the news is not good. Like all of you, we are absolutely devastated by the Supreme Court ruling. But this fight is not over. Nothing changes the fact that an overwhelming majority of Nebraskans stand with the patients and families who deserve compassion and safe access to medical cannabis. We will be regrouping and updating you all soon with plans for our next steps.

Schweich added, “Our opponents are cowards. They use insider political tactics because they cannot win this debate. Medical marijuana will be legal in Nebraska one day. We lost this battle but we will undoubtedly win the war. We’ll be back.”


Debra BorchardtDebra BorchardtSeptember 4, 2020
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8min147510

On Thursday, the Securities and Exchange Commission (SEC) announced charges against Geoffrey Thompson for illegally selling more $19 million in unregistered securities.

The SEC’s complaint alleges that Thompson, a repeated securities laws violator, and his company, Covalent Collective, Inc., directed numerous offerings of unregistered securities from 2014 to 2019, ultimately raising more than $19 million from approximately 500 investors. “As alleged in the complaint, Thompson used numerous mechanisms to solicit investors, including providing investors video and audio recordings in which Thompson encouraged investors to spread the word about the company’s securities to friends and family. The complaint further alleges that despite raising nearly $20 million, Covalent never commenced any revenue-generating operations. According to the complaint, Thompson diverted more than $2.7 million of investor funds for his own benefit.”

Repeat Offender

Green Market Report has followed the saga of Geoff Thompson and his revolving door of cannabis companies. Investors continued to complain to GMR as to why the SEC allowed Thompson to keep setting up cannabis companies and selling shares if he was really just ripping them off.  In September 2017, the SEC sued Thompson for securities fraud and registration violations in connection with another of his companies, Accelera Innovations, Inc. (See SEC v. Accelera Innovations, Inc., et al., 17-cv-7052 (N.D. Ill). In April of this year, Thompson agreed to a final judgment permanently requiring him to quit violating securities laws.

He was also required to pay $350,000, prejudgment interest in the amount of $74,000, and a $100,000 civil penalty. The court also imposed a five-year ban on Thompson from (a) serving as an officer or director of a public company and (b) offering penny stocks. Even while the SEC was investigating him for Accelera, Thompson founded Covalent Collective, Inc., f/k/a Doyen Elements International Inc. f/k/a Advantameds Solutions Inc. and would insist that any shareholder problems with Doyen were because “there were two Doyens and his wasn’t the bad one.”

Covalent

Between July 2014 through at least June 2019, the SEC said that Covalent and affiliated entities offered several different investments, all of which were connected to Covalent common stock. The Covalent securities offerings resulted in the sale of over 800 investments, to approximately 500 different U.S. investors, cumulatively raising over $19 million. Thompson directed Covalent to use offering methods including unregistered broker-dealers, press releases, an investor relations firm, a public website, and a call center operated by Fortress Legacy.

Covalent sold “special warrants” to approximately 177 different investors, raising a total of approximately $8 million. Approximately 79 of the 177 investors did not indicate that they were accredited. Between 2018 and 2019, an additional 440 subscription agreements with 293 different investors, sold more than $8 million in Covalent common stock. Other investors affirmatively disclosed to Covalent that they were not accredited, but were still allowed to invest. Thompson would email audio recordings about the stock offering and promote it through a public website. Covalent never provided the common stock investors with a prospectus or financial statements.

In a related action, the Commission instituted settled administrative proceedings against Covalent. The document read, “Covalent violated Section 5(a) of the Securities Act, which prohibits the sale of securities through interstate commerce or the mails unless
a registration statement is in effect, and Section 5(c) of the Securities Act, which prohibits the offer to sell any security through interstate commerce or the mails, unless a registration statement has been filed as to such security with the Commission.”

As recently as July, Covalent shareholders were being told of a new endeavor called Black Bear Farms and posted a YouTube video updating the shareholders. The new board says they were informal advisors to Covalent and are now the new management team. The video also mentions the company Hempcentrics. Thompson talked about Hempcentric in a 2019 podcast and it is unclear whether he is still a part of the company. Covalent shareholders can receive shares in this company if they choose.

In a recent email, the company said this about Hempcentrics, “Hempcentrics, formerly known as North American Hemp, is a company rightfully owned by CC.  Gene (Berg) is working with the current Hempcentrics team to properly and fairly carve out our equity stake, taking into account what the individuals that have worked to form this company deserve.  Once complete, Bill Gregorak and myself (Sal Milazzo) will need to approve it.”

Where Did $19 Million Go?

According to the SEC case, despite raising $19 million, Covalent never started any revenue-producing moves. Instead, Thompson is accused of giving $2.7 million to himself, his wife, and other companies he owed. Covalent asked Thompson to resign when this was discovered. The SEC is asking for disgorgement of ill-gotten gains and prejudgment interest, and civil money penalties from Thompson.

Cultive

At the end of August, Covalent sent an email to shareholders saying it was rebranding its parent company to the name Cultive. Just two weeks prior to the SEC prohibiting the company from offering securities through the mail, the company said in its email,

We have decided on a structure that will offer all CC shareholders an equity stake in Cultive without having to further invest personal funds.  Thus, you will have interest in Cultive based on having shares in CC.  Furthermore, accredited CC investors will be invited to purchase additional shares, equal to the number of shares they originally bought in CC.  Basically, Covalent Collective will be issued 5% of our parent company.   46% of the company will be made up of CC accredited shareholders that choose to take advantage of our invitation to invest further in the business, along with those people that loaned Cultive funds to develop the farm and acquire the property and capital for the extraction facility and distribution center.  The remaining 49% ownership, as we have reported prior, is owned by the Joint Venture partners.

In Closing

The new management team wants the investors to believe that they are trying to salvage this mess. Lawsuits involving attempted acquisitions (involving Thompson) and continuous requests for more money make that a difficult task. The SEC may move slowly and eventually punishes those that violate securities laws. However, it can’t return the money to investors and it can’t jail the individuals accused of violations. The SEC would have to refer the case to another agency to pursue incarceration.


Gretchen GaileyGretchen GaileySeptember 2, 2020
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4min13570

Editors Note: This is an opinion piece.

I would like to say kudos to Pennsylvania Governor Tom Wolf for finally calling on the Pennsylvania General Assembly to legalize adult-use cannabis. It would have been better if he had actually thought through what he was proposing and meant it.

Last week, the governor said that he would like to legalize cannabis in order to bring in more revenue for the state and he thinks that selling cannabis in the state liquor stores is the way to do it.

“My hope is that with the pandemic and the hit that we have taken to revenues that there might be a little more interest in it now. And I think that we have had a little more time to see what’s happening in places like Colorado with revenues for example. This might be one way to plug a hole….We have a state store system that would be an ideal way to distribute it,” said Wolf.

Wolf spoke about how he would like funds left over from the CARES Act and tax revenue from cannabis sales to help turn the tide of the pandemic induced recession that has hit the commonwealth, but Senator Daylin Leach the sponsor of SB350 known as the “gold standard” for adult use legalization calls the governor’s plan a nightmare.

“I think it would be unresponsive to the consumer, a bureaucratic nightmare, discourage innovation and kill large parts of the industry right off the bat. Sure, we could do it. We could do it in a way that is less profitable, less advantageous, we can do it in a way that is lesser all around. I don’t know why we would do this,” said Leach.

Wolf’s proposal would make Pennsylvania the only state-run cannabis market in the country and we all know how well things go when the government takes over. If the state runs cannabis sales, it eliminates the retail market opportunity, a key driver of market competition, which means consumers will be the ones taking the hit in their pocketbooks. It will also constrain the product market, keeping out the smaller less capitalized brands, less flexibility in what brands will be sold and less chance of innovation.

Leach says that the governor’s plan is a political nonstarter and his state store announcement did more damage than good.

“He has made it (legalization) far less likely to pass. Republicans hate the state system, they are looking to shut down the state system, not expand their portfolio. Other than sign medical, he did nothing to help us pass medical. Wolf’s efforts to pass legalization have been clumsy and ham-handed enough.”

Knowing that Republicans are opposed, and every other state has passed on a government takeover of their cannabis markets, doesn’t it seem obvious that his proposal is a poison pill? Does it not seem intentionally designed to fail? There is plenty of precedents that makes it clear from every state why no government in its right mind would take this approach.


Debra BorchardtDebra BorchardtAugust 4, 2020
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6min8510

A cautionary tale for cannabis companies and the Securities & Exchange Commission (SEC) was laid bare last week when the Central District of California filed a $25 million complaint against nine defendants. The group raised money from investors by selling the unregistered stock for the purpose of funding a marijuana farm in Salinas California. 

The individuals named included Anthony Todd Johnson (aka Todd Johnson), Jeremy Johnson, Richard Portillo, Charles Lloyd, Mark Heckele, and Michael Gregory. The companies that wanted funds for the marijuana farm were named as Smart Initiatives, LLC, Valley View Enterprises LLC, Target Equity LLC, Zabala Farms Group, LLC, and Green Growth Ventures, LLC. The companies that raised money for a CBD extraction facility were named as – C Quadrant LLC, GPA Enterprises LLC, RJ Holdings Group, LLC, and Extraction Capital Tier 1, LLC. 

Alleged Actions

The group engaged in so many alleged actions, it’s easiest to just list them as follows:

  • Claimed the investments would generate returns of 100% or more
  • Misrepresented their compensation
  • Misappropriated $2.7 million
  • misled and deceived investors about a purported “business loan,” secured by C-Quadrant’s real property
  • Rather than using that business loan for the benefit of C-Quadrant, Gregory used the loan proceeds to pay off different investors in an entirely unrelated entity. 
  • Falsely claimed a relationship with a prominent California University
  • Acted as unregistered broker-dealers in connection with the offerings, none of which were registered with the Commission
  • Used general solicitation to attract prospective investors, including via cold calls, Craigslist, Facebook, and other websites and social media.
  • None of the securities offerings were registered with the Commission as required by the Securities Act
  • Many of the investors in each offering were unaccredited and unsophisticated. 
  • The defendants did not take reasonable steps to verify the investors’ accreditation status

The alleged behavior took place between 2017 and 2019. The Johnsons used pro-forma numbers when soliciting investors. The farm though revised those figures.   The revised pro forma P&L statement adjusted the farm’s projected net income significantly downward, from a range of $23 to 37 million per year to a range of just $6 – $23 million per year. The group though continued to raise money knowing the farm could not generate the amounts they are accused of touting. They also told the investors they would get quarterly payments, which the farm said it had not agreed to make.

C-Quadrant Property

The case says that the sales team touted C-Quadrant’s ownership of the property, the Johnsons and Gregory failed to disclose that they had collateralized C-Quadrant’s property and that Gregory had used the loan proceeds to pay off investors in an unrelated entity. In early 2018, C-Quadrant purchased a former recycling plant, where it planned to locate its extraction facility. In October 2018, prior to the start of the second C-Quadrant offering, the Johnsons and Gregory transferred ownership of the property to another entity they controlled and used it as collateral for an almost $2.9 million loan. Gregory used the majority of the loan proceeds to make payments to investors in an unrelated cannabis farm that he owned. 

Less Than Honest Bios

The group was also less than honest with investors about their backgrounds.  Johnson told prospective investors, in Gregory’s presence, that Gregory had an MBA, which he apparently did not have. Jeremy Johnson had filed for personal bankruptcy in 2012 but did not disclose this to investors. 

Portillo has an extensive criminal record that also wasn’t disclosed to investors. In June 2018, Portillo was convicted of felony domestic violence and witness intimidation. He had at least two prior convictions for domestic violence, and was on probation and subject to a restraining order at the time of the 2018 assault. Portillo also has prior convictions for felony possession of marijuana for sale, felony taking of a vehicle, and felony assault with a deadly weapon. Investors, no doubt, would have liked to have this information.  

Punishment

The SEC is asking the group to disgorge all the money received and pay civil fines.


Debra BorchardtDebra BorchardtJuly 23, 2020
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5min10340

What started out as an investigation over late or unpaid taxes mushroomed into a laundry list of misdeeds culminating into one of the largest fines levied against a cannabis company since the industry was legalized in Nevada. The new Nevada regulator, the Cannabis Compliance Board, signed off on the agreement with CWNevada LLC, whose majority owner is attorney Brian Padgett this past Tuesday. As a result of the settlement, CWNevada will pay $1.5 million in back taxes, $1.25 million in fines, lose six licenses and must sell its remaining eight licenses.

Padgett has been replaced by a receiver, Dotan Melech, who signed off on the agreement. In addition to the fines and back taxes, CWNevada also owes $300,000 in back pay to employees.

The following six CW Licenses/Certificates shall be revoked:
a. Ali Baba Medical Cultivation Certificate (C009);
b. Ali Baba Recreational Cultivation License (RC009);
c. Oxbow Medical Production Certificate (P010);
d. Oxbow Recreational Production License (RP010);
e. Oakridge Distribution License (T022); and
f. Oakridge Medical Cultivation License (C011).

The Receiver agrees to use his best efforts to sell the following eight CW Licenses/Certificates within six (6) months of the Effective Date of this Stipulation and Order subject to approval by the Receivership Court:
a.Blue Diamond Medical Dispensary Certificate (D010);
b. Blue Diamond Recreational Dispensary License (RD010);
c. Highland Medical Cultivation Certificate (C010);
d. Highland Recreational Cultivation License (RC010);
e. Ali Baba Distribution License (T021);
f. Ali Baba Medical Production Certificate (P009);
g. Ali Baba Recreational Production License (RP009); and
h. Oakridge Recreational Cultivation License (RC011).

Tax Man Cometh

The investigation began in 2018 over unpaid taxes according to the case filed by the State of Nevada. It escalated when inspectors showed up on March 18, 2019 and found employees were working with marijuana products in an unapproved area, which was the breakroom. The company was told to quarantine the product until further notice, but employees said they returned the product to the cultivation facility. Again, the state said not to move the product. On video two of the quarantined boxes were shown to have been delivered to a dispensary.

METRC data showed that some of the product was repackaged at the cultivation facility. On April 12, 2019, the Department put an administrative hold on all Clark products which would have prevented marijuana products from the Clark NMSD dispensary from being legally transferred. On May 8, 2019 another inspection took place. Auditors also discovered 89 groups, a total of 1,342 units, of untagged marijuana products.

May 9, 2019, the Department’s inspectors conducted an inspection of CWNevada’s cultivation facility located at 9680 Oakridge Ave, Pahrump, Nevada 89048 and discovered the following transfers of marijuana from Clark NMSD dispensary to the Oakridge cultivation facility when none of the marijuana originated from the Oakridge cultivation facility. In addition to this, the company couldn’t provide video surveillance as required. Between March 21, 2019 and June 7, 2019, CWNevada sold 1,924 marijuana products where the point of sale data did not match the marijuana products identified in METRC.

Padgett when notified he needed to pay his taxes, continued to say he would pay the taxes, but then never did. In addition to unpaid taxes, CWNevada incurred expenses and debts that resulted in a Final Award in favor of one of its creditors, 4Front Advisors, LLC  in the amount of $4,987,092.29. Employees were also moving money from the company to various bank accounts for Padgett. On June 13, a receiver was appointed.

Burn It Down

According to the court documents, on February 27, 2020, the Department ordered the destruction of the untagged marijuana and marijuana products discovered at the dispensary located at 6540 Blue Diamond Road, Las Vegas, Nevada 89139 on or about May 8, 2019, the cultivation facility located at 9680 Oakridge Ave, Pahrump, Nevada 89048 on or about May 9, 2019 and February 6, 2020, and all untagged marijuana and marijuana product observed by the Department at the cultivation and production location at 4145 Ali Baba Lane, Las Vegas, Nevada 89048.

On March 30, Padgett was found guilty of contempt for violating court orders of the receivership.


Debra BorchardtDebra BorchardtJuly 21, 2020
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3min7500

The FDA issued draft guidance for clinical research related to the development of drugs containing cannabis or cannabis-derived compounds. The FDA is taking comments and suggestions for the next 60 days. The guidance does not address the development of fully synthetic versions of substances that occur in cannabis.

As part of drug development, sponsors may conduct clinical trials under an investigational new drug (IND) application to determine if a drug is safe and effective for a particular intended use. The IND application provides a mechanism for those developing a new drug to conduct studies and ship their proposed drug to clinical trial sites. The data obtained from these studies may later become part of a new drug application (NDA), which is then used to formally propose that FDA approve a new drug for sale in The United States.

  • The following additional principles and recommendations are particularly relevant for
    developing drugs that contain cannabis and cannabis-derived compounds:

    Cannabis is held to the same regulatory standards as any other botanical raw material,
    botanical drug substance, or botanical drug product. The general considerations and
    recommendations for botanical drugs contained in the guidance for industry Botanical
    Drug Development (December 2016) provides core principles for conducting clinical research on botanical drugs, including drugs that contain cannabis and cannabis-derived compounds.

  • In addition, FDA recommends that those pursuing drug development using cannabis or cannabis-derived compounds consider the following principles and documents:  — Adequate characterization of cannabis and cannabis-derived compounds, for example via a chemical fingerprint, is critical to ensure batch-to-batch consistency.  — USP General Chapter <561> Articles of Botanical Origin, particularly regarding tests for residual pesticides, including any pesticides routinely used in the countries of origin of botanical raw materials.
  • There may be drug scheduling considerations under the CSA for applicants pursuing FDA approval of an NDA for a drug that contains cannabis or cannabis-derived compounds. FDA’s review of the NDA may include an abuse potential assessment to inform labeling and to provide DEA with a scientific and medical evaluation of the drug’s abuse potential.
  • The human major metabolite of cannabidiol, 7-COOH-CBD, is expressed disproportionately in humans compared to animals. While disproportionate metabolism is not limited to botanical products, FDA would like to make stakeholders aware that this is a known issue with certain cannabinoids.
  • Activities related to growing and manufacturing cannabis for use as an investigational drug for research must comply with CSA and DEA requirements

Debra BorchardtDebra BorchardtJuly 10, 2020
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5min8120

Law 360 reported that the Massachusetts’ Cannabis Control Commission handed down hefty fines to three cannabis companies doing business in the state. 4Front Ventures Corp. (FFNTF) and Garden remedies were fined for using pesticides on plants, while Acreage Holdings Inc. (OTC:ACRGF) was fined for failing to disclose its relationship with two license holders.

4Front Ventures

4Front Ventures fined $350,000 settlement over pesticides used at its Georgetown, Massachusetts, facility. According to Law360, the settlement included a statement that 4Front Ventures admitted hydrogen peroxide, baking soda, and other pesticides were used at the facility, which is not approved for use on marijuana. The commission reportedly said that the company received test results that showed the plants contained a banned pesticide in June or July 2019 but didn’t alert the commission until August. Company CEO Leo Gontmakher said the company has made changes to ensure the violations do not happen again. “Patients were protected and no one was harmed,” Gontmakher said.

Garden Remedies

A $200,000 settlement was reached with cannabis company Garden Remedies over its Fitchburg, Massachusetts, facility. Like 4Front, Garden Remedies also noted in its settlement that it acknowledged using unapproved pesticides and altering its financial records to hide the purchase.

Company CEO Karen Munkacy said in a statement that the company has fired the employees involved in the falsified documents and ended its relationship with the vendor that provided the pesticides in question.

“While the product we used is permitted to be used in cannabis cultivation in many other states and is not an externally applied pesticide that puts anyone in danger, it is not permitted in Massachusetts and the situation was mishandled,” Munkacy said. “The company and I will continue to strive to ensure that ethical and regulatory violations never again occur.”

Acreage Holdings

Law360 also reported that The Botanist, an Acreage Holdings subsidiary agreed to pay a $250,000 fine for failing to disclose its parent company’s controlling relationship with two medical marijuana licensees. Massachusetts had passed a law when its program was established that limited license holders to just three so that there would be no monopolies and more companies would share in the industry.

Acreage Holdings came under fire for bragging that it had numerous licenses in the state. The commission’s investigation found that Acreage’s contracts with two affiliate medical marijuana treatment centers in the Bay State gave it a controlling relationship over them. Despite the ruling, the commission can approve two provisional retail licenses for The Botanist Inc.

“We want to express our thanks to the CCC for their professional approach as we worked through today’s resolution,” Acreage general counsel James Doherty said in a statement. “We’re looking forward to focusing all of our energies on what we do best, which is deliver great products to the citizens of Massachusetts.”

It seems the original agreements had been entered into while Massachusetts had a medical-only program and the regulations at the time were not so specific about control and ownership. The commission went on to clarify the rules about ownership limits at which time the commission said Acreage should have realized it had too many.

The commission did state that The Botanist “cooperated with the commission’s investigation into ownership and control interests and engaged in good-faith efforts to comply with the regulations after being notified of possible control issues.”

 


Debra BorchardtDebra BorchardtJune 25, 2020
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4min6390

Aleafia Health Inc. (OTC: ALEAF) and its subsidiary Emblem Cannabis Corporation and Aphria Inc. (NASDAQ:APHA)have said that the parties entered into a settlement agreement on June 25, 2020, to resolve their outstanding dispute in respect of the termination of the parties’ wholesale cannabis supply agreement.

Under the terms of the Settlement Agreement Emblem will get C$29.1 million which will consist of a C$15.5 million cash payment, the issuance of common shares of Aphria with an aggregate market value of C$10 million that will be freely tradeable and transferable in Canada and waiver of claimed receivables. The parties have also agreed to a mutual release of all existing and potential claims relating to the Supply Agreement, and to the dismissal of the arbitration proceedings that had previously been commenced.

“The settlement agreement is fair and satisfactory to both parties and allows Aleafia Health to move forward with a significantly strengthened balance sheet. With a substantial injection of value into our business, we can focus on our continued growth,” said Aleafia Health CEO Geoff Benic.

This settlement ends any and all potential claims and litigation against and between Aphria, Emblem, and Aleafia Health relating to the Supply Agreement.

A Busted Deal

The original problem stemmed from a deal that was agreed to on September 11, 2018, which said that Aphria would provide up to 175,000 kg equivalents of cannabis products over an initial five-year term, commencing May 1, 2019. Aleafia terminated its deal to buy cannabis from Aphria saying the company failed to meet its supply obligations.

“Following Aphria’s failure to meet its supply obligations under the Supply Agreement, Emblem has exercised its contractual right to terminate the Supply Agreement in accordance with its terms. The termination of the Supply Agreement by Emblem was made without prejudice to its rights accrued to the date of termination (including its rights to be refunded the unused balance of its deposit) and its rights to seek damages as a result of Aphria’s default and termination thereunder.”

At the time, Aphria released a statement saying, “We are disappointed that Aleafia has chosen to terminate its Agreement with Aphria Inc. The Company had every intention of fulfilling its obligations under the Agreement. As a large shareholder of Aleafia, Aphria made good faith efforts to ensure the continuation of the Agreement understanding it was in the best interest of all parties involved. However, the termination of this legacy Agreement frees up significant supply allowing the Company to service its brands that are in high-demand across the country.”


Debra BorchardtDebra BorchardtJune 19, 2020
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3min5330

A new report from Canaccord Genuity analyst Bobby Burleson suggests that budget constraints as a result of COVID-19 impacts could generate faster support for cannabis legalization. Prior to the pandemic, several states were gearing up for ballot initiatives in the 2020 election. Social distancing seemed to cause many to table those efforts. Now only a few states look to be in play in November.

Burleson noted that prior to the pandemic, he had identified 16 states with cannabis initiatives planned for the election. A combination of medical and recreational programs were teeing up for voters. Fast forward to June and limited moves are expected except for New Jersey, Arizona, and New Mexico where legislation looks to continue making progress. South Dakota could pass medical and Louisiana’s governor signed a law expanding its medical program.

COVID Proves Expensive

“COVID-19 is driving a severe budget crisis for states across the country and an analysis by the Center on Budget & Policy Priorities projects an aggregate state budget shortfall of 10% for the current fiscal year (ends June 30) and for the shortfall to grow to 25% for fiscal 2021,” Burleson wrote. Tax revenues for states are forecast to drop by 12%in 38 states. he expects these budget shortfalls will motivate states to pass some form of legalization to generate tax revenues.

He cited Massachusetts as a prime example. It’s the only state in the northeast that has an established and growing recreational program. Demand has been strong and New Yorkers have accounted for as much as 50% of the sales. All of that tax money could be going into New York’s state coffers, but instead, it’s staying in Massachusetts. Michigan is seeing similar results. Demand in the state is also coming from residents in Ohio, Indiana, and Missouri who are driving there to make purchases.

Essential

Getting the designation as an essential service and being allowed to remain open during the pandemic further underscores the support for legalization. Despite social distancing, curbside service, and hastily arranged delivery options, dispensaries said that sales remained strong further supporting the demand from state residents.



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