A two-year-old acquisition deal of multistate operator Green Dragon by California-based Eaze is now the subject of a fraud lawsuit filed by the former owners of Green Dragon, who say the deal wouldn’t have gone through if Eaze had been honest about its precarious financial situation.
The lawsuit, filed by the Colorado-based Levine family that built the Green Dragon company, contends Eaze leadership deliberately misled them about being on the brink of insolvency, in order to get the deal finalized, SFGate and WeedWeek reported last week.
The suit alleges that the acquisition of Green Dragon gave Eaze a new influx of cash and resources with which to finance ongoing operations.
The suit further accuses Eaze of violating state law by “renting” marijuana business licenses and controlling supply operations directly, instead of acting only as an online middleman that transmits orders from customers to retailers.
Eaze CEO Cory Azzalino denied all wrongdoing in the matter to news outlets and insisted that Eaze is in a “healthy financial position,” contrary to claims in the suit. Azzalino told SFGate he expects the company will be cash flow positive by the end of 2023.
The suit also reveals for the first time the financial involvement of billionaire Netscape founder James Henry Clark and businessman Thomas Jermoluk, who reportedly together own 35% of Eaze, according to SFGate, which characterized Clark as a “legendary tech billionaire” in Silicon Valley.
The pair allegedly helped convince the Levines to agree to the merger, when they told the family in 2021 – before the deal closed – that Eaze would be flush with $70 million by 2022 after another fundraising round. But the money was allegedly spent before it was even raised, according to the suit, and on top of that, Clark and Jermoluk effectively took control of Eaze with a $37 million loan last summer.
Eaze was on the brink of not being able to make its payroll before the Green Dragon acquisition closed, the lawsuit claims, and immediately after it did, the three members of the Levine family were quickly forced out and fired in February 2023.
The fraud cost the Levine family millions, and the Eaze leadership “raided Green Dragon for their own personal gain,” the lawsuit alleged.
Clark and Jermoluk denied all wrongdoing in an email to Forbes, and further commented that in 40 years of doing business together, “Never in that time have we run into people like the plaintiffs, who are supremely confident in their own opinions, but we believe lack appropriate business knowledge and knowledge of legal obligations as directors.”