Falcon Wants $50 Million Breakup Fee From Harvest Health

Two weeks ago, Harvest Health & Recreation Inc. (CSE: HARV)(OTCQX: HRVSF) filed suit against Falcon International, Inc. asking to terminate the planned merger agreement and return the money Harvest paid to Falcon under the Merger Agreement. That lawsuit alleged that Falcon’s principals stalled due to the falling share price of Harvest. Harvest went on to suggest that Falcon International engaged in illegal activities.

Today, Falcon has said that Harvest owes the company $50 million in a breakup fee. In addition to that Falcon said, “Amounts previously funded by Harvest to Falcon are convertible into Falcon equity at Harvest’s or Falcon’s option and, accordingly, are unlikely to be paid.”

Headed To Divorce Court

The original merger agreement dates back to February 2019, when cannabis stocks were still firmly in green territory, but then the bear market took hold and the entire sector saw stock valuations plummet. There was no provision in the merger agreement with regards to a stock selloff and according to the lawsuit, Falcon executives  James Kunevicius and Edlin Kim wanted to renegotiate the Merger Agreement which resulted in the June
7, 2019 Amendment. This increased the stock consideration to $240 million.

Harvest stock was trading roughly around $7.47 a share in February 2019, by August it was down to $3.19. It has lately recovered and was recently trading near $3.51, above its 52-week lows of $2.03.

Harvest said that by August and September, it had loaned Falcon roughly $47 million and still hadn’t closed the merger. Falcon began demanding more money according to Harvest suggesting Harvest would be in breach if it didn’t pay. Harvest was now questioning the use of the money that had already been sent. Despite that, it still looked like the merger would close in October 2019. This is when Falcon began filing “standstill agreements” and essentially stalled the closing process.

The two companies met at the MJ Biz Conference in Las Vegas in December. Harvest described it in this manner, ”

“The business meetings at the convention were non-productive, with one Falcon representative (Edlin Kim) appearing at the meeting with visibly large amounts of cash in his front pocket and back pocket and in a bag, and wearing what appeared to be many tens of thousands of dollars in men’s jewelry made of gold, and with both Falcon representatives (Edlin Kim and James Kunevicius) expressing no interest in doing any work to move the planned transaction with Harvest forward and, instead, stating openly that Falcon would not close the Merger Agreement, as amended, due exclusively to the decline in Harvest’s stock price.”

Harvest Lawsuit

The lawsuit from Harvest claimed that Harvest had performed all of its legal obligations, but that Falcon did not produce auditable financial information or records concerning its business operations and revenue despite repeated requests. Harvest also accused Falcon of transporting cannabis across state lines and that the company was not complying with California state law regarding the regulation of sales of marijuana.

Harvest said in the lawsuit that it has paid over $50 million in cash and advances, but that Falcon executives complain about being unhappy about the deal. Harvest said it wants its money back. Harvest also claims that Kunevicius and Kim pocketed a $4 million payment that was supposed to go to the company and have no intention of paying the money back and believe they are entitled to it.

 

Debra Borchardt

Debra BorchardtDebra Borchardt

Debra Borchardt is the CEO, Co-Founder, and Editor-In-Chief of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Masters degree in Business Journalism from New York University.


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