Judge Rules Case Against Acreage Can Move Forward

A judge decided on Friday that a New York case against Acreage Holdings (OTC: ACRHF) can proceed. Judge Andrea Masley in the New York Supreme Court listened to a week-long case and following closing arguments decided that the case against Acreage would not be dismissed. The case is regarding a New York license whose ownership got muddled through a series of mergers and partnerships.

Leading the charge is David Feder, an attorney who is part of a group that is claiming that Acreage Holdings cut them out of a portion of ownership of the converted limited New York cannabis licenses. The lawsuit claimed that Acreage acquired a New York property and this particular investor (EPMMNY) wasn’t included in the sale. A review of the legal document shows that EPMMNY’s equity stake was never finalized and so it wasn’t included in the final application for New York Canna (NY Canna).

Lawsuit Background

When medical marijuana was legalized in the state of New York, only 10 licenses were awarded. EPMMNY was formed in 2015 and the group began partnering up with another group called New Amsterdam Distributors, LLC, which was also seeking a medical cannabis business license. Members of the New Amsterdam group include Dixie, Duval, John Vavalo – a co-owner of a co-owner of J. Michael Shoes –, Dominic Falcone – who owns a plumbing company in Yonkers, and a pharmacist named Patrick Harvey. The complaint names Daino was CEO of Terradiol MC, a shell company for New Amsterdam.

Essentially it was a pairing between a group with money and no cannabis experience with a group that had the experience and needed funding. The New Amsterdam group needed the know-how and agreed to partner with EPMMNY to apply for a license as a combined entity called New York Canna Inc. Feder is a New York attorney with experience in the legal cannabis industry, had been preparing to submit a license application and began assembling a team to operate in New York. Feder began working with Malcolm Morrison, an experienced legal cannabis businessperson, who had successfully obtained cannabis licenses in other states. With this team in place, Feder and Morrison created EPMMNY with barely more than a month remaining to prepare and submit the New York license application.
Feder claims in the lawsuit that the partners agreed EPMMNY would be allocated 25% of the business for preparing the application, New Amsterdam would provide funding and own 75% of the business. However, with the clock ticking for the application to be submitted, Feder wasn’t able to get the documents confirming this arrangement. Although there was correspondence between the parties about the agreement. Despite the lack of documentation for the partnership, the application moved forward and ranked number six for getting one of the 10 licenses. This greatly improved the value of NY Canna.
Feder claims at this point NY  Canna merged with NY Medicinal without its consent and diluted its ownership by 50% to 12.5%. NY Medicinal was owned in whole or in part by Acreage Holding LLC’s predecessor, High Street Capital Partners. On December 1, 2016, Feder responded to the merger notice by rejecting it outright and demanding NY Canna’s books and records. Feder claims that his group was asked to accept the smaller ownership percentage, but they refused.
The license was awarded in 2017 and even with the ownership dispute brewing, Acreage ultimately ended up owning all of NY Canna, also known as Terradiol NY. In 2018, a week before Acreage Holdings went public, the group decided to file a lawsuit. It has been moving through the courts ever since, but now it seems Feder has notched a win at this stage.

Millions At Stake

“It’s a pretrial evidentiary hearing on whether Mr. Feder had the capacity to go with the case, and the judge ruled that he absolutely did,” said attorney Lawrence Lonergan who is representing plaintiff David Feder. “We’re very pleased the court saw things our way.” The case noted that the plaintiffs are also hoping to block Canopy Growth from acquiring Acreage Holdings, which would include the New York portion referred to as NY Canna.
The value of the ownership, should the case tip towards Feder’s claim, is worth millions. He is asking for upwards of $200 million for his stake.

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor 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 Master's degree in Business Journalism from New York University.

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