The battle between Ascend Wellness (OTC: AAWH) and MedMen Inc. (OTC: MMNFF) is getting messier by the day. The latest shot is coming from MedMen whose counterclaim alleges that Ascend’s CEO Abner Kurtin used political influence with New York Governor Kathy Hochul and was shortly thereafter able to obtain an email saying the license transfer from MedMen to Ascend was approved.
MedMen had agreed to sell a majority of its New York assets to Ascend Wellness, but the deal was dependent upon approval from New York State. That approval came on December 16, 2021, but MedMen claims the communication on that day stated the approval was “conditional.” MedMen said that it needed final approval by December 31, 2021. Ascend claims in its complaint, that it went back to the Office of Cannabis Management (OCM) and asked for clarification. The OCM stated that its approval was in fact final.
MedMen says in its countersuit that on December 28th, Richard Zahnleuter the General Counsel of the Office of Cannabis Management (which supports but does not direct the Cannabis Control Board) contacted MedMen to say he might need up to 60 days to finish its review. However, MedMen also said that Zahnleuter emailed the following evening saying that the December 16th email did give the “final” approval for the deal. Making things even more complicated, MedMen says it spoke with Zahnleuter on the phone who said he had been “pressured” to send the email saying the December 16th email gave final approval. Zahnleuter would not disclose to MedMen who had pressured him.
MedMen is accusing Ascend President Andrew Brown of attending a fundraiser for Governor Kathy Hochul on December 10th – days ahead of the email in question. Two days later, MedMen says CEO Kurtin met with several state leaders in Albany and MedMen says this is why the state suddenly granted the approval. MedMen goes on to accuse the Cannabis Board of not being independent of the Cannabis Office. The fundraiser was apparently targeted towards cannabis clients and was presumably attended by other representatives from other cannabis companies. Ascend would likely not have been the only cannabis company in attendance.
MedMen claims it can terminate the deal since it didn’t receive final approval, whereas Ascend claims that, according to MedMen, while the language could be ambiguous in parts, the intent was for approval and so the deal should be consummated.
MedMen wants the court to declare the termination was valid and it also wants to keep the money Ascend gave for the deposit and the working capital advance. Ascend gave MedMen some much-needed cash, including an upfront $4 million cash infusion in December 2020 in connection with the execution of a letter of intent between the parties and a further $4.46 million to cover MedMen’s working capital needs and Utica facility site improvements and expansion during 2021. MedMen also wants a termination fee to be paid.
The December 16th email read:
RESOLVED, the Board approves by majority vote through the adoption of this resolution, the change of ownership of MedMen NY, In., contingent upon the review of the proposed investment by the Office staff for compliance with the Cannabis Law, its corresponding regulations, and any other contingencies and conditions as determined by the Board and the Office.
The next correspondence sought to clarify the ambiguous nature saying:
This is to confirm that the Board, efffective December 16, 2021, approved of the referenced change in ownership of MedMen NY, Inc. While such approval constitutes final approval for the purposes of closing the transacti0n and enacting the transfer of ownership, MedMen NY, Inc.,must, as an ongoing Registered Organization, on a continuing basis, comply with all statutory and regulatory requirements, obligations and terms of operation. The Office of Cannabis Management will continue to hold MedMen NY, Inc. accountable for any acts or ommissions constituting violations of such provisions of law, whether in the past, present or future, including but not limited to, non-compliance with the prior written approval provisions of Section 1004.10(b)(5).