On Tuesday, Brent Cox and Omar Mangalji founders of The Inception Companies founders (through an affiliated entity – MMMG-MC, Inc. – that holds a significant stake in MedMen’s management company MMMG, LLC) filed a complaint against Adam Bierman; Andrew Modlin and various MedMen Enterprises (OTC: MMNFF) entities for alleged breaches of fiduciary duty.
Cox is a former board member of MedMen, serving in that role from March 2016 to March 2018 and Founder of The Inception Companies. The Inception Companies is a private opportunistic investment firm based in Los Angeles and London with operating and investing experience across numerous industries, including regulated cannabis. Inception and its affiliates have deployed capital in leading consumer retail brands, agricultural & industrial operations, technology platforms, and real estate assets representing over $2 billion in aggregate enterprise value.
On Wednesday, a Los Angeles Superior Court denied a request from the plaintiffs for a temporary restraining order and a preliminary injunction. According to MedMen, the gentlemen say they are being unfairly prevented from cashing out of their interest in MMMG, which currently holds approximately 179 million shares that are redeemable and exchangeable on a one-for-one basis for Class B Subordinate Voting Shares of MedMen Enterprises Inc. The shares are locked up, thus prevented from trading in the open markets, until November 25, 2019.
The lawsuit claimed, “The MedMen veneer is a complex web of interconnected subsidiary entities, virtually all of which are directly managed, directed, controlled, and owned by BIERMAN and MODLIN, and all of which always pursue the best interests of BIERMAN and MODLIN, rather than the best interests of any stakeholder or entity. It is that perverse interconnectedness and rampant, brazen self -dealing that renders the actions of BIERMAN and
MODLIN, and of the Entity Defendants, unlawful.”
The general gist of the lawsuit was that Cox and Mangalji received shares that were not able to be traded until the lockup period ended on November 29, 2018. The lawsuit claimed, ” On November 21, 2018, BIERMAN announced that limited partners in Fund I and Fund II would have 100% of their shares issued to them in “mid-January” 2019, with the share totals awarded to them calculated at the then-current market value. At that time, a portion of their MEDMEN CORP. shares would be free trading, while the remainder of their shares would remain locked up until
the thirteenth month thereafter, after which once per month on a twelve-month basis their “remaining shares become free-trading based on a monthly drip,” in equal installments.”
Cox stated, “We have a long history with MedMen – as one of the largest and original shareholders of the company. Sadly, we are backed into a corner here and compelled to take action on behalf of all stakeholders of the company.”
MedMen said Last November, an independent committee made up of representatives from the three entities; MMMG, MedMen Opportunity Fund I and MedMen Opportunity Fund II collectively decided to extend lockups on virtually all of their MedMen shares until November 25, 2019 when the shares will become freely tradeable in increments over a 12-month period.
The gentlemen are seeking damages “in an amount to be proven at trial but believed to be in excess of US$18,000,000 as to MC and US$1,800,000 as to Mr. Cox.
Daniel Yi, MedMen’s senior vice president of corporate communications said, “These are frivolous claims, and it appears the judge agrees. Today, a Los Angeles Superior Court denied the plaintiffs’ request for a temporary restraining order and preliminary injunction. Despite the agreement reached by an independent committee to safeguard the best interests of our shareholders, including MMMG and the funds, the plaintiffs; Omar Mangalji and Brent Cox, now seek special treatment. The committee decided to lock up more than 90 percent of the shares owned by the three entities at least until November 25, 2019. The interests of all of the stakeholders impacted were included in the process and the feedback was overwhelmingly positive. Mr. Mangalji and Mr. Cox have already received cash distributions representing a complete return of their capital plus a substantial gain. It’s unfortunate that Mr. Mangalji and Mr. Cox have chosen this path. This is a meritless claim by a minority investor. This is clearly and egregiously an attempt to devalue the shares of the enterprise for their own personal gain at the expense of all other stakeholders. MedMen remains focused on building
one of the leading cannabis companies in the world and we feel confident we will prevail on that mission and against this meritless complaint.”
West Hollywood Store
One piece of information in the lawsuit claimed that on or about “December 18, 2018, the City of West Hollywood announced, in pertinent part, that MedMen’s flagship West Hollywood location, which presently operates under a
temporary Adult Use (Recreational) Sales License that expires in March 2019, would not receive a permanent Adult Use (Recreational) Sales License. Thus, the flagship West Hollywood MedMen location will most likely cease
all recreational sales in March 2019 unless the City of West Hollywood amends its licensing decision.”