MMCap Wins First Legal Round With Sol Global Over Verano Shares

Cannabis Law Reports reported that Sol Global (OTC: SOLCF) lost the first round in its lawsuit with investor MMCap. Sol Global had filed a case in the state of New York regarding the repayment of a $50 million loan. At the heart of the lawsuit is a big chunk of Verano shares, which MMCap and the 1235 Fund say belong to them as an option for the repayment of the loan, while Sol Global claims the shares belong to them alone and that all the 1235 Fund gets is a cash repayment.

Judge Jennifer Schecter wrote that of all interested parties only one, Verano Blocker 2, specifically agreed to New York as a place of jurisdiction. She also described the group as “sophisticated parties” suggesting all the parties understood what had been agreed to for jurisdiction. MMCap and the 1235 Fund filed their case in Ontario, which Judge Schechter said was consistent in the other clauses in the agreements signed by the parties.

“In the end, defendants never consented to personal jurisdiction in New York or waived the objection; thus, this action is dismissed. Moreover, jurisdictional discovery is unwarranted because the complaint does not make a sufficient start at suggesting there could even possibly be a basis for New York jurisdiction,” wrote the Judge in her two-page decision.

Sol Global did not respond to a request for comment.

Sol Global & The 1235 Fund History

The conflict between the two parties arose after Sol Global began claiming that MMCap and 1235 Fund had no rights to the Verano shares as repayment for a loan. Sol Global was in a cash crunch back in July 2019. The one thing of potential value it owned was a large investment in the privately-held cannabis company Verano. MMCap bought the debenture through what was called the 1235 Fund giving Sol $50 million with the risk that Sol could possibly go under and not repay the $50 million or the Verano shares could end up being worth much less than the $50 million it had spent. At the time, it was a risky deal as it was difficult to determine the outcome. Cannabis stocks were suffering through a tremendous bear market and valuations had plunged across the board.

At one time, Harvest Health & Recreation (HRVSF) had said it was going to acquire Verano in a deal valued at $850 million, but then the deal unraveled. Both parties agreed to terminate it and walk away. This is where the disagreement begins between Sol and MMCap. Sol claims that once the Harvest deal was over, that MMCap had no options to receive the stock as payment, and that MMCap could only get a cash payment.

MMCap says that isn’t true and even includes in its lawsuit the language from the debenture document that seems to support its claim to having an equity option. The debenture language according to MMCap says that if the Harvest deal didn’t happen, MMCap would receive 1,730,794 shares of Verano. MMCap says that the termination of the Harvest deal actually had the opposite effect to what Sol claims. Instead of getting paid in cash, the debenture language says that the termination of the deal meant MMCap would have to accept the Verano shares as payment. At that time, Sol would have been able to walk away from the $50 million debenture by only having to turn over the shares which looked to be worth far less than they are today. MMCap also says in its lawsuit that Sol wasn’t paying its interest payments on time and could only pay what it owed in tranches.

According to a court document filed in Canada, MMCap wants its repayment in the form of those Verano shares. It is insisting that it has the option to request payment in shares, which could be worth as much as $500 million. MMCap was supposedly trying to resolve the matter between the parties, but during those discussions, Sol Global filed this lawsuit in New York saying that MMCap did not have the option to choose Verano shares as a form of repayment and that it would instead pay the debenture amount in cash. Now that Sol Global has lost this initial round, it looks like the case conflict will remain in Canada.

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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