Debra BorchardtJune 12, 2020
Harvest Health & Recreation Inc. (OTCQX: HRVSF) is changing the number of retail assets it had planned to sell to Hightimes Holding Corp. Originally Harvest announced it was selling 13 planned and operational California licenses to the iconic cannabis publisher High Times in a deal valued at $80 million.
That has now been reduced to ten operational and planned retail assets in a deal now valued at $67.5 million. The deal is now $1.5 million in cash and a $4.5 million one-year promissory note with 10% interest and $61.5 million in Series A Preferred stock issued by Hightimes Holding Corp. The stock though is not publicly traded and could potentially never be traded.
Harvest says it will retain four operating dispensaries located in Grover Beach, Napa, Palm Springs, and Venice and select licenses for potential retail locations in California following completion of this planned divestment. Harvest has said that its the previously announced full-year 2020 revenue target remains unchanged.
Third-Party Approvals
The announcement came with one big disclaimer at the bottom. “The transaction is subject to various closing conditions and contingencies including third party and regulatory approvals. Assets may be excluded from the divestment plan if required approvals are not obtained resulting in an adjustment to the total consideration.” That’s because at least one of the assets, a Have A Heart (HAH) location in San Francisco, is fighting the transaction.
The company’s CEO Alexis Bronson said the transactions weren’t legal. Bronson owns 40% of the HAH dispensary and he claims his business partners sold their shares to Interurban Capital Group (ICG) without his approval. The dispensary was then flipped to Harvest Health & Recreation, who just sold it to HHI Acquisition Corp, a subsidiary of Hightimes Holding Corp. also known as High Times. All of these transactions occurred within an eight-week time frame.
Bronson had informed ICG that it had no authority to offer up the shares to Harvest Health. The company’s response was that it was just due diligence discussions and that news in the press was often wrong. That wasn’t the case and the property was sold. Harvest Health said it was acquiring ICG in a deal valued at $85 million. “We are excited to welcome the Have Heart dispensaries into the Harvest family,” said Harvest Chief Executive Officer Steve White. Almost immediately after that statement, Harvest Health laid off numerous Have A Heart employees.
The High Times Purchase Agreement acknowledges the Bronson position in HAH. The document states, “Neither ICG nor Harvest holds any rights to acquire the 40% interest held by Bronson. Assignment of Contingent Assignment requires the consent of the Board of Managers of HAH 2 CA LLC.” High Times was to deliver $1 million to Harvest Health on April 27 as a deposit and then another $4 million at the closing date or within 45 days of the effective date.
“As CEO, Owner and managing member I have a fiduciary responsibility to my cannabis social equity business,” said Bronson. “Yet there is this large divide between apparent authority and actual authority that puts my social equity business in a terrible (and arguably unsustainable) position — from one side I have a tremendous responsibility and potential liability and yet from the other side I’ve been kept in the dark regarding major business decisions and have been treated as nothing more than a straw CEO and rendered completely powerless.”
Bronson didn’t seem adverse to Kunkel transferring his shares in general, but he did express great displeasure at the entities Kunkel chose. The name Have A Heart now sounds like a cruel joke for Bronson who feels like he has been victimized twice. First by the war on drugs and second by what he described as “Caucasian Canna-Bro greed.”
