John SchroyerAn acquisition deal that only a year ago was celebrated by the buyer, Unrivaled Brands (OTCQX: UNRV), as key to making the business a “preeminent West Coast multistate operator” has now apparently fallen apart, with both companies suing each other over various alleged misdeeds.
In August last year, Santa Ana-based Unrivaled Brands acquired a small retail chain, People’s California, which owned three operational cannabis shops and two additional retail permits in Southern California that hadn’t yet been built out at the time of the deal.
The deal, worth $76 million in a mixture of cash and stock, closed in November 2021.
But in July 2022, People’s California filed a nearly 300-page lawsuit against Unrivaled in Orange County Superior Court for breach of contract, alleging that Unrivaled had not been making monthly payments that it agreed to under the terms of the agreement. The acquisition terms called for $24 million in cash at closing, along with 40 million shares of Unrivaled – worth $16 million at the time – and another $36 million in cash to be paid in monthly installments.
Unrivaled stopped making payments in March 2022, People’s alleged, and was delinquent by $5 million when the initial lawsuit was filed in July, according to the complaint.
In September, Unrivaled filed its own 387-page countersuit, alleging in turn that it was People’s California and its executives who were in the wrong, and accused People’s executives of fraud, negligence, and breach of contract.
Specifically, Unrivaled alleged that People’s executives Frank Kavanaugh, Jay Yadon, and Bernard Steimman stole at least $5 million from Unrivaled “through backdated accounting entries and write-offs” in the People’s company books.
The countersuit asked a court to award the company at least $5.4 million in damages, according to a press release.
“We are committed to aggressively defending Unrivaled from fraud,” Unrivaled interim CEO Sabas Carrillo said in the release.
Unrivaled knows the case could go either way, however.
“The outcome of this proceeding remains subject to significant uncertainty,” Unrivaled admitted in a September filing with the U.S. Securities and Exchange Commission. “(Unrivaled) may not succeed on its claims in the cross complaint and the company could be found liable for monetary damages to People’s.”
