ALBANY – In an unprecedented shakeup, cannabis company Ascend Wellness Holdings is asking New York’s top court to force medical marijuana license holder MedMen to hand over its operations in the state.
MedMen, a multistate cannabis firm, committed to giving up an 86.7 percent stake in its New York business last year, in exchange for about $73 million from competitor Ascend Wellness – some of which has already been paid. But in early January, newly minted Chief Executive Michael Serruya sent notice to the investor that MedMen was pulling out of the deal.
In a complaint filed in state Supreme Court on Thursday, a lawyer representing Ascend Wellness and its New York subsidiary claimed the termination of the deal was “in breach of the agreement” signed last February, and that the buyers were “irreparably harmed” by MedMen’s abrupt withdrawal.
The complaint detailed how MedMen had been in a “dire” financial situation when it agreed to give up control of its New York business and, notably, its medical cannabis license – one of only 10 active licenses to grow and sell marijuana in the state.
“Apparently, after receiving badly needed funds from (Ascend Wellness) and asking state regulators to approve the transaction, MedMen has had a change of heart,” the filing said.
MedMen has since bounced back, and its footprint in New York has gained significant value with the state’s subsequent legalization of cannabis for recreational use and expansion of its medical program.
The Ascend Wellness complaint also accused MedMen New York of improperly jeopardizing its assets while the deal was still pending, including paying a $500,000 dividend to its parent company. The complaint also alleges that MedMen is putting its New York subsidiary in danger of being partially taken over by private lender Hankey Capital, as collateral for an as-yet unpaid loan.
MedMen representatives have declined to comment on the lawsuit or the status of their agreement with Ascend Wellness. Their last public statement on the deal, dated Jan. 3, “announced its termination.”
In a letter filed as an exhibit in the case, MedMen’s Serruya told Ascend Wellness representatives that conditional approval for the deal granted by the Cannabis Control Board on Dec. 16 “did not satisfy the conditions” of the companies’ agreement.
However, the Office of Cannabis Management had notified lawyers for both companies by email prior to the end of the year that their deal could go through.
MedMen has been mum on its future plans for New York since Jan. 3. But it has continued to build on its footprint in other states, announcing an expansion of its brand portfolio in California.
Due to the federal prohibition of marijuana, even multistate cannabis operators are required to sell products in the state where they are grown, leading to supply chains that are more self-contained than those of similar industries.
A protracted court case between MedMen and Ascend Wellness has the potential to affect the limited supply of medical-grade, legally grown cannabis in New York, just as regulators contemplate releasing rules and license applications for the state’s nascent adult-use industry.