Illinois cannabis dispensary wants ruling it properly terminated deal to sell to national cannabis company. Bonus: We’ve got the complaint and exhibits for you.
A current medical dispensary licensee has brought suit against a national cannabis company to terminate what their agreement purports is a $14,000,000.00 deal (ostensibly taken as a mix of cash ($3.5MM), stock ($1.5MM) and debt ($9MM)) the parties inked in March of 2019 because Illinois’s restrictions on the number of licenses a party can hold are presently keeping the deal from closing in the timeframe the seller asserts was the agreed window under the agreement for the sale of the equity interests of the medical dispensary licensee.
You can read the complaint with its exhibits here.
The lawsuit seeks a declaratory judgment that under the parties’ agreement, the dispensary is right to terminate as the buyer hasn’t moved promptly in getting the regulatory approval necessary to transfer ownership in the entity that holds the cannabis dispensary license and is in jeopardy of violating Illinois law by holding interests in more than 5 such licenses:
Between the signing of the Purchase Agreement and June 23, 2019, Harvest did not take adequate or reasonable steps with the IDFPR to ensure that the consummation of the Purchase Agreement would comply with all applicable legal requirements and occur as promptly as practicable—and specifically address the surplus of licenses and the requirement that capped the number of dispensary registrations Harvest could own in the State of Illinois.
Put simply, Harvest has embarked on an aggressive acquisition strategy to purchase license rights from dispensary owners without apparent regard that its strategy creates an obstacle to closing the Purchase Agreement with Elevele.
Harvest thus breached its representation and warranty contained in Section 4.02(b) of the Purchase Agreement, since its planned acquisitions of license rights exceeds five.
Harvest, at a minimum, has created a conflict with applicable legal requirements material to the Elevele/Harvest transaction embodied in the Purchase Agreement.
Harvest’s failure to address and resolve the conflict between the number of dispensary licenses it purports to have the right to acquire and the legal requirements expressed in Section 1290.40(a)(14) of the Illinois Administrative Code was a condition that existed through the Termination Date of June 23, 2019 and continues to exist to this date.
Harvest’s failure to cure the breach of its representation and warranty as well as certain covenants has relieved Elevele from closing the Purchase Agreement. (Ex. A, § 5.02(a) at p. 35).
The complaint goes on to site issues in other states where similar matters have allegedly caused hiccups in acquisitions for the buyer and asserts that the buyer did not move promptly in responding to issues raised by the Illinois Department of Financial and Professional Regulation regarding these issues and asserts that the buyer rejected the seller’s termination of the purchase and is seeking to close the deal – which is why the buyer is asking for a declaration that the deal was properly terminated.
Medical dispensary licenses in Illinois have tremendous value at present as licensees have first right to get up and running as full adult-use facilities on January 1, 2020 – the date that Illinois’s new Cannabis Regulation and Tax Act allows licensed facilities to begin selling cannabis to adults for recreational use. That value is doubled as the Cannabis Regulation and Tax Act lets these medical marijuana dispensaries also obtain a second recreational adult use license and set up shop at an additional location also allowed to open by January 1 and sell cannabis to adults for recreational use in Illinois.