Business

“Fraudulent Scheme”: Columbia Care sued for $50M over Florida MED license

avatar Hilary Corrigan / Jun 10, 2020

A $50M lawsuit alleges multi-state operator (MSO) Columbia Care interfered in a joint venture to obtain a hard-to-get Florida MED license.

Florida MCBD LLC filed the civil suit late last month in New York Supreme Court, in Manhattan. MCBD alleges New York-based Columbia Care engaged in a “wrongful and fraudulent scheme to strip MCBD of its ownership” of a Florida MED license worth tens of millions of dollars. According to the suit, Columbia induced MCBD’s joint venture partner, Sun Bulb Company Inc., to breach its obligations to MCBD.

Gary Santo Jr., vice president of investor relations for Columbia Care, said it’s the company’s policy not to comment on pending or active litigation. But the company would provide a defense “as soon as we’re able.” He noted that the court has not yet docketed the electronic filing and that courts have been closed due to COVID.

Florida’s 2014 MED law limited the licenses available for medical marijuana treatment centers, the only businesses allowed to grow, process or sell MED in the state. The law limited licenses to nurseries that have operated in the state for at least 30 years and could cultivate more than 400,000 plants. 

MCBD–a company comprised of people with MED cultivation, processing, distribution and sales experience in other states–formed a joint venture with Sun Bulb, a decades-old Florida nursery, to obtain a license. 

MCBD had a 65% ownership interest and Sun Bulb had 35%, according to the suit. It says Sun Bulb agreed to apply for the license on behalf of the venture and MCBD spent nearly $800,000 to prepare the 2,600-page application. The application detailed MCBD members’ proprietary cultivation methods, protocols for operating a MED treatment center, and compliance with health department rules. 

Members of MCBD include Nevada-based Strainz Inc., GenCanna Global Inc. and Chris Stubbs, an expert in the human endocannabinoid system.

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“Misrepresentations”

Florida’s health department denied the joint venture’s initial application in 2015. MCBD and Sun Bulb appealed the decision in 2016 and the department denied them again. According to the suit, in 2017, Sun Bulb lobbied the legislature so the department could issue more licenses. The legislature did so and the health department would later award a license to Sun Bulb.

During the same 2015 to 2017 period, the suit says, Columbia Care unsuccessfully applied twice for a Florida MED license. Rejected both times, it “embarked upon a fraudulent scheme” meant to strip MCBD of its 65% ownership interest in the Sun Bulb license. 

The lawsuit alleges Sun Bulb continued discussions with MCBD about operating the treatment center in an effort to delay MCBD from protecting its interests in the license. 

Sun Bulb, MCBD alleges, did not disclose that it had started negotiating with Columbia. Relying on Sun Bulb’s “misrepresentations,” the lawsuit says, MCBD did not take any action to preserve its rights such as seeking an injunction. 

Meanwhile, the lawsuit claims, Columbia and Sun Bulb entered a joint venture agreement. It says Columbia paid Sun Bulb more than $11M for a 70% ownership interest and “agreed to indemnify Sun Bulb for damages arising from its breach” of its other joint venture with MCBD. 

An alleged partner switch

Under Columbia Care’s direction, Sun Bulb asked the state health department for the license to operate a treatment center based on the application compiled by MCBD. Then, according to the suit, Sun Bulb told MCBD it would not partner with it. The department awarded Sun Bulb the license shortly after. Sun Bulb then got a variance from the department that did not alter the application’s substance, but allowed Columbia to replace MCBD.

MCBD also alleges that Sun Bulb sought an amendment to the application without telling the department it had removed the MCBD employees listed in the application. 

The suit claims Sun Bulb “misled” the department by stating the application’s proprietary and confidential information largely compiled by MCBD would remain in place.

Sun Bulb and Columbia transferred the license to a Columbia affiliate–Columbia Care Florida, then operating as Better-Gro Companies LLC–to keep MCBD from recovering its interest in it, the lawsuit says. Sun Bulb owns 30% of Columbia Care Florida and Columbia Care indirectly holds the rest, according to the suit. 

At present, Columbia and Sun Bulb operate a treatment center under a license that “MCBD rightfully owns 65%” of, according to the suit. The suit seeks a jury trial and at least $50M, plus punitive damages and legal costs, and an order voiding the license transfer to Columbia Care Florida. 

Sun Bulb referred questions to Columbia Care. An MCBD representative declined to discuss the case on the record.