A Cautionary Tale

Departments - From the Editor


Recently, I heard from a friend in the industry—we’ll call him John. John had bought into a cultivation license, and joined a lease agreement for an indoor facility.

One year into the build-out—which John was managing, doing everything from hiring contractors to shopping for all equipment—and nearly $1 million later, the facility was ready to start propagating plants and officially open its doors.

Then the phone rang. It was John’s contractor. The head of operations (we’ll call her Sally)—the original owner of the license and lease that John bought into—had fired the contractor. Something was wrong.

The next day, John was served papers from Sally’s lawyer. Sally had banned John from setting foot on the cultivation property and said he was to have no further involvement in the business. It was hers.

As it turns out, Sally had never filed the paperwork to get my friend on the license, nor had she added him to the lease (that he had been paying for the past year), both of which were required per their signed management agreement. John had previously tried to get the license paperwork several times from Sally, but was given one excuse or another, and with everything going on, this kind of got swept to the sideline. In retrospect, this was a mistake.

The situation is complicated, but this is more or less the gist of it. Needless to say, John, who is a successful businessman in other industries, was mortified that he had been ripped-off. He also had some investors who he had to pay back, and he was out nearly $1 million of his own money.

So the cautionary tale is this: If you’re getting into business with someone, don’t spend a dime or lift a finger until you have the necessary paperwork in hand. A signed management agreement is one thing, but especially when dealing in a federally illegal industry, everything must have a paper trail and proof (e.g., actual licenses, lease agreements, permits, etc.). Many have learned this the hard way.

I don’t know how John’s case will turn out (as you can imagine, a mighty legal battle will likely ensue), and as shocking and upsetting as this was for John, it’s at least a lesson that might be shared to do some good.