A monthslong legal battle between a pair of multistate cannabis operators over a definitive acquisition agreement is on its way to being resolved.
New York-based Ascend Wellness Holdings Inc. (AWH) announced May 11 that it signed a term sheet to settle a lawsuit against Los Angeles-based MedMen Enterprises Inc. and acquire 99.99% controlling interest in subsidiary MedMen New York Inc. (MMNY) for $88 million—$15 million more than originally considered.
The filings in the lawsuit stemmed from an earlier $73-million definitive investment agreement between the two companies on Feb. 25, 2021. One of New York’s 10 licenses to distribute medical cannabis was on the table in that agreement.
But MedMen officials backed out of the deal, announcing Jan. 3, 2022, their decision to terminate the investment agreement just weeks after the two companies received final approval from the New York Cannabis Control Board and the state’s Office of Cannabis Management for the acquisition, sparking legal claims.
To settle the dispute, Ascend officials announced Wednesday that they will increase the transaction consideration by $15 million, $4 million of which is contingent on the start of adult-use sales at an MMNY dispensary.
“We are thrilled to put this dispute behind us and look forward to the imminent closing of this transaction,” Ascend founder and CEO Abner Kurtin said in a public statement. “We continue to build scale in some of the most sought-after locations in premier, limited license markets in the country, and with this investment, we will bring our high-quality products and exceptional retail experiences to our seventh state. While we always seek accretive deals, this transaction is particularly attractive given a recent comparable acquisition valued at $247 million.”
As part of the settlement, according to Ascend, MedMen will withdraw its counterclaims against Ascend.
After Ascend filed a suit in the New York Supreme court in January, seeking to enforce MedMen’s “contractual obligations,” MedMen responded by filing counterclaims that Ascend exerted political pressure on Gov. Kathy Hochul’s administration to help obtain regulatory approval for the transaction.
MedMen officials also announced May 11 that they plan to follow through on the settlement agreement through the new $88-million deal—$73 million as an assumption of debt and $15 million in cash, according to the company.
“This resolution is a clear win for MedMen shareholders, as the company will receive $15 million in additional value,” company Chairman Michael Serruya said in a public statement. “This resolution enables MedMen to move forward with plans to significantly restructure its balance sheet, reduce debt and focus on its core markets.”
According to Ascend, the amended transaction terms also include:
- Ascend will pay MedMen $74 million at closing, inclusive of the $63-million transaction consideration and the $11-million settlement payment. Ascend has already paid $4 million of the consideration as a deposit.
- Ascend will make a subsequent payment of $14 million upon the first sale of adult-use cannabis in an MMNY dispensary, inclusive of the $10-million transaction earn-out and the incremental $4 million related to the settlement.
T. Andrew Brown, president of Ascend New York, said the company is ready to focus on MMNY’s four medical cannabis retail operations in the state, including in Manhattan, Long Island, Syracuse and Buffalo, as well as MMNY’s cultivation facility in Utica.
“We look forward to shifting our attention toward operating the four dispensaries, expanding the cultivation facility, and working alongside the Office of Cannabis Management and the Cannabis Control Board,” he said in a statement. “Servicing the patients of New York, creating diverse jobs and enhancing our social equity initiatives throughout the state are among my top priorities.”
The transaction is expected to close within 30 days.