3Fifteen Still Fighting to Get Dispensaries Back from Skymint

The fight isn’t over for Michigan cannabis operator 3Fifteen Cannabis, which was supposed to have been acquired by financially troubled Skymint.

Then Skymint became mired in its financial problems, and the owners of 3Fifteen sought to terminate the deal and have their assets returned to them. But even though Skymint hadn’t actually paid for the acquisition, a judge told 3Fifteen no.

Mitch Baruchowitz of Merida Capital, an investor in 3Fifteen, told Green Market Report that his group’s appeal of the judge’s initial decision against them has now been granted. Because of that, that the receivership status is now frozen for four months and on hold until 3 Fifteen’s appeal can be heard, he said.

Background

In September 2021. Skymint agreed to acquire 3Fifteen, which ha 12 dispensaries in Michigan. That deal would have given Skymint a dominant role in the state’s new adult-use market.

In April 2022, Skymint announced it had closed on the deal with 3Fifteen, and Skymint appointed Baruchowitz to the company’s board of directors.

Less than a year later however, Skymint was drowning in debt and burning through $3 million in cash per month. The company couldn’t declare bankruptcy because of the federal illegality of cannabis, and instead went into receivership.

Crain’s Detroit reporter Dustin Walsh reported at the time that 3Fifteen and Merida accused Skymint’s former CEO Jeff Radway of several misdeeds, including using the company as his personal piggy bank in several extramarital affairs.

Radway left the company on an “indefinite leave of absence’ on April 7,” according to an email to employees from Jeff Donahue, Skymint’s executive vice president and general counsel, which was obtained and reviewed by Crain’s.

Despite the accusations of bad behavior, 3Fifteen lost the battle in court to terminate the deal, and the judge also denied a request to enter arbitration over the purchase agreement with Skymint.

3Fifteen Refuses to Give Up

However, 3Fifteen didn’t give up. It amended its complaint and appealed the decision.

The company claimed that Skymint’s lenders, SNDL (NASDAQ: SNDL) and its investment joint venture with SAF Group called Sunstream, put pressure on Skymint to take over 3Fifteen’s assets even though 3Fifteen was never given the full story about the Sunstream loans to Skymint, Merida noted in the amended complaint.

Merida also alleges that Skymint was negotiating a dissolution of the deal with 3Fifteen when Sunstream began flexing its muscle to get the Michigan licenses.

The complaint says that the Skymint executives turned over the discussion about ending the acquisition to the SNDL/Sunstream executives, saying they were making the calls.

The amended complaint went on to accuse SNDL of violating SEC rules by not disclosing material details about the governance of Sunstream or disclosing the joint venture agreement with SAF Group.

“On information and belief, though not disclosed publicly to its shareholders as required by SEC rules and corporate law, SNDL Inc. CEO Zachary George is a significant investor in SAF through Frontfour Capital. Such ‘related party information’ is required to be disclosed under SEC regulations,” the complaint stated.

The complaint also adds that “Skymint is losing nearly $3 million a month under SNDL/Suntream’s guidance and had lost $37 million in 2022, according to their Receivership complaint, Mr. George only just revealed to the market recently, that SNDL and Sunstream need to inject capital to support existing loans, nine months after they had made the first of many capital injections.”

Ultimately, 3Fifteen claims the acquisition should not have closed since it wasn’t given accurate information. The company alleges that Sunstream wants the assets as it makes the portfolio look more robust.

Merida alleges that Sunstream follows a business strategy of pursuing “loan to own” lending; that is to say, Sunstream loans money to borrowers with the ultimate intention of taking over, and thereafter operating, the borrowers.

In the appeal, 3Fifteen is asking for all of its dispensaries back.

“It could be six months before anything happens on the receivership,” Baruchowitz said. He also suggested that the recent Parallel investor lawsuit identifies a similar path with Sunstream; that the receivership is a plot to take over assets.

“It’s the same playbook,” Baruchowitz said. “SAF has a playbook.”

Pages from 2023-07-10 Green Skies-Healing Tree Second Amended Complaint and Jury Demand