John Schroyer, Author at Green Market Report

The company also announced its next CFO.

The company said it plans to add another state to its footprint in 2024.

A trend has begun in the Michigan marijuana community of financially strapped dispensaries closing up shop quietly without paying off sizable debts, leaving vendors with little recourse but to try and sue.

According to MLive.com, “cut-and-run” situations where dispensary owners simply disappear without paying for inventory or other debts have become increasingly common, with upwards of 14% of the state’s cannabis retailers – or about 125 shops – having closed down or relocated since Dec. 2019, when the recreational market launched.

“It’s a problem that’s been going on at least a year (and) I think that it’s just hitting a more critical point now,” attorney Denise Policella of the Cannabis Attorneys of Michigan told MLive.com. “We get a whole bunch of clients calling us, saying we need to sue for this, we need to collect on that. We get a barrage of demand letters and collection letters.”

The issue has become pervasive enough that it’s caught the attention of state marijuana regulators, and now the Cannabis Regulatory Agency (CRA) is weighing new rules to handle businesses or individuals that have tried to welsh on industry debts and then re-enter the trade. And industry insiders have also taken it upon themselves to begin creating and circulating black lists of unreliable companies that others should avoid doing business with, MLive.com reported.

One industry insider said the systemic problem can be traced back to price compression that began about two years ago, and that some of the larger companies’ financial troubles have created a cascading effect that has had ripples throughout the Michigan supply chain.

“A lot of businesses are failing as a result of that,” attorney Jacob Kahn, who’s sued distressed dispensary Diamond Cannabis in Bay City over unpaid bills, told MLive.com.

Diamond Cannabis owes over $1 million to vendors and is one example of several financially strapped marijuana companies, MLive.com reported, and though Kahn has won two judgments against the defunct shop for his clients, he’s still had trouble collecting the actual payments, another common problem that’s been reported in other troubled marijuana markets.

New York marijuana attorney Lauren Rudick, who has made a name for herself in cannabis business circles over most of the past decade, filed suit recently against her former law firm and alleged she was owed hundreds of thousands under an employment contract she says went unfulfilled.

Rudick, who launched her own law firm in January, asserted in a new lawsuit that her former employer, Hiller PC, failed to deliver on a profit-sharing agreement she said the firm’s namesake partner offered her in 2015 as the national marijuana industry began to truly gain traction, Law360 reported.

Managing principal Michael Hiller, in recognition of Rudick’s quickly-growing cannabis clientele, made her a nonequity partner, a promotion that came with a $235,000 salary and a 50% profit share of the firm’s marijuana revenues.

In 2018, Rudick’s suit asserts, she entered in a similar agreement in writing that stipulated she’d have a profit-sharing agreement within 60 days, but the deal was never implemented, according to the lawsuit. In the years that followed, Rudick did accrue between $11,000 and $44,000 a year from a level of profit-sharing, but suspected she was “being short-changed,” Law360 reported.

Then in 2021, Hiller informed Rudick that her salary was shrinking to $165,000 but that she’d be compensated 25% of the firm’s gross revenue, which he said would work out to between $303,000 and $500,000 a year based on how the firm’s cannabis wing performed.

But, Rudick said, she later found out that the updated profit sharing agreement excluded several significant revenue streams, which she never agreed to.

Rudick’s suit charges that she was repeatedly denied access to the firm’s financial records to as to verify for herself that she was being paid what she was owed, and she only ever made the bare minimum of $303,000 per year she was promised by Hiller after 2021.

The situation led to Rudick’s departure from the firm, Law360 reported, which the lawsuit says is tantamount to a “constructive discharge.”

Rudick is suing for breach of contract, unjust enrichment, breach of state labor law, and other claims.

Darin: "There's a lot of win-win partnerships to be had."

A prominent Los Angeles-based marijuana trade group has announced that several of its board members, who run licensed L.A. cannabis shops, will boycott STIIIZY products until allegations of its founder owning several illegal dispensaries are “fully resolved.”

The United Cannabis Business Association (UCBA) posted a notice on Instagram on Wednesday after The Times story broke, with a banner that reads, “Lack of enforcement allegedly allows legal operator to play both sides in CA cannabis industry.”

The Times story reported that STIIIZY founder Tony Huang, who’s also visionary officer at parent company the Shryne Group, has ownership stakes in at least nine buildings that have been found by law enforcement to be operating as illegal dispensaries.

While Huang is still embroiled in some legal actions with municipalities over some of the locations – including an abatement lawsuit from the city of Compton – most municipal enforcement actions have settled out of court thus far. The state Department of Cannabis Control told The Times that it’s still investigating allegations against Huang, and meanwhile, STIIIZY’s state cannabis business permits remain active.

Huang has denied all wrongdoing, and has said through a spokesman that connections to illegal dispensaries are coincidental, and that he’s tried to immediately evict such operators upon learning of their sales from his buildings.

“These allegations are alarming enough that UCBA President Jerred Kiloh, along with many UCBA board members, intend to cease any further purchases of Stiiizy products for resale from their cannabis shops until these allegations are fully resolved,” the UCBA notice stated.

Kiloh added in the post, “It’s important for the industry to support operators who abide by the law.”

STIIIZY did not immediately respond to a request for comment Thursday.

Kiloh told Green Market Report that about 40 retailers thus far had signed on to be part of the boycott, and added he expects the backlash to grow through the supply chain as other licensed companies find ways to cut ties with STIIIZY.

“I’ve been talking to brands who are direct competitors of STIIIZY, who are going, ‘Holy crap, this whole time, we knew their business model wasn’t really sustainable. We thought they were just incurring debt. And now to find out they’ve been selling to the illicit market to subsidize their legal business, and that’s why we couldn’t compete against them,'” Kiloh said.

Kiloh added that The Times story basically broke what is an open secret in much of the cannabis industry already, about STIIIZY having a sizable illicit market footprint.

“We were so happy that someone else has pointed this out. We’ve been pointing it out for years,” Kiloh said. “This makes the legal industry look shitty. It makes us look like criminals.”

STIIIZY is far from the first licensed marijuana business in California to have been accused of operating in both the legal and illegal sides of the trade, particularly since it’s hard enough to turn a profit in the red-tape-heavy state that many multistate operators and brands – including Curaleaf, Trulieve, Wana Brands and others – have exited the market entirely in recent years. The tough market conditions have led many licensed companies to play both markets in order to turn a profit.

That narrative was reflected in the comments underneath the UCBA announcement, with some empathizing with STIIIZY and any legal company that also has an illicit market footprint.

“Stop it … there’s a bunch of brands, distros, cultivators etc that play both sides!” one commenter wrote.

“It’s a bold statement from an organization made up of businesses in survival mode doing what they ALL must do to survive,” wrote another.

“Why do you think everybody’s gone East Coast? Because the legal game out here is a joke,” wrote a third.