The sale of a Minneapolis-based cannabis company appears to have gone up in smoke.
Minnesota cannabis company sues firm for backing out of acquisition deal
Local operator files breach of contract lawsuit against the Chicago-based company for terminating the deal to buy it. The litigation will unfold in Canada.
October 28, 2022 at 8:38PM
Chicago-based Verano Holdings Corp. agreed in January to buy Goodness Growth Holdings Inc. — the holding company of Vireo Health, one of Minnesota's two authorized medical marijuana sellers. But Verano terminated the deal on Oct. 13, according to a new lawsuit.
Goodness Growth, which is based in Minneapolis, is suing Verano for breach of contract in British Columbia, where both parties are incorporated due to the complex regulatory environment for the U.S. cannabis industry.
In the company's announcement of the litigation, Goodness Growth claims Verano "wrongfully terminated" the deal. The Minnesota company said in the court filing that "Verano began raising issues and taking positions that suggested it was experiencing buyer's remorse," shortly after terms of the deal were reached.
Verano tried to interfere with Goodness Growth's ability to complete and file a draft proxy statement with the U.S. Securities and Exchange Commission, a necessary step in advance of a shareholders meeting to vote on the deal, according to the Minnesota plaintiff's argument.
Goodness Growth alleges that in August Verano indicated it wanted to cut the acquisition price by at least 20%. Goodness Growth said it rejected this and a subsequent revised offer, according to the filing.
Verano, in its initial statement about the termination of the deal, claims Goodness Growth breached "covenants and representations in the arrangement agreement." The Chicago firm claims Goodness Growth now owes it a $14.9 million termination fee and reimbursement of up to $3 million in transaction expenses.
Goodness Growth is seeking unspecified damages, and Sam Gibbons, vice president for investor relations for the firm, declined comment.
In addition to Vireo Health — which sells medical marijuana in Minnesota, Maryland and New York; and marijuana for adult use in New Mexico — Goodness Growth also owns Resurgent Biosciences, an intellectual property incubator. It has eight Green Goods dispensaries in Minnesota.
Following a state law change, Goodness Growth started selling cannabis-infused gummies in Minnesota in August.
Verano has active operations in 13 states and 119 retail locations. A representative with the company did not respond to a request for comment.
Despite the trend of U.S. states legalizing cannabis for medical and adult recreational use, federal law still bans cannabis. Because of this, many U.S. banks refuse to do business with cannabis companies, leading many cannabis companies to incorporate and become publicly traded in Canada.
Overall market uncertainty could have been a factor in the deal unraveling, the lawsuit suggests.
"Throughout 2022, U.S. cannabis companies suffered significant market declines," Goodness Growth said in the complaint.
The Minnesota firm's stock dropped 60% on a Canadian stock exchange the day the deal was terminated. That stands in sharp contrast to the 42% price gain it experienced the day the deal was originally announced in early 2022.
Goodness Growth has more than 450 employees and reported revenue of $54.4 million for 2021 with a net loss of $33.7 million.
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