When High Times closed on its deal to purchase ten California hashish dispensaries from Harvest Health on the finish of June, chairman Adam Levin was made conscious he wasn’t shopping for possession management of most of them, in response to dispensary stakeholders interviewed by Cannabis Law Report.

Authored By: Teri Buhl

14 July 2020

 

In truth the vendor, Harvest Health, didn’t even have management of the fairness possession it purchased in California dispensary licenses from Have A Heart founders on June 23 when each corporations introduced the closing of the transaction, in response to an e-mail reviewed by CLR that was written by Harvest assistant basic council Laz Rothstein.

 

High Times have boasted in quite a few  2020 press releases that the deal would give them a footprint in California and valued the deal  as a $61.5 million transaction with a $1.5 million money payout to Harvest.

 

In actuality the money to Harvest seems to have purchased not more than an overpriced advertising and marketing marketing campaign which makes an attempt to point out that  High Times has capital to develop its enterprise and encourage unsophisticated hashish traders to sink more cash into Levin’s try and make High Times a publicly traded penny inventory.

 

The unique merger settlement between Harvest and Have A Heart’s company llc, Interurban Capital Group, signed on March 10, 2020  exhibits the deal was contingent on Washington-based entrepreneur and Have A Heart founder Ryan Kunkel transferring his fairness possession within the licenses.

 

 

Have A Heart Dispensary Retail Outlet

 

A replica of the personal merger settlement was obtained by Cannabis Law Report. But on the time of the sale to High Times, Kunkel and Harvest had been in a knock down authorized battle that courtroom paperwork present entails alleged fraud, breach of contracts, and unclean palms.

 

Ryan Kunkel, CEO of Have a Heart Compassion Care

 

On June 26th, three days after  the High Times deal closed, Laz Rothstein wrote to the person who labored behind the scenes to barter the Have a Heart sale. That man, a mega millionaire from Washington, was Have A Heart’s majority shareholder, Daniel Rainer, in response to the merger settlement.  An e-mail titled “Ryan Kunkel refuses to cooperate with the merger agreement” was begging Reiner to step up and get Ryan to do what was wanted to get the belongings transfered.

 

“I have been informed that Ryan has refused to cooperate with Beau to assist in furthering the issuance of the regulatory licenses for the California Entities and ultimately approval of the transfer of those licenses to ICG. Section 5.06(f) of the Merger Agreement requires the Stockholder Representative to cause the California Entities to do this.”

 

According to Beau, Ryan refused to do something until he’s directed by his counsel to take some motion.

 

“Can you reach out to Ryan and his counsel and demand that Ryan take immediate steps to do this?  Harvest does not have the contractual right to directly demand that Ryan take action as this is an obligation of Fertile Valley, LLC as the Stockholder Representative.” wrote Rothstein.

 

Fertile Valley is an llc Dan Reiner used to carry his personal inventory in Interurban Capital Group, in response to paperwork obtained by CLR. The e-mail was additionally addressed to Bill Kinzel a person who works with Reiner at his V.C. firm Osprey Ventures.

Dan Reiner

 

When CLR requested Harvest’s Laz Rothstein if they really owned the california belongings offered to High Times; company assistant Christine Hersey wrote again an unsophisticated spin e-mail that mentioned….

 

“On June 23, 2020, Harvest announced the completion of the divestiture of equity and interests in eight planned and operational retail assets in California to Hightimes Holdings.  Following the completion of that divestment, Harvest does not own any equity or interests in California assets that were previously owned by Interurban Capital Group.”

 

CLR  knowledgeable Hersey that the publication had obtained  a confidential e-mail written by Rothstein that seems to color a special image. Harvest  subsequently went radio silent and as of press time has nonetheless refused to reply any extra of CLR’s questions on the matter.

 

In December, Harvest issued a press release that Dan Reiner would turn out to be a particular advisor to their board and stays so today. What Harvest not noted of the press launch is the truth that  Reiner was additionally the bulk shareholder to Interurban Capital Group and owned High Alpine Advisors which held a secured credit score line of as much as $25 million with ICG that funded the Have A Heart dispensaries enlargement into California and Iowa.

 

Additionally, whereas Reiner was negotiating the sale of Have A Heart for an all inventory transaction of over $2 a share; he was additionally securing a facet deal to put money into Harvest at a cheaper price of $1.41. The personal placement Reiner and his rich mates participated in raised $58 million for Harvest. On high of that Reiner select to transform the $19.096 million ICG had drawn down from the credit score facility to Harvest inventory by way of a inventory warrant transaction, in response to deal paperwork and people concerned within the transaction.

 

“Harvest buying ICG was really just a precursor with the intion of getting Reiner out of his Have A Heart investment so he could put millions into Harvest and get a boatload of publicly trading stock,”

One former ICG government informed CLR who primarily based on a NDA clause and can’t converse publicly.

 

“This transaction underscores the inherent risks and complexities that still loom in cannabis investing.  The perceived “smoke and mirrors” related to this deal now exposes each Harvest and High Times to additional regulatory scrutiny,”

Matthew A. Karnes founder of Green Wave Advisors informed CLR.

 

 

Harvest’s lack of transparency within the deal is confounded by the truth that whereas they’ve talked about they’re in litigation with Kunkel they gained’t really inform anybody what it’s about as a result of  they are saying the case was moved to arbitration.

 

But, CLR have obtained not less than 5 lawsuits filed in Washington State courtroom that present Harvest, by way of its new subsidy Interurban Capital Group, doesn’t even have working administration service agreements with the 5 dispensaries in Washington. Those service agreements had been grossing as much as $400ok a month per dispensary.

 

Cannabis legal guidelines in Washington require you to be a resident of the state with a view to personal a dispensary and the dispensary house owners named on the license are required to regulate pricing of the product and hiring of personnel. Kunkel’s identify is on all of the Washington dispensary licenses, in response to the merger settlement. What Harvest was shopping for within the deal is 2 fold. A name choice to purchase the Washington dispensary license if they might get a Washington resident on their workers and the administration of the shop contract.

 

Management contracts are widespread within the hashish business as a result of in some states it means the administration firm llc isn’t taxed on the identical excessive charge gross sales that (hashish) flower is taxed at.

 

Harvest Retaliation towards Dispensary house owners

 

After Harvest closed its cope with Ryan Kunkel and Dan Reiner, it moved instantly to fireplace senior workers loyal to Kunkel. It additionally considerably elevated the pricing of month-to-month administration contracts. New workers had been employed with larger salaries and Harvest even began to alter the value of merchandise offered within the dispensaries. These strikes alarmed Kunkel and his fellow dispensary house owners, as a result of, in response to courtroom paperwork this meant the dispensaries had been now violating Washington state regulation and Kunkel may lose his license and injury his goodwill with the state’s governing physique that approves dispensary licenses. So, he cancelled the ICG administration contract three weeks after the merger was signed claiming amongst different issues that Harvest had breached the ICG deal.

 

Additionally, public data additionally present  that Kunkel subsequently created a brand new llc. Since Harvest owned the Have A Heart identify all 5 Washington dispensaries had been modified to be known as “The Cannabis Storey” and Have A Heart signage was eliminated.

 

 

This prompted nice consternation with the  attorneys at Harvest, who had been livid. They locked Kunkel and workforce out of their level of sale system after which discounted the entire merchandise by 50%, in response to the content material of the  lawsuits. They additionally made it inconceivable for Kunkel to trace gross sales within the retailer, gross sales that he has to report, by regulation,  to the state of Washington thus forcing Kunkel  to close down his dispensaries for a couple of days. Kunkel finally obtained management over all of the shops inner methods and runs them to today.

 

Meanwhile Harvest retains making an attempt to run up Kunkel’s authorized payments even after a choose denied their transfer to nominate a receiver for the dispensaries and Harvest retains submitting lawsuits making an attempt to ‘split claims’. The arbitration listening to is about for the tip of 2020 however, for now, Harvest doesn’t seem like incomes any income out of the Washington shops it boasted about within the deal announcement.

 

 

Partially accredited Licenses at Risk

When Kunkel was engaged on Have A Heart’s enlargement into California he teamed up with native residents who had been wanted to safe what Oakland and San Francisco name ‘social equity licenses”.  The idea behind these licenses is to give local individuals ,who were affected by the federal government’s conflict on marijuana earlier than the State legalized it, an opportunity to be authorized hashish entrepreneurs.

 

Two of the African American males Kunkel partnered with to win California licenses are Alexis Bronson and Marshall Crosby.

 

Alexis Bronson (Medium)

 

A assessment of native data present Bronson owns 40% of the fairness in a hashish license that took two years of authorized battles to get accredited to function in San Francisco’s dear Union Square. Bronson was additionally made CEO of the llc Kunkel arrange for the long run dispensary known as HAH 2. The retailer was rented from NYC primarily based actual property firm Thor Equities. A replica of the lease obtained by CLR exhibits HAH 2 was paying $175ok a month lease for the primary yr and it went up four p.c after that. On high of that there have been hefty development value to construct out the shop and meet metropolis necessities.

 

Marshall Crosby, one of many solely recipients of an Oakland Cannabis Equity dispensary allow, shares his story about rising up in Oakland as he prepares to launch his new dispensary, the Black Card.

 

In the few months that Harvest was purported to personal the administration contract and partial fairness in HAH 2 they didn’t pay the lease and neither has High Times since their merger closed.

Given development was shut down in San Francesco when the Covid19 pandemic started it’s unclear if an act of god will get HAH2 out of a penalty.

Multiple calls to Thor Equities legal professional to make clear how a lot is owned went unreturned. But you’ll be able to see on Thor Equities web site that they’ve put the Union Square location again up for lease.

 

 

When Cannabis Law Report reached Alexis Bronson by telephone he’d already made public feedback in press studies denouncing the actions of Harvest and High Times.

An e-mail Bronson wrote, this week, to a SF metropolis authorities official, Greg Minor, complaining about High Times mentioned the next….

 

“Contractually none of the proceeds of this proposed transaction deal that values the four Oakland and San Francisco equity dispensary licenses combined at $24 million USD would benefit the social equity license holders or are earmarked to pay down their companies debt and operational expenses incurred to date.

Basically as equity applicants we are being prostituted and profited on by big Corporate Cannabis like cheap whores at a Hells Angels bachelor party.”

 

Adam Levin informed reporter Jeff Smith at MJ Biz last week that he was working with the social fairness house owners. But Bronson says he hasn’t heard from him since earlier than the merger closed. The final time they talked was June 4th for under 20 minutes when Bronson argued his level that High Times or Levin doesn’t have possession of his fairness curiosity and he has by no means voted for approval of this sale. With Bronson’s fairness solely being 40% is unclear how a lot voting energy he would even have within the transaction.

 

At this level the Union Square (San Francisco) retailer that Adam Levin bragged about buying to the media within the final month seems lifeless on arrival.

 

Have Heart presently solely has two working dispensaries in California. One is in Oakland close to Chinatown and has been up and working for ten months. The merger settlement exhibits it’s majority owned (51%) by a younger hashish entrepreneur Josh Chase who didn’t promote his fairness within the merger with ICG and Harvest, in response to the paperwork. The retailer which High Times valued at $12 million in its SEC submitting is constant to run but it surely’s unclear if it has an ICG contract managing it or if Chase is working the enterprise on his personal. The $12 million valuation to High Times additionally seems questionable given it’s unclear if Ryan Kunkel has even transferred his 49% fairness in Josh Chase’s retailer whereas in litigation with Harvest.  Chase wouldn’t return a request for interview with Cannabis Law Report. Ryan Kunkel informed Cannabis Law Report he wasn’t going to touch upon something whereas he’s in litigation. Adam Levin has not  replied to any emails asking for touch upon the problems.

 

Have A Heart Oakland

 

Additionally, one other deliberate Oakland dispensary that had began its buildout in an space known as Oakport can also be having landlord issues. According to an e-mail seen by CLR this week the $91ok a month lease on the shop that Marshall Crosby was awarded a social fairness license in has gone unpaid. Back in May the owner posted a 3 day discover to give up the placement for breach of contract if $386,847.84 owed isn’t paid.

Legal Notice on The Black Card website

 

An individual accustomed to the transaction mentioned Crosby’s location goes to lose its lease or already has. The dispensary license like so lots of the licenses High Times purchased within the deal don’t have ultimate approval from the cities that granted them. That is as a result of you must have a constructing, fireplace, police and planning approval to safe a ultimate license. And dispensary operators in California that spoke with CLR identified that a variety of these pending ultimate approval license are dependant on a displaying of lease being paid and buildout development persevering with.

 

How a lot due diligence Adam Levin and High Times did earlier than they closed with Harvest is unclear. An e-mail to High Times legal professional Stephen Weiss asking for the corporate to elucidate their dispensary due diligence went unanswered. Last week Cannabis Law Report broke the information that different hashish publications followed reporting that the SEC gained’t enable High Times to gather gross sales of funding of their Mini-IPO as a result of the corporate has delayed submitting their required audited annual report.

 

Since then Adam Levin has been on assault making an attempt to persuade some reporters that the IPO is simply ‘paused’. Levin has additionally used a California legal professional to jot down threatening letters to journalist in the event that they didn’t report the IPO information as Levin noticed match. This reporter obtained one of many harassing letters earlier than publication and located High Times criticism about publication was meritless.

 

Show me the Money

Even although High Times can’t shut gross sales in its RegA providing proper now that hasn’t stopped the corporate sending out every day emails soliciting investor to speculate extra. The advertising and marketing materials boast the acquisition of ten california deliberate and dealing dispensaries. Additionally CLR has seen an e-mail the place High Times is denying refunds from primary road traders who need to get out of the RegA mini-IPO. The e-mail mentioned the providing will shut on September 30 and the inventory will probably be listed by the tip of the yr. But High Times traders have heard this promise earlier than a number of occasions since they firm started promoting the mini-IPO two years in the past.

 

Adam Levin + “Story Cover Image” Levin (far proper) on trip with mates (location unknown / date unknown)

Adam Levin has made press statements that the corporate has raised lower than half of its goal of $50 million with solely $20 million accomplished gross sales. But the final time High Times spoke to the quantity raised in an SEC submitting it mentioned solely $15 million was raised. The inventory traders purchase within the RegA providing is widespread inventory which is beneath the fairness construction of the prefered inventory corporations like Harvest get once they make asset gross sales with High Times.

 

Events

The query has been the place is High Times getting the cash for all these acquisitions and salaries for the revolving door of Chief Executive Officers. In the previous, occasions earned the corporate virtually 70% of its income. It doesn’t appear as if the corporate has hosted an in-person occasion for the reason that Detroit Cannabis Cup in 2019. All in-person occasions in 2020 stopped in mid-March as COVID-19 pressured an finish to public gatherings.

 

The Michigan hashish cup in 2019 was thought-about a hit because it offered 1000’s of tickets however was additionally topic to quite a few complaints about parking issues and a basic incapability to deal with the crowds that arrived. Presumably, the occasion will need to have introduced in some income.

 

The Austin TX Hemp Cup was canceled as a result of COVID-19 virus and held just about. One of the sponsors of the occasion, Black Tie CBD is suing High Times for not receiving a refund.

The firm gave High Times $25,000 as a sponsor of an in-person occasion and regardless that High Times mentioned it will return sponsor cash, it hasn’t as but, which in flip has pressured Black Tie to sue.

High Times plans say that the corporate is shifting ahead with digital hashish cup occasions, however they’re unlikely to usher in the tens of millions the corporate used to make on dwell occasions.

 

Black Tie CBD Live Stream Event

 

Ad Sales

High Times  income staple has come from the promoting gross sales on the print journal. The iconic journal has had a protracted 40-year run, however shoppers are studying fewer print magazines on the whole.

High Times acquired two different print publications Culture and Dope, however give up publishing these not lengthy after shopping for them. Dope Magazine in response to the June 2019 submitting really offered fairly a little bit of income from its show promoting.

 

The final High Times printed journal was April 2020, however the digital information stays up-to-date.

Long time author Danny Danko was laid off earlier this yr because the digital facet appears to have moved in the direction of a extra economical use of freelance writers. There are a smattering of digital advertisements, however these are  not almost as profitable as print promoting.

 

 

The Final Print Issue Of High Times ? April 2020

 

Danny Danko

 

So, it seems, the one different  present supply of revenue is the cash coming in from traders shopping for shares within the widespread inventory.

 

Selling Stock

High Times had mentioned in a submitting that it will be late submitting its annual report because of COVID-19 after which they missed that deadline of June 12. Many hashish corporations have filed related delay requests. Accountants working from residence have a tough time accessing wanted data, and so on is the 2020 narrative.

 

However, it begs the query, if the attorneys could make it into the workplace to transact a number of acquisitions, then why can’t the accountants get their work accomplished as properly? If High Times continued to promote shares even after the SEC informed the corporate to cease, it may very well be in violation of securities legal guidelines.

 

Also, the widespread shares that had been initially offered as having a price of $11 per share, however as soon as the providing is full an 11:1 ahead break up will happen and the inventory will probably be price solely $1 per share.

 

High Times is saying its SEC filings that there isn’t any litigation that would have a fabric affect on the corporate and but there are quite a few lawsuits piling up towards the corporate. None of those lawsuits are disclosed within the filings.

 

 

The firm is issuing shares like monopoly cash with little indication that they are going to ever commerce.

High Times is unable or unwilling to pay corporations or people it owes, whereas by some means handing over 1000’s of {dollars} to safe dispensary offers and pay government salaries.

 

Support Documents

152 GEARY ST LEASE DOCUMENT

2018.10.12 – Have a Heart Union Square lease

 

LAWSUIT: INTERURBAN CAPITAL GROUP INC V BOYDEN INVESTMENT GROUP LLC & OTHERS

Kunkel counter declare April 2020

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