Massachusetts regulators granted a preliminary license to run a medical marijuana dispensary earlier this year to a group that includes two New York investors, even after receiving pleas from two women who said the investors had defrauded them of thousands of dollars in an earlier deal.
The two women say they put their life savings into two marijuana dispensaries in Arizona, but ran short of cash when implementation of that state’s medical marijuana law stalled. In a complaint they filed in September with Arizona regulators, they allege that the New York investors they turned to for help took control of the company without their knowledge.
“I was so mad for so long, when we finally realized we had been totally duped,” said Linda Shaughnessy, 66. “I lost $400,000.”
Arizona officials have made no finding of wrong-doing, but when the women learned that the New York investors were bidding for three marijuana licenses in Massachusetts, they fired off letters to Massachusetts regulators in September, and again in January, detailing their complaints.
Nonetheless, in January, the New York investors, who had formed a new company called Patriot Care Corp. with another partner, won preliminary approval from the state of Massachusetts for a medical marijuana dispensary license in Lowell. They were invited to reapply for two more licenses.
Patriot Care spokesman Dennis Kunian said allegations by Shaughnessy and her business partner, Jean Matherly, that they were tricked out of their Arizona dispensaries are not true.
“Complete due process was followed in every single instance,” he said. “The bad guys are doing anything they possibly can to defame us.”
Nicholas Vita, a director of Patriot Care Corp., is also named in a related lawsuit filed last month in Arizona that asserts one of the dispensaries Vita acquired from Shaughnessy has failed to pay a consultant for introducing Vita to Shaughnessy in early 2013 and for subsequently helping Vita with other consulting services.
“Mr. Vita was made aware of the consulting services agreement before he became a significant investor and member of [the Arizona dispensary company],” states the lawsuit filed by 4Front Advisors LLC in Maricopa County Superior Court.
4Front, which has been a consultant for four of the 20 applicants that won preliminary approval Massachusetts dispensaries, says in its Arizona suit that Vita and his partners owe a $50,000 fee and 5 percent of a Prescott, Ariz., dispensary’s gross revenues.
The lawsuit allegations are not true, said Kunian, the Patriot Care spokesman. “The lawsuit is bogus, and we are asking that it be dismissed,” he said.
Kunian said Vita and Patriot Care are following the rules in Arizona and in Massachusetts.
The Massachusetts Department of Public Health announced finalists for the state’s first 20 provisional marijuana dispensary licenses in January, and almost immediately questions were raised about the state’s selection process. Three lawsuits filed in the past month in Suffolk Superior Court argue that the process was riddled by error and failed to detect misrepresentations, prior legal troubles, or conflicts involving some of the successful applicants, issues that might have resulted in disqualification.
One of those suits, filed Monday, alleges that Patriot Care’s application appears to omit mention of a lawsuit alleging fraud, a judgment for failure to pay taxes, and a bankruptcy, all involving Nick Vita.
The Massachusetts Department of Public Health said Thursday the Arizona suit “involves a pending business dispute between private interests before an out-of-state court. department is currently reviewing management structures of all dispensary applicants in provisional status, along with verifying information in their applications. No licenses, provisional or final, have been issued, and any dispensary that is found to be unsuitable will not be granted a license.”
The license application Patriot Care submitted to the Massachusetts Health Department showed that $1.3 million, 100 percent of the funding for the company’s start-up operations, would come from Columbia Care, LLC, a New York financial company that lists Vita as its treasurer.
Matherly and Shaughnessy said Columbia Care promised to pay them $1.1 million in early 2013 to help them keep their Arizona company afloat and repay money they had borrowed from another investor, who was threatening to sue them.
The women say they brought on this first investor in 2012 after Arizona’s medical marijuana law was stalled by that state’s governor. The dispensary permitting process ended up in limbo, yet the bills for the buildings they had signed leases on had to be paid.
The women said in their complaint to the Arizona Department of Health Services that Columbia Care delayed paying the money for two months and kept sending them amended versions of the contract agreement. They said that when they finally received a formal contract and signed it, Vita assured them that their initial investor would be paid.
But Vita’s group never compensated the investor, the women allege in their complaint. The investor sued, and the matter ended up in court, with a receiver temporarily handing over management of one of their dispensaries, located in Surprise, Ariz., to Vita’s New York financial group, according to the complaint.
The investor, Thanh Pham, said in an interview that a judge awarded him control of the dispensary, but only after he paid about $600,000 in expenses that Vita said he had accumulated while running the business between May and September of last year. Vita’s group then waited for Arizona state health regulators to complete their final inspection of the women’s Prescott dispensary site, the complaint states.
According to the complaint, after the state gave the green light for the company to open the Prescott dispensary last August, Vita and his team voted them off the board of directors of their own company and filed new corporate papers with the state reflecting their removal from the board.
“The New York investors obviously didn’t engage in this fraudulent activity prior to the inspection because they realized our involvement as the principal officers and board members were necessary to ensure department approval,” the women wrote in their Arizona complaint.Kay Lazar can be reached at Kay.Lazar@globe.com.
Follow her on Twitter @GlobeKayLazar. Shelley Murphy can be reached at Shelley.Murphy@globe.com. Follow her on Twitter @ShelleyMurph.
Correction: Because of a reporting error, an earlier version of this story incorrectly stated when they had received final approval to open a dispensary in Arizona. Officials in that state approved the opening of 203 Organix in Prescott, Ariz., on June 27, 2013. Two of its managers, Jean Matherly and Linda Shaughnessy, were dismissed on Aug. 13.