National marijuana conglomerate TILT Holdings will pay a $275,000 fine to settle charges it used onerous loans and management contracts to gain effective control over more cannabis licenses than Massachusetts law allows, and then failed to properly disclose the relationships to regulators.
The state Cannabis Control Commission voted Thursday to accept the settlement, which followed a years-long investigation by the agency into TILT and one of its component companies, Sea Hunter Therapeutics.
Meanwhile, the commission on Thursday also fined marijuana operator Sira Naturals, owned by multinational cannabis company Ayr Strategies, $295,000 for allowing an unlicensed intra-company delivery vendor it had received permission to work with to deliver products between other cannabis firms.
The state’s findings on TILT substantially mirror those of a 2019 Globe Spotlight Team report on the company’s business practices, concluding that its contracts with seemingly independent affiliates seeking cannabis licenses clearly demonstrate” TILT exercised “indirect, and perhaps [even] direct” control of the other firms.
Acreage Holdings, another national cannabis operator implicated in the Spotlight report, previously paid a $250,000 fine to settle similar charges by the commission.
TILT acknowledged in the settlement that the commission “could reasonably find [TILT] should have known that it exercised direct or indirect control of five” medical marijuana licenses — above the state cap of three. The report also noted that TILT affiliates were pursuing even more licenses at the time their contracts with TILT were publicly disclosed, which along with the commission’s intervention prompted the company to pause its plans and later work to unwind the deals.
“The conclusion of this investigation marks a turning point for TILT as we have a renewed focus on building a culture of compliance under our new leadership team,” TILT chief executive Gary Santo said in a statement. “TILT fully cooperated with the CCC’s investigation and acted in good faith to comply with regulations.”
A company spokeswoman also walked back earlier statements by former TILT president Tim Conder that the company planned to exit the Massachusetts licensed marijuana market altogether, saying it actually intends to grow its business here.
The commission said the contracts at issue contained provisions that forced TILT’s affiliates to use the larger company’s consulting and legal services, stock most of their inventory from TILT-owned cannabis producer Commonwealth Alternative Care, and allow TILT to appoint and fire their executives and board members while also charging a fee on every product sold and taking the majority of their revenue to repay high-interest loans from TILT.
In one instance detailed in the report, TILT managers allegedly ordered expensive work on modular retail spaces made by an outside company in the name of one of the company’s affiliates — Verdant Medical — without informing the affiliate’s owner, former Boston city councilor Tito Jackson.
Later, when TILT abandoned the arrangement in favor of an in-house supplier, the builder sued Verdant and Jackson to recoup the promised payments; investigators said that prompted Jackson to accuse TILT of committing a crime. (TILT later settled with the building company; Jackson did not immediately respond to a request for comment.)
Investigators said they also found emails showing that TILT actively offered to sell Ermont, a Quincy-based dispensary with which it had a loan and management deal, to other investors, despite supposedly not owning or controlling the affiliate. And they heard testimony that Sea Hunter had earlier sought to inflate Ermont’s value in advance of the merger that would eventually create TILT, pushing Ermont to sign a deal that would allow Sea Hunter to book the dispensary’s revenue as income instead of payments on a loan.
When Ermont’s executives raised concerns the arrangement could create the appearance that TILT illegally controlled the affiliate, former Sea Hunter executive Alex Coleman allegedly retorted, “do you like your salary?” and insisted Sea Hunter would “figure out” the potential control issue.
Investigators said the deal, along with a similar contract with Verdant, represented “boilerplate agreements that were [intended] purely to flaunt the [value of the] affiliates and potential revenue for the TILT merger.”
Officials Thursday said TILT had essentially unwound its deals with former affiliates Elev8, Herbology, and Verdant, which had owed TILT millions in now-forgiven debt. The conglomerate today is under new leadership, following the contract scandal and a massive goodwill impairment in 2019 that knocked nearly $500 million off the value of the company.
However, a dispute remains over the status of Ermont; TILT sold the debt it is owed by Ermont to Teneo Capital Management, run by former Sea Hunter executive Robert Leidy, over the objection of Ermont’s executives. Because the sale happened without commission approval, it seems likely to be the subject of future disciplinary hearings.
Verdant and Ermont’s executives were also cited as having violated commission regulations by not disclosing their relationships with TILT; those allegations will be heard at a future commission hearing.
In an unexpected twist, commission chairman Steve Hoffman this week filed a state ethics disclosure related to the case, after investigators at his own agency found records of e-mails and meetings between him and Coleman regarding the questionable contracts.
Hoffman said he made the disclosure because of the possible appearance of a conflict of interest, but insisted no such conflict existed and that he had never blessed the details of the arrangements later offered by TILT to minority marijuana entrepreneurs.
“Finding ways to bring capital into the market for economic empowerment [and] social equity applicants has been a priority of mine during my entire tenure,” Hoffman told reporters. “Mr. Coleman received no ... enhanced access to me, nor any unwarranted privileges versus anybody else with whom I met.”
In a statement, a spokesman for Sira Naturals said the impermissible deliveries by its partner, Stalk & Beans, happened at the outset of the coronavirus pandemic when “there was a time-sensitive need to assist smaller operators in obtaining product to re-open and safely serve consumers.”
It noted that it had not admitted to violating state regulations, and said the settlement provides clarification around delivery vendor relationships carried over from the prior regulatory regime overseen by the state Department of Public Health.