Marijuana company’s expansion plans test Mass. law
Curaleaf, one of the biggest marijuana operators in the country, is the latest company to test Massachusetts rules designed to prevent a few large corporations from dominating the market.
The company, based in Wakefield, has applied for state licenses to sell medical marijuana at three stores and recreational pot at three, the maximum a single company is permitted to own — or control — under the state’s marijuana law.
But Curaleaf could soon exceed the state limits. The company told investors it reached an agreement in August to buy Alternative Therapies Group, which has a hybrid medical-recreational store in Salem and has provisional licenses to open two more in northeastern Massachusetts. If completed, the deal would potentially give Curaleaf ownership or control of six medical marijuana licenses and six recreational permits in various stages of the approval process, double the number allowed under state rules.
In an interview at the Globe on Tuesday, Curaleaf chief executive Joseph Lusardi insisted the Alternative Therapies deal will comply with the rules. He emphasized that acquisition hasn’t been completed or submitted to regulators for approval. But he said Curaleaf ultimately hopes to manage the three additional Alternative Therapies stores under exclusive management contracts, which he believes do not constitute “control” of these additional stores.
Under state guidelines, regulators say a company controls another entity if it, among other things, can veto significant events.
“We will not own or control those three dispensaries,’ Lusardi said. “I am absolutely confident that the transaction we file with the regulators will be compliant with state law.”
Lusardi declined to say who would actually own the stores. But documents indicate the company was considering restructuring the deal so the stores would be purchased by another company — using money provided by Curaleaf.
The Cannabis Control Commission declined to comment on Curaleaf’s plans.
But as first reported by the Globe Spotlight Team last week, the commission is investigating whether companies are violating the state license limits. Records show the commission was warned by another agency last year about such issues with two operators, Sea Hunter Therapeutics, a subsidiary of TILT Holdings, and Acreage Holdings.
A Spotlight report last month also found that the vast majority of recreational shops that have opened in Massachusetts have ties to multistate marijuana operators or out-of-state investors, while many independent entrepreneurs have had trouble raising the money to compete.
The commission also plans at a hearing on Thursday to discuss the process for reviewing proposed acquisitions of marijuana companies. The agency said it has so far received seven written requests for changes in ownership. It has declined the Globe’s request to review those documents until the commission investigates them and considers them at a future public meeting. The Globe has appealed.
Curaleaf, which has grown through a series of acquisitions, says it now has the biggest network of marijuana stores in the country operating under one brand. By the end of the year, Curaleaf told investors, it hopes to operate more than 70 stores in 12 states, including seven in Massachusetts. Some of its locations would be hybrid stores with both medical and recreational marijuana licenses.
Lusardi, the Curaleaf chief executive, said the company was mainly interested in buying Alternative Therapies Group for its cultivation and processing operations. “Our goal is to not only carry our products through our own stores, but also be a prolific wholesaler.”
He also has personal ties to Alternative Therapies. Lusardi said he helped get Alternative Therapies off the ground several years ago. And Lusardi’s consulting company had a 10-year contract with Alternative Therapies until it was canceled last year.
Lusardi repeatedly declined to say who would wind up owning Alternative Therapies’ stores.
Internal documents obtained by the Globe indicate Curaleaf executives discussed replacing the original contract, which appeared to be a direct acquisition, with a new deal to lend $50 million to another entity, NIMO MA, which in turn would use the money to buy Alternative Therapies.
As part of the transaction, Curaleaf executives considered signing a loan agreement that would give Curaleaf the option to acquire NIMO MA for $1, give Curaleaf the right to approve the appointment of company directors, and initially pay NIMO MA owner Nicolas Mokhoff $100,000 per year.
But Lusardi insisted the deal outlined in the internal documents was not final, and wasn’t designed to skirt rules.
“We have not purchased ATG yet. The transaction has not closed. It has not been filed with regulators,” Lusardi said. “When the transaction is approved by regulators we will make a public announcement.”
Still, Lusardi also said he was confident that Curaleaf will ultimately be able to craft an agreement to manage the additional stores — without running afoul of rules limiting the number of stores any one company can control.
Boston attorney Jon Barooshian said he doesn’t think companies can use management agreements to get around the Massachusetts caps.
“Control is control,” said Barooshian, a litigator with Bowditch & Dewey, which represents a number of marijuana businesses.
Barooshian said he thought the rules would let companies provide consulting and some other ancillary services to an unlimited number of stores. But companies cannot actually manage or have control of key decisions, like the sale of the license, without considering the three-license cap.
“The devil is in the details,” Barooshian said. “The regulations say no individual shall be in a position to control the decision making.”