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Marijuana firm TILT backs off of strict contracts under pressure from state CCC

Marijuana growing at an indoor cannabis farm.
Marijuana growing at an indoor cannabis farm.Richard Vogel/Associated Press/Associated Press

TILT Holdings, the struggling Massachusetts marijuana conglomerate under investigation for trying to illegally control more than three pot stores, is retreating from the onerous contracts it once pitched to smaller local operators — and from the licensed cannabis industry itself.

An investigative report published this week by the state Cannabis Control Commission said TILT has agreed with regulators to scrap the management and loan contracts it had signed with several smaller companies seeking marijuana retail licenses around Massachusetts. Instead, the company is attempting to renegotiate those complex pacts and replace them with simple loans.

The original deals, which were the subject of a Boston Globe Spotlight Team report last year, typically offered the local “affiliates” consulting services and $1 million or more in loans to help them open their pot shops — a compelling lure, since financing is exceptionally hard to come by in the federally-illegal cannabis business.

But the agreements came with numerous strings attached, including requirements in some that the smaller companies pay high interest rates, purchase most of their inventory from TILT, pay a fee on every item sold, direct most of their profits to repaying the loan, and offer TILT the first right of refusal on any future financing or sale of the company.

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Critics said the lopsided contracts gave TILT so much leverage over its affiliates that it effectively controlled the seemingly independent local companies. With TILT already pursuing its own retail licenses under a directly owned subsidiary called Commonwealth Alternative Care, the affiliate contracts could have allowed the conglomerate to sidestep the state’s three-license cap on the number of retailers one company may own or control.

The law is intended to help ensure fairness for smaller and disenfranchised players in the state’s recreational pot industry, which so far has been dominated by larger investor-backed outfits.

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The commission was prepared to reject applications from companies that had agreed to TILT terms, including several by Elev8 Cannabis, which was seeking to open marijuana stores in Athol, Orange, and Williamstown. The report said investigators determined that, under the original agreements, TILT “exercised decision-making authority over management and operational decisions” over Elev8.

At a July meeting, TILT told commission investigators it intended to terminate the Elev8 agreement and similar ones with its other affiliates: Ermont, Herbology Group, and Verdant Medical, which is run by former Boston city councilor Tito Jackson.

In October, Elev8 submitted a new unsecured loan agreement with TILT that superceded the earlier contracts. Investigators said the new deal did not give TILT control over Elev8, and concluded that while Elev8 and its founder Seun Adedeji had initially failed to disclose TILT’s involvement, the company cooperated and there was no direct evidence it purposefully misled the commission.

“Any past failure to disclose an interest on the application was not intentional or bad-faith,” the commission’s director of investigations, Patrick Beyea, wrote.

The agency’s five commissioners at a Thursday meeting voted unanimously to issue Elev8 provisional licenses for its proposed locations. Chairman Steve Hoffman said he was confident the company’s new applications pass regulatory muster.

“I certainly wouldn’t have voted for them unless I felt they were compliant,” Hoffman told reporters. “I’m convinced and confident that our cap laws and regulations are not being violated.”

The commission in September voted to tighten its regulations and stiffen penalties around ownership and control. Applicants must now proactively disclose management and other contracts that could give others power over the entity.

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Adedeji is an entrepreneur from Oregon, where in 2017 he opened a marijuana store at just 23 years old — making him perhaps the youngest black owner of a licensed cannabis shop in the country. He said he’s thrilled to have received initial commission approval, but strongly objected to the characterization of his earlier deals with TILT as predatory, saying he negotiated a better deal than other affiliates and noting he had already purchased property and secured local approval in one town before the conglomerate’s involvement.

“I don’t want the story to be that it was all TILT and we didn’t have ownership,” he said. “We want to be a beacon of hope for younger, minority entrepreneurs.”

Tim Conder, who became TILT’s chief operating officer after an extensive management shakeup last year, said his company is working to replace its other affiliate deals.

“We’re looking at it through a different lens than the previous management had,” he said in an interview. “These agreements aren’t intended to extend our distribution footprint — they’re intended to help operators like Seun [Adedeji] through the process, in the vein of social justice and equity.”

Formed in 2018 by a merger of four disparate marijuana firms, TILT began last year with ambitions of becoming one of the country’s largest operators of state-licensed marijuana facilities. But the company soon imploded.

Conder said TILT’s strategy is now to offer licensed operators vape hardware, consulting services, and software instead of directly running marijuana growing and selling facilities. It will hold on to its Massachusetts licenses for now, he said, but may eventually sell them.

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Conder pointed to the company’s improved third-quarter results as evidence that TILT will survive.

“In my mind, that paints the picture of the beginning of a turnaround,” he said.


Dan Adams can be reached at dadams@globe.com.