MedMen Enterprises Inc (OTC: MMNFF), the self-proclaimed “largest U.S. cannabis company in the largest cannabis market,” is being sued by one of its biggest shareholders.
On Tuesday, former board member Brent Cox filed a lawsuit against MedMen in L.A. County Superior Court alleging a breach of fiduciary duties. The lawsuit's plaintiffs are Cox and MMMG-MC, Inc, a company that owns approximately a 10-percent stake in MMMG, LLC, MedMen’s management company.
In the lawsuit, Cox and Inception Companies co-founder Omar Mangalji argue that MedMen CEO Adam Bierman and President Andrew Modlin have been making decisions on behalf of MedMed than serve their own personal interests rather than the best interests of the company’s investors.
“Beneath the MedMen veneer is a complex web of interconnected subsidiary entities, virtually all of which are directly managed, directed, controlled and owned by Bierman and Modlin, and all of which always pursue the best interests of Bierman and Modlin, rather than the best interests of any stakeholder or entity,” the lawsuit said.
MedMen said in a statement issued Wednesday that Cox and Mangalji were early investors in a precursor company to MedMen and are now seeking to cash out shares that are locked up until Nov. 25, 2019 as part of the company's go-public strategy.
"The interests of all of the stakeholders impacted were included in the process and the feedback was overwhelmingly positive. Mr. Mangalji and Mr. Cox have already received cash distributions representing a complete return of their capital plus a substantial gain," Daniel Yi, MedMen's senior vice president of corporate communications, said in a statement.
"This is clearly and egregiously an attempt to devalue the shares of the enterprise for their own personal gain at the expense of all other stakeholders."
The court denied the plaintiffs' request Wednesday for a temporary restraining order and preliminary injunction, MedMen said.
Back in October, MedMen said its $682-million buyout of PharmaCann made it the largest U.S. cannabis company, licensed to operate in 12 U.S. states with a projected 2030 market value of $40 billion.
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In November, MedMen reported $21.46 billion in revenue in the fiscal first quarter, an increase of more than 1,000 percent from a year ago. The company also reported a net loss of $12.48 billion.
Mangalji said the history of the cannabis industry and the market’s complex legal status in the U.S. makes it even more important that companies like MedMen operate responsibly.
“Simply put, MedMen is a publicly traded company that is withholding its shares from its shareholders. Management is using conflicted corporate structuring in breach of its fiduciary duty to its shareholders,” Mangalji said in a press release.
Despite the impressive growth numbers, investors haven’t been impressed by the company’s expansion. MedMen shares are down 6.3 percent overall in the past six months. Shares were down 4.4 percent at $3.22 ;at time of publication.
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