You can also find out more about this by clicking here. This story is republished from Crain’s Detroit.
The court has placed Choice Labs of Jackson, which processes marijuana, as well as its parent, Glorious Cannabis Co. in Au Gres (Glorious Cannabis Co.), a company that cultivates cannabis, into receivership.
Receivership is a legal step taken by Needham Bank and other companies to protect themselves from a federal investigation of Pennsylvania-based Daryl Heller, who operates a private equity firm. Heller is the primary investor in Glorious under the Heller Capital Equity group. This was revealed by a bank court filing. Heller Capital holds a small minority interest in Choice Labs.
Investors accused Heller of running a Ponzi Scheme with an ATM Network business. The FBI raided his offices in Lancaster, Pa. on December.
In a lawsuit filed in Jackson County circuit court on Feb. 7, the bank claimed that Heller was in default of his loan agreement with Choice and Glorious and affiliates.
In its complaint, the bank states: “Heller was recently the subject of several lawsuits in multiple jurisdictions alleging breaches of contract and fraud with regard to other businesses.” The bank’s complaint states that “as a consequence of (Heller’s) actions the borrowers are already subject to numerous claims and litigation.”
Heller, as a personal guarantee unconditionally provided by the companys on the loans, owed approximately $51.2 Million to the bank.
The attorneys for Choice and Glorious refused to comment. Wes Lutz was unavailable to make a comment.
Choice Labs operates both a dispensary and a facility for processing cannabis on a 10-acre site. They also produce the CannabisPM gummies and Crude Boys flowers. Glorious is a company that grows and processes marijuana, primarily to make pre-rolled joints.
According to court records in Jackson County, Needham Bank made a $44.87-million loan to Glorious to help it acquire Choice Labs. This included a commercial real estate loan of $38.82 millions and a term loan of $6.05 million. These loans were secured by mortgages on Choice Labs’ operations in Jackson at 4202 Ann Arbor Road and 4499 Phelps Drive.
Glorious borrowed another $10.3 million to open an operation in Uxbridge (Massachusetts) in 2022.
Needham informed Choice, Glorious, and their affiliates on Jan. 31 that they had defaulted in their loan agreements because of Heller’s action. On February 6, the parties entered into a forbearance contract that required the remaining $51.2m to be paid immediately.
Mounting financial entanglements
In August, more than 2,700 investors sued Heller for allegedly not paying his employees in March. Lancaster Online reported that many of the investors were Amish or Mennonite.
Investors suspected fraud when Paramount stopped paying investors in April even though Paramount previously had reported margins of over 23%. The investors’ suit claims that Paramount generated a profit in 2022 of $65M on a revenue of $278M.
During an investigation by investors, the plaintiffs’ expert witness testified in court in December that nearly 18,000 of the list of 28,000 ATMs purportedly owned by Paramount did not exist or were owned by other companies, Lancaster Online reported. Paramount and Heller are yet to reveal the serial numbers and locations of ATMs within their network. This includes, according to reports, all ATMs located at Pennsylvania Turnpike Service Plazas throughout the state.
Court records show that Paramount agreed to settle the case by paying investors back $138 Million in payments, and transferring ownership of their ATM network. Heller has been found guilty of contempt last month. He was ordered to pay the additional $2 Million to investors.
According to Lancaster Online, agents from the federal government raided Heller’s Lancaster office on December 5, 2012.
Heller has a $5 million IRS lien, an ongoing lawsuit settlement requiring monthly payments of $200,000, and a $3.35million judgment against Orrstown Bank. He also has a $1.8million civil judgment towards Traditions Bank and a further $600,000.000 civil judgement toward Univest Bank and Trust.
Heller, a New Jersey resident, filed personal bankruptcy on Tuesday.
Choice Labs Glorious have now been dragged into a Pennsylvania lawsuit by Heller, claiming that the proceeds of their loans should be directed to another investor. Fundcanna (FC Capital Holdings) filed a suit in September, and wants to be the receiver for Choice California.
According to the complaint filed by the bank, Heller allegedly provided FC Capital with a Choice security interest in exchange for $3 million Heller loaned his private equity group.
Needham, fearing that other creditors might take its collateral, sought receivership because of the mounting litigation.
“Borrowers are not implicated in (Heller’s) alleged misdeeds, but the bank is reasonably and seriously concerned about the potential material adverse and other effects on the collateral and concerned the full extent of (Heller’s) misdeeds is yet to come to light — and those legal proceedings themselves constitute events of default,” Needham said in a court filing.
Cannabis companies placed in receivership
Companies that grow marijuana cannot claim financial obligations through bankruptcy. Marijuana still remains as a Schedule 1 substance under the federal Controlled Substances Act. This means that marijuana companies are not eligible for bankruptcy protection.
Choice and Glorious represent the second significant marijuana receiver-overseen cases in Michigan.
Skymint in Dimondale (operating under Green Peak Innovations Inc.) entered receivership March 2023 after a lawsuit by investors claiming it owed Tropics L.P. more than 127 million dollars.
The lawsuit alleged Skymint was burning through $3 million in cash per month and generated only $110 million in revenue in 2022 — $153 million below its forecast of $263 million in sales for the year. Merida Capital Holdings of New York, and affiliates filed a separate lawsuit in Oakland County Circuit Court alleging financial misrepresentation as well as mismanagement against Green Peak.
Tropics LP acquired retail assets from Skymint at an auction held under receivership for $109,4 million. Tropics bid was not surpassed by any other bidders. Tropics has not yet closed the deal as there are still other litigations to settle. All of Tropics’ assets were auctioned off separately.