Miami Attorney Takes Lead Role in Complex $140 Million Cannabis Deal
Miami Attorney Takes Lead Role in Complex $140 Million Cannabis Deal
Alan Gold was lead attorney for The Green Solution, Colorado's biggest cannabis operator, in its sale to industry giant Columbia Care.
Alan Gold, founder of The Law Offices of Gold & Parado in Miami. Courtesy photo
A global cannabis giant’s $140 million acquisition of Colorado’s biggest cannabis operator spanned securities and litigation issues, and all were resolved with help from a Miami attorney.
New York-based Columbia Care Inc. acquired The Green Solution on Sept. 1 in what may stand as this year’s biggest marijuana transaction.
Alan Gold, founder of The Law Offices of Gold & Parado, was lead attorney for The Green Solution.
“You needed a scorecard. It was so many different balls in the air at different times,” Gold said. “It was extremely complicated.”
The deal breaks down to $110 million of Columbia Care stock, $15 million in secured debt and a $15 million seller’s note, according to a company news release.
The Speidell brothers, who started The Green Solution, will run it until year’s end. If a 2020 audit shows revenue milestones were met, a $40 million payment will be added, Gold said.
TGS operates dispensaries, a wholesale distribution network, six cultivation facilities and a manufacturing plant. Unaudited revenue through July totaled $52.7 million, a 29% increase from last year, according to Columbia’s news release.
Kyle Speidell, who co-founded TGS in 2010 with his brother Eric Speidell, said they met with most of the big cannabis operators before opting for Columbia.
“This is a landmark acquisition that allows us to bring Columbia Care’s expansive product portfolio to our customers in Colorado as well as enables us to quickly expand our brands, products and expertise to every major market in the U.S.,” Kyle Speidell said in the release.
Two more Speidell brothers, Nick and Brad, help run the company.
Columbia now is the second largest cannabis company globally and the biggest in Colorado. Its portfolio includes 95 facilities, either open or under development, which breaks down to 73 dispensaries and 22 cultivation and manufacturing locations at 18 locations in the U.S. and Europe.
As for Gold, this was his first cannabis legal venture but not his first complex venture.
“We have always worked on complicated transactions throughout the country and complex litigation,” he said. “I’ve had experience with regulatory industries, insurance, both state and national. To me, my wife thinks I am crazy, I think it’s very interesting and a challenge, and it’s part of the complexity of either the litigation or the transaction.”
Litigation
TGS in 2018 was in line to have its intellectual property and most franchise operations outside Colorado taken over by cannabis company Jushi Holdings Inc. based in Boca Raton.
A year later, they were trying to unwind the agreement, which was needed to pursue the deal with Columbia Care.
“The relationship soured, so to speak. We reached a settlement prior to any litigation being filed,” said Gold, who worked on behalf of TGS to back out of the Jushi deal.
The TGS-Jushi settlement called for TGS to sell its two Illinois medical marijuana dispensaries to Jushi. The Speidell brothers owned 75% of the two stores, but minority owner Tanya Griffin opposed the sale to Jushi and sued the Speidells in Cook County, Illinois, Circuit Court.
She sought a declaratory judgment and claimed breach of contract and fiduciary duty, arguing the sale was illegal under an operating agreement and Illinois law. Gold was part of the team that appeared for the Speidells.
Judge Raymond Mitchell in Chicago dismissed two counts and in a separate order in January denied Griffin’s motion for a temporary restraining order that sought to stop the Speidells from selling their controlling shares. Griffin’s appeal was denied.
The court decisions allowed the Columbia sale to move ahead.
“When the sale proceeded, we got our intellectual property back and were able to close the deal with Columbia Care,” Gold said.
Columbia-TGS Deal
Gold said he is uncertain whether the TGS name will stay but knows Columbia wants to grow.
“From what my clients and I and the financial advisers believe, it has very good financials unlike many other companies. It didn’t try to grow by acquisition. It didn’t spread itself thin,” Gold said. “The fit was perfect and as far as my clients were concerned, (it’s) a company that would have the capital and the wherewithal to take them to the next level.”
Columbia acquired TGS’s intellectual property and real estate except for Illinois dispensaries. The Speidells obtained Columbia stock in a reverse triangular merger involving three companies.
“A shell company will be merged with the Colorado companies, and Columbia Care would exchange their stock for that, and the owners of TGS would receive those stocks in a tax beneficial situation,” Gold explained.
Another deal intricacy was that Columbia is publicly traded in Canada, meaning it couldn’t own shares in a Colorado company until a recent change in the law.
“We had to get knowledgeable and involved with securities counsel in Canada and the U.S.,” Gold said.
This was his first venture into cannabis legal work and hopes it won’t be his last.
“It was an extremely interesting although it was hard work and we got over numerous hurdles,” Gold said.
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NOVEMBER 18, 2020
BUSINESS INSIDER
November 18, 2020:
With 5 more states passing cannabis reform, brands could be on the brink of franchising — but there are several factors to consider if you're looking to expand nationally
- Businesses in the cannabis space face more difficulty than others when it comes to franchising.
- Before they're able to establish a national presence in the US, brands will have to overcome federal regulations along with operational inefficiencies and lack of product consistency.
- Consider other options for becoming nationally recognized like mergers and acquisitions, state-specific franchising laws, and licensing deals, experts said.
The total domestic economic impact of the cannabis industry in the US in 2019 was between $37 and $46 billion, according to Marijuana Business Factbook. The market scale will only grow as legalization efforts continue in the US. Without ventures established in every state, the space remains ripe for the taking.
While America celebrates five states having recently passed cannabis reform, the market continues to face growing pains. A noticeable problem is establishing a franchise, a standard method to gaining market share. A tall task in any industry, the cannabis space typically faces a more difficult path to national branding as federal regulations prohibit operations from expanding as other industries are allowed.
While arduous, legal experts and operators told Business Insider that establishing an American cannabis franchise is possible. And doing so comes with significant market benefits.
"Franchising is popular because it allows entrepreneurs to use other people's capital and sweat to grow and expand their business concept rapidly," said Eleanor Vaida Gerhards, co-chair of law firm Fox Rothschild's franchising and distribution practice group.
Gerhards said the idea of what she dubbed "McDonaldizing" the space has been the franchising world's talk since the first dispensaries came online.
While an intriguing topic, franchising can come with its share of difficulties.
Read more: The international markets for cannabis entrepreneurs should keep an eye on
Hurdles to franchising a cannabis brand include federal regulations and production quality and consistency
Cannabis operators must be aware of the risks that face the brand and its consumers.
Chuck Smith, CEO of BellRock Brands, a CPG-oriented cannabis brand born out of a recent merger between BR Brands and Dixie, highlighted several areas of concern that companies can encounter along the process.
Due to federal regulations, cannabis brands can't operate across state lines like most other industries. Smith said that interstate cannabis commerce prohibitions force companies to create operations in every state they want to expand to.
"Operating efficiencies are lessened under this current framework," Smith said.
A critical area of concern is production quality. Alan Gold of the Miami-based law firm Gold and Parado noted that state-by-state regulations create numerous obstacles. "There are the common problems of quality control and protecting the brand, which can be exacerbated when products, like cannabis, cannot cross state lines," he said.
Gold, who recently served as lead counsel for Colorado brand The Green Solution during its sale to Columbia Care, said each state requires various background checks and badging requirements, which may make compliance more difficult to manage.
The combination of varying state regulations and the need for operations in every market creates a concern around product consistency. Unlike other industries, cannabis can't be produced in one or a few locations and shipped to other states. As such, brands must ensure that its partners adhere to state and company guidelines, or risk harming the brand's image.
As such, a company needs to be in it for the long haul if it wants to become a national entity. "Building a national brand, especially in this fragmented industry, takes time and attention," Smith said.
He noted that brands must earn consumer loyalty and trust over time. "That comes in part from having a platform that allows you to execute consistently and play the long game," he said.
How to navigate national expansion in a market with spotty legal regulations
Options exist for brands looking to establish a national presence in the US cannabis space.
Mike Weinberger, COO of dispensary brand Unity Rd, believes his company can gain a substantial market share through franchising. Unity Rd bills itself as the first of its kind in the market, with over 10 nationwide partners in various opening stages at this time.
Unity Rd believes it found a solution for consistency through mergers and acquisitions. In June 2020, its parent company, ONE Cannabis Group, was acquired by Arizona-based Item 9 Labs Corp. Weinberger said that the move provides a way to mitigate concerns around operations and quality as the franchise expands.
Weinberger said franchise partners benefit from a wide selection of strains and vape products, as well as expert support on matters like licensing. "As a franchisor, we work hand-in-hand with franchise partners to select other high-quality cannabis products to round out our local offerings," he added.
Gerhards highlighted an opportunity in state-specific franchising laws. "One strategy is to headquarter in a jurisdiction like Colorado, DC, Massachusetts, or Vermont, where recreational use is permitted and there are no state-specific franchise regulations," Gerhards said.
However, she added that growth remains possible in markets that do require registration and approval of concept. Gerhards reported having discussions with Illinois and Washington State regulators "who promise they review a cannabis franchise application just like any other franchise concept seeking registration," she said.
Licensing deals, which have a more limited scope of use than franchising, have been a popular method as well. This method allows brands to reach across state lines without doing all the legwork of establishing a new operation in each state.
Matthew Kittay, national co-chair of the mergers and acquisitions practice group at Fox Rothschild, said that companies could increase efficiency as a multistate entity through commercial branding or product licensing agreements.
"Combined, this has allowed brands which are not licensed in a particular state to partner with a licensed producer or distributor to expand their brand," Kittay said.
Gold agrees that licensing is the way to go. In time, he expects the expansion of legalized markets to force state regulatory laws to become less restrictive. "This could alleviate some of the present concerns with the franchise model," he said.
Franchising isn't for everyone — sometimes the 'buy local' approach is best
Proponents of licensing and franchising believe they have the model to become a national cannabis brand in time. Many also feel that there's room for more than just one process to succeed.
Weinberger is confident that his franchise model will earn its share of the market. He expects a mix of multistate operators (MSOs) and licensed brands to rise to the top along with franchised locations.
Kittay, meanwhile, predicted that there will be room for MSOs and single-state operators in the years ahead. He noted that the single-state approach also remains alluring as it simplifies operating and legal structures. "There will always be a certain segment of the consumer base which prefers a 'buy local' approach, frequenting homegrown brands confined to a single state, and which have no plans to expand beyond a certain state," he said.
Regardless of the path chosen, Smith noted operators with strong IP, significant operating experience, and brand equity in large markets as those most likely to succeed.
"These are the companies that have an opportunity to create the first true national brand platform," he said.
