Marijuana Companies And Investors Make Grab For Arizona’s Social Equity Licenses Ahead Of Retail Launch Deadline

October 9, 2023 · marijuanamoment.net

As Arizona’s remaining social equity license holders scramble to open marijuana dispensaries before a looming October deadline, private investors and major cannabis corporations have continued to wrest control away from the individuals the program was designed to benefit.

In at least four recent cases, AZCIR found, licensees wound up on the losing end of legal battles, ultimately cutting short their prospects of long-term profits in a budding industry.

One social equity license holder signed an operating agreement that would put his business up to $3 million in debt before it opened. Another believed she entered into a contract with a dispensary owner, only to find herself partnered with a stranger.

A pair of friends disagreed about whether to sell their license, prompting another big dispensary to get involved. When one woman refused to sign an operating agreement with the investor who backed her application, he later obtained the license through arbitration.

The shifts in ownership offer the most recent glimpse into how powerful entities dominated Arizona’s social equity program in a way that some argue was by design, ultimately enriching those who helped craft the voter-approved initiative. Even as court records reveal facets of each case, sealed settlements largely shield voters from knowing who ultimately benefits from a program they approved.

The state’s social equity program was supposed to “promote the ownership and operation of marijuana establishments and marijuana testing facilities by individuals from communities disproportionately impacted by the enforcement of previous marijuana laws,” according to Proposition 207, the voter initiative that legalized recreational marijuana.

As AZCIR reported in July, well-funded dispensaries sought applicants from marginalized communities early on, funding hundreds of applications for a potential stake in their businesses. When the health department livestreamed the lottery selection from more than 1,300 applicants, three major dispensaries landed partnerships with 10 of the 26 winners. None of the original licensees are still connected to those partnerships today.

In fact, just four of the original 26 social equity lottery winners still have an equity stake in the lucrative licenses. Existing corporate dispensaries now own half the licenses outright, with private investors holding equity in 10 more.

And among 13 Arizona dispensaries that have opened to date using a social equity license, just one of them is owned by an original licensee without support from a corporate dispensary. The remaining 12 operate under familiar names like Sol Flower, JARS Cannabis, Story Cannabis and Mint Cannabis.

Some of the original licensees benefitted from the sale of their license equity, though sealed settlements make it difficult to know exactly by how much.

“At this point, there really isn’t much of any way you could call it a social equity program, because most of the social equity qualified applicants have been bought out or pushed out of the licenses that they made possible,” said Tom Dean, an Arizona criminal defense attorney who regularly represents clients in the cannabis industry. “I do put a lot of blame, though, in the [Arizona Department of Health Services] and the way that they drafted these regulations, because I think it encouraged this kind of behavior by investment companies and [multistate operators].”

It’s unclear what will happen to social equity license holders who fail to open dispensaries by the October 8 deadline.

ADHS spokesperson Tom Herrmann said only that the agency has “the right to proceed with enforcement actions” against those licensees, and that they, in turn, “have the right to appeal those enforcement actions.”

He hesitated to comment on whether the outcome of Arizona’s social equity program aligned with what was presented to voters in 2020.

“We followed the laws out there,” he said. “We’ll leave the evaluation to others.”

Anavel Vasquez partnered with Michael Halow to submit two applications for the social equity program. She was one of 140 eligible individuals Halow recruited to apply through Helping Handz, a Wyoming LLC.

The investor’s efforts landed partnerships with five of the 26 licenses, including Vasquez’s Juicy Joint I, when the lottery was drawn.

The next day, Vasquez, who is not a fluent English speaker, and her long-time partner Rene Mendoza, met with Helping Handz representatives to sign an operating agreement, as she’d consented to before the lottery.

Helping Handz representatives claimed it would cost $21 million to open a dispensary, of which Vasquez owed $11 million as a 51 percent owner, Mendoza said in a phone interview with AZCIR.

Helping Handz offered the couple a duffle bag stuffed with what it claimed was $35,000 in cash, he said.

The meeting left Vasquez “feeling threatened and intimidated,” according to arbitration records that described “threats and raised voices.”

The pair refused to sign, retaining an attorney instead.

Vasquez then transferred the license to a new business, Menvas22, which she formed with Mohit Asnani, who is involved with two Tucson dispensaries and a cannabis product line.

Helping Handz was also working to retain the license. The initial contract Vasquez signed stipulated that disputes would be handled through arbitration, which Helping Handz later used to resolve the dispute out of court, claiming breach of contract.

An arbitrator ruled in Helping Handz’s favor in July, restoring Juicy Joint’s right to the license and removing Vasquez as a member altogether. Vasquez no longer has a stake in the license and was not compensated for her 51 percent share, Mendoza said.

Menvas22 initially agreed to pay Vasquez $2.7 million for its share of the license, of which Vasquez has received 30 percent, according to Asnani, though it is unclear what will happen with those funds since the license was transferred to Helping Handz.

The license is now operating in Kingman as part of Story Cannabis, a corporation that runs 16 dispensaries in three states, including three utilizing social equity licenses in Arizona.

Both Halow and Story Cannabis declined to comment for this story.

A separate lawsuit alleges that Helping Handz sold two of its social equity licenses, neither of which belonged to Vasquez, for $8.25 million each. Consulting firm Green Brick Road claims that it has not received its $165,000 fee for either sale.

In late August, Menvas22 filed a lawsuit against entities including the State of Arizona, ADHS, Juicy Joint I and Helping Handz. The suit is ongoing and asks that the license be returned to Menvas22, which was not a party in the arbitration.

ADHS spokesperson Hermann declined to comment on the matter, citing pending litigation.

“It’s very heartbreaking for the promises we got to be stripped away,” Mendoza said. “And also, leaving us in the hole. We have to pay all kinds of taxes and money. It’s a big nightmare.”

On a Friday evening in early April 2022, Keiandrea Mandley walked into an ornate Italian restaurant with her cousin to an exuberant display of applause. The two were there to meet with Curtis Devine, the founder of Mohave Cannabis Co., who Mandley believed was her new business partner.

In late 2021, Mandley had agreed to team up with Devine to apply for two social equity licenses. In exchange, she got $1,000 and an eighth of an ounce of marijuana.

“A free eighth of some good weed? OK, let’s go,” Mandley recalled during an interview with AZCIR. “A thousand dollars, $2,000 if I refer somebody else? I’ll take that extra cash. [The offer] was pretty catchy.”

Mandley signed off on a 99-page stack of paperwork that included operating, management services, right of first refusal and loan and security agreements. But soon after her application was chosen in the state’s April 2022 lottery, she found the opportunity Mohave presented to her was not what it seemed.

When Devine and Mandley met for dinner following the drawing, he offered her $1 million for the license. She declined. He then proposed a $500,000 loan to help her launch her dispensary. Mandley intended to seek her own funding, she recalled, and told Devine as much.

That’s when he informed her she couldn’t do so, Mandley said.

The response didn’t add up for Mandley, who expected to make key business decisions as the majority owner of the company. She sought an attorney to help make sense of things.

After reviewing the agreements she’d signed, the lawyer didn’t mince words.

“These people took all your rights,” she recalled him saying. He called the contract “predatory.”

Dean, the cannabis defense attorney, echoed that assessment after reviewing the deal, pointing to ADHS regulations he said allowed and even encouraged such “predatory activity.” He noted the management services agreement between Mandley and Mohave—which included an initial 20-year term that automatically renewed—siphoned profits off to the management company controlled by the investor.

Ownership and operation are the two key components of social equity licenses, Dean explained. “In this agreement, at least for 20 years, there’s really not either.”

Mandley also learned Devine was not her business partner after all. Instead, it was a man named John Trantham-Kemp, someone she had never heard of.

“Why is it him on the license and not you?” Mandley recalled asking Devine. “He said because he couldn’t put his name on all those applications.”

Mandley removed Trantham-Kemp from the LLC in December 2022 and attempted to open a dispensary in Globe, a small city about 90 minutes from Phoenix. Though she preferred to locate the business closer to her Phoenix home, the city does not allow standalone recreational dispensaries.

In February, Devine Holdings LLC sued Mandley, claiming breach of contract and unjust enrichment, and describing the social equity license as “what is likely a multi-million dollar asset.” For their part, Mandley’s attorneys alleged that the details of the contract were changed from when Mandley first reviewed it to when she signed the contract two days later.

In late July, the parties reached a settlement agreement. According to corporate filings, Devine purchased Mandley’s portion of the license in July. Trantham-Kemp resigned from the company in August, leaving Devine as the sole owner.

Both Trantham-Kemp and Mohave Cannabis declined to comment for this story.

“I did not know it was going to be like this,” Mandley said in June, reflecting on her journey through the program. “It has been hell.”

Mandley said she was unable to comment since signing the settlement. Her attorneys also declined to comment.

In late 2021, Meagan Dixon and Shonae Johnson teamed up to apply for a social equity license. The two previously worked together in the marijuana industry.

Dixon qualified for the program, taking a 51 percent stake in the business, while Johnson held the remaining equity. But the women had different ideas about what to do with the license when it was awarded to their company, Dynamic Trio Holdings.

Dixon preferred to sell the license, but Johnson disagreed.

“I spent three hours at her house trying to talk her into not selling and why she shouldn’t sell. But eventually, I said, ‘OK if you’re not going to change your mind, then let’s set up meetings with different ownership groups and see what we can get,’” Johnson recalled.

The two courted various offers ranging from $8 million to $17 million, according to Johnson, but couldn’t agree on one.

Then, Dixon began speaking with Ronnie Kassab, the president of JARS Arizona. JARS Cannabis has 35 dispensaries spread throughout Arizona, Colorado and Michigan. Dixon sought to sell Kassab her portion of the license, which would require Johnson’s approval. But Johnson declined.

In April, Dixon filed a lawsuit against Johnson asking that the court allow her to transfer her stake in the license to Kassab and direct Johnson to approve. After months of back and forth, the women decided to sell the license through the court.

Each of the women ranked the offers, but the court would ultimately choose the buyer, according to court records.

Dispensaries and investors submitted 10 offers in mid-July, including those from Nirvana Center, Oz Cannabis and Trulieve, one of the largest cannabis companies in the country.

ACP Investments, a limited liability company registered in New York that claims to sell insurance, bought the license in a deal sealed by the court in June.

AZCIR previously detailed the story of Denzel Mason, who applied for the social equity program with marijuana industry heavyweight Copperstate Farms through a partnership dubbed Your Bright Horizon. Mason, a young Black man living in South Phoenix, signed an operating agreement with Copperstate prior to the digital lottery.

Copperstate then presented Mason with a promissory note and security agreement stating that their shared business would owe Copperstate up to $3 million to open the dispensary, which included more than $800,000 the company claimed it spent on its outreach program. Mason retained his own attorneys.

They ended up in litigation, and the court ruled in Copperstate Farms’ favor in May. The ruling temporarily removed Mason as the manager of the business, for what Copperstate said was Mason’s “refusal to discharge his duties as a manager, which now threatens the company’s survival.”

Then, as AZCIR found in mid-August, Copperstate purchased Mason’s share of the license in a settlement. Mason and his attorneys declined to comment on the sale. Copperstate also declined to comment for this story.

Natacha Andrews, an attorney and executive director of the National Association of Black Cannabis Lawyers, called the scenario a “common practice” in social equity programs.

“It’s historically been the case in this country, people buy melanin all the time. They don’t want to own it. They just want to rent it,” she said. “The social equity programs that are put together don’t protect the people down the line who need that protection. It isn’t just a matter of, ‘We’re going to set up this social equity program and give out these licenses.’ There has to be substance behind that.”

Copperstate recently opened three of its Sol Flower branded dispensaries using social equity licenses in Tucson. (Full Story)

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