Highland Park Marijuana Dispensary Sues To Escape Sale Contract

CHICAGO — The owners of a Highland Park medicinal cannabis dispensary filed a federal lawsuit last week asking a judge to confirm a deal they signed to sell out to a Arizona-based chain of dispensaries is no longer valid.

Elevele LLC, the operator of the dispensary at 1460 Old Skokie Valley Road since March 2016, is 97 percent owned by Veronica and Andrew Hunt of Lake Forest. William Riley, also of Lake Forest, owns the other 3 percent. The firm has sued Harvest Enterprises, Inc., of Tempe, Arizona, which owns more than a dozen retail cannabis locations in five states and announced the pending acquisition of several others earlier this year, according to the lawsuit.

The two companies signed a purchase agreement March 25, before the Illinois General Assembly passed a law legalizing the recreational use of cannabis and permitting existing licensed medical marijuana dispensaries to have a one-year monopoly on the newly created commercial market.

Around the same time, Harvest announced the pending acquisition of Chicago-based Verano Holdings, giving it the rights to acquire additional dispensaries in Effingham, Harvest, Norwood Park and St. Charles, according to the suit. It also alleged Harvest's CEO, Steve White, has ownership of another existing Illinois cannabis dispensary.

The contract included a clause allowing for it to be terminated if a series of conditions were not met by 90 days after its effective date, which was June 23.

In its suit, Elevele alleged that Harvest breached the agreement by planning to acquire the rights to more than five licenses — the maximum allowed by a single entity under Illinois law.

"Between the signing of the Purchase Agreement and June 23, 2019, Harvest did not take adequate or reasonable steps with the [Illinois Department of Financial and Professional Regulation, which administers cannabis licenses,] to ensure that the consummation of the Purchase Agreement would comply with all applicable legal requirements and occur as promptly as practicable — and specifically address the surplus of licenses and the requirement that capped the number of dispensary registrations Harvest could own in the State of Illinois," it argued.

"Put simply, Harvest has embarked on an aggressive acquisition strategy to purchase license rights from dispensary owners without apparent regard that its strategy creates an obstacle to closing the Purchase Agreement with Elevele."

The suit also pointed to an Aug. 9 statement from Harvest claiming that it owned seven licenses in Pennsylvania, which caps permits for any one owner at five, just as Illinois does. According to a letter included with the lawsuit from the Pennsylvania Department of Health Director John Collins, Harvest's claim was a "blatant misrepresentation" of its status in the state. The department, he said, expects all seven Harvest-linked entities — "Harvest of Northeast PA, LLC," "Harvest of Southwest PA, LLC," etc. — to operate independently as they claimed they would in their permit applications.

The Lake Forest-based owners claim the uncertainly over the purchase agreement "threatens to cause [them] further economic injury," according to their suit.

"By creating a condition of uncertainty regarding the Purchase Agreement, Harvest has threatened the economic interest that Elevele retains under the Recreational Cannabis Act to acquire a secondary site and thus increase its goodwill and enterprise value," it said.

"Elevele is able to pursue a secondary site license and is committed to doing so if the Purchase Agreement has been validly and properly terminated. But if it has not been, Elevele cannot pursue or obtain a secondary site registration due to certain restrictions on Elevele contained in the Purchase Agreement."

The suit, filed July 24 in the Northern District of Illinois by Lake Forest-based attorney Kenneth Vanko, asks a federal judge to declare that Elevele's termination of the sale contract was valid and that it is under no obligation to go ahead with closing the deal. It also asks for the Arizona company to cover associated costs and attorneys fees.

On July 26, Harvest filed its own federal suit in Arizona, asking a judge to find that the Hunts and Riley wrongfully terminated the agreement and breached the "implied covenant of good faith and fair dealing." It asks a judge to order Elevele to proceed with the terms of the agreement and pay Harvest's costs and fees. Harvest is a Delaware corporation but its principal place of business is in Arizona, according to the suit. The purchase agreement includes a clause saying any legal disputes over the suit can be brought in either Arizona or Illinois.

Harvest's suit alleges that Elevele failed to submit the proper documentation to Illinois regulators within 30 days of the agreement. It said it made good faith efforts to fulfill its obligations under the agreement but Elevele's owners refused to withdraw their notice of termination.

"The lawsuit identifies, among other things, how Elevele and its members breached the agreement and the efforts of Harvest to fulfill its obligations under the agreement despite the members’ breach," according to a statement from Harvest spokesperson Alex Howe. "Harvest will also ask the Illinois court where Elevele filed suit [on July 24] to transfer that case to Arizona where Harvest will vigorously defend itself against Elevele’s baseless allegations in the Illinois lawsuit."

Owners of Elevele recently told Highland Park News that they were in the process of buying a larger space and relocating, with plans to serve both recreational and medicinal markets, regardless of whether Highland Park decides to forbid the recreational sale of cannabis. At least one member of the City Council, Adam Stolberg, told Pioneer Press he would vote to ban such businesses from within the city's boundaries.

The Cannabis Regulation and Tax Act, signed into law by Gov. JB Pritzker last month, allows home rule communities other than Chicago to forbid the commercial sale of cannabis, but it does not allow local governments to ban the possession of under an ounce of marijuana products or their use on private property with the permission of the property owner.