After filing suit against MedMen in January alleging serious mismanagement and a breach of fiduciary duty – and asking a court for nearly $220 million in damages – two early investors in the California marijuana company announced this week they’ve withdrawn their lawsuit and are seeking arbitration.
Daniel Petrocelli, attorney for plaintiffs Brent Cox and Omar Mangalji, attributed the change in legal tactics to recent news that the vertically integrated cannabis company has been in a downward financial spiral for months, with a net loss of $63.1 million for the quarter that ended in March, compared with $36.6 million in revenue.
“Since our clients filed their lawsuit alleging mismanagement of MedMen, the company’s losses have continued, several executives have resigned, debt is accumulating and valuable real estate assets have been sold,’’ Petrocelli said.
“Meanwhile, MedMen’s procedural filings delayed the case until November. That delay is untenable given our clients’ views that MedMen’s financial condition is rapidly deteriorating. In order to obtain prompt relief, they have decided to file an expedited arbitration.”
MedMen quickly claimed victory in a news release, saying the case had been “voluntarily dismissed” and the move “can only be described as a personal admission that their case was improper.”
According to MedMen’s statement, the company filed a request earlier this year requesting arbitration, which Cox and Mangalji rejected in favor of a jury trial but have since changed their minds. Arbitration, MedMen said, was required under Cox and Mangalji’s investor contracts.
The company said the new request for arbitration “reeks of an attempt to unfairly compete by using the public court system to gain publicity for their own company,” Inception Companies and affiliate MMMG.
Mangalji responded in a statement, saying, “We find the personal remarks today by MedMen to be beneath a public company, much less a company aspiring to be the ‘Apple of cannabis.’”
“We made this decision for one reason: We are concerned about the health of (MedMen) and want access to our shares as soon as possible,” Mangalji said, referring to his and Cox’s shares in MedMen that were locked and unable to be traded.