Fast-growing pot seller MedMen faces lawsuit by former insider
As California’s marijuana industry works to project an image of mainstream respectability, one of its best-known companies has come under attack by a former insider.
MedMen Enterprises Inc. is trying to bring pot sales into the mainstream by providing sleek, comfortable stores in high-profile locations, and its strategy often is said to emulate the Apple store model.
MedMen, which also has weed-growing operations to provide the stores’ inventory, has spent millions on advertising, including rolling truck-side branding. (Those aren’t MedMen’s trucks seen traveling Southern California freeways, just ones whose owners were willing to slap an ad on the outside.)
Now, the fast-growing marijuana retailer is being sued by its former chief financial officer, who alleges the Culver City firm forced him out for objecting to a variety of alleged misdeeds at the company, whose stock became publicly traded last year.
James Parker, who was chief financial officer for less than a year in 2018, alleged in his suit filed in Los Angeles County Superior Court that his departure Nov. 5 “was far from voluntary” and that he was pushed out by the firm, which is led by MedMen co-founders Adam Bierman and Andrew Modlin, the firm’s chief executive and president, respectively.
MedMen forced Parker “to choose between complying with his fiduciary duty” to the company and its shareholders or “turning a blind eye and a deaf ear to improper and unlawful behavior” at the firm, Parker alleged.
That alleged behavior included “profligate spending of company funds for [the co-founders’] own personal benefit,” questionable company efforts to prop up MedMen’s stock, falsifying Parker’s signature on a securities form and a work environment “replete with racial, homophobic and misogynistic epithets and slurs,” the suit claims.
Parker’s suit alleges breach of contract and wrongful termination, and it seeks unspecified damages that, among other things, would cover Parker’s future salary and employment and severance benefits in his contract that could total millions of dollars.
MedMen’s Bierman, in an interview, vehemently denied the allegations. “Parker’s accusations are false,” he said. “It is a meritless claim that will lose in court.”
Bierman, 37, also denied Parker’s claims of a hostile work environment.
“In order to generate attention, and what I believe to be an attempt to get us to pay him tens of millions of dollars, [Parker] has now added in this salacious character attack against me personally,” Bierman said. “The character attack is la-la land. This couldn’t be further from the truth.”
While acknowledging surprise at Parker’s suit, Bierman rejected the notion that the lawsuit signaled that MedMen suffers from a lack of corporate discipline and governance, especially for a publicly held firm.
“What you don’t know — because we haven’t done a good enough job of promoting or owning our own narrative — is we’ve been paying attention, and that’s why we have these things in place that we’re very proud of,” including a board of directors that he would put “up against any other board in the world,” Bierman said.
MedMen’s board, whose outside directors include former Los Angeles Mayor Antonio Villaraigosa, issued a statement calling Parker’s suit “baseless” and saying it “has full confidence in the leadership of Adam Bierman and Andrew Modlin to build the world’s finest cannabis retailer.”
One of Parker’s lawyers, Michael Kump, said in an email that Parker “is seeking to receive the benefits promised to him by MedMen in his employment contract” and that Parker “looks forward to having his day in court.”
The company has 18 stores in California, Nevada, New York, Arizona and Illinois, and licenses to open an additional 54 stores in other states. Its current locations include stores in Beverly Hills and on New York’s fashionable Fifth Avenue.
MedMen’s goal, as the 31-year-old Modlin put it last year, is to widen the marijuana-buying market so that it’s “just as normal as buying wine or beer,” in part by making it “okay for soccer moms and middle-aged professionals to use cannabis products.”
MedMen, with 1,243 employees, has been losing money as it ramps up. In its fiscal year ended last June 30, MedMen reported revenue of $39.8 million and a loss of $66.6 million.
Since then, revenue has continued to grow from the company’s own stores and through acquisitions, according to an unaudited interim report for the quarter ended Sept. 30. MedMen is scheduled to report its results for the first half of its current fiscal year on Wednesday.
MedMen last October agreed to acquire a medical cannabis company, PharmaCann, for stock that’s currently valued at about $490 million, which would provide MedMen with 10 additional stores and 24 additional licenses in several other states.
Bierman declined to forecast when MedMen hopes to become profitable but said “we are now complete with our national footprint and, as a result, we’re shifting into the next phase of our organization, which is [achieving] a path to profitability.”
Despite the lawsuit, analyst Paul Penney of Northland Securities Inc. said he’s maintaining the equivalent of a “buy” rating on MedMen’s stock because of the company’s performance to date and operating strategy.
“They’re going about it the right away in terms of enhancing the customer-buying experience from a comfort and product-awareness level,” Penney said, adding that MedMen stores and licenses are located in the nation’s strongest cannabis markets, starting with California.
“The company is going to have growth pains, and those pains unfortunately are going to be very visible because they’re a public company,” Penney said in reference to the litigation.
Indeed, MedMen, Bierman and Modlin also face a second lawsuit, this one for alleged breach of fiduciary duty, filed last month in state Superior Court by one of MedMen’s early investors, an entity named MMMG-MC Inc., and two of that firm’s principals, Brent Cox and Omar Mangalji.
They alleged that they have been prevented from freely trading their MedMen shares until late this year under a “lock-up” arrangement among MedMen’s initial shareholders but that Bierman, Modlin and some other investors were able to partially liquidate their positions. The plaintiffs are seeking at least $19.8 million in damages.
They issued a news release with Mangalji saying that MedMen “claims in their advertising campaigns that they are ‘Mainstreaming Marijuana.’ If that is the case, then they need to adopt mainstream corporate governance practices.”
Bierman rejected their claims as “patently false,” adding that “we have already generated a tremendous return for them.”
After earlier rounds of private funding, MedMen went public last May through a reverse takeover — MedMen bought an existing Canadian public company — that enabled MedMen’s stock to be listed on the Canadian Securities Exchange.
Although California and more than two dozen other states allow medicinal or adult recreational use of marijuana, cannabis remains illegal under U.S. federal law and thus the major U.S. stock exchanges will not list cannabis firms that operate in the United States.
The stock is a Class B stock with voting rights that are inferior to those of MedMen’s Class A stock that has so-called super-voting rights, and nearly all the Class A shares are held by Bierman and Modlin.
The Class B stock began trading near $5 a share (Canadian) and spiked as high as $9 in October before dropping sharply. It closed Friday at $4.07 a share, or $3.05 (U.S.). The Canadian dollar is currently worth about 75 U.S. cents.
Parker, 42, became MedMen’s CFO in February 2018, and his four-year contract included a base salary of $750,000 a year along with bonuses and potential equity grants that could have been worth millions of dollars during the contract period, depending on whether certain operating and stock-price levels were met.
Bierman and Modlin have annual salaries of $1.5 million, and their contracts likewise include potential bonuses and equity grants, according to MedMen’s securities filings. Parker received one bonus during his tenure of $2.5 million, and Bierman and Modlin received bonuses of $4 million each last year.
Bierman said he makes no apologies for the executives’ compensation.
“This is a company that Andrew and I built from nothing, with our own money of which we had very little, and along the way we’ve created tremendous returns for our investors and our investors have always been put first,” he said.
The allegations in Parker’s suit include the claim that the company ordered him “to wire hundreds of thousands of public dollars to a ‘consultant’ in Canada to ‘buy up our stock when it is under attack.’ ”
MedMen also “continued to mislead the investing public” after Parker left, in part when it “signed plaintiff’s name to a required monthly progress report” with the Canadian Securities Exchange by “using a digital signature kept on file,” the suit alleged.
Parker also alleged that he was “ordered to spend several millions of company dollars” on such items as security for Bierman, Modlin and their families; private jets, luxury hotels and a custom “$160,000 Tesla SUV demanded by the president.”
Parker’s suit claimed that he was labeled “overly conservative because he had to constantly tell the CEO and president what they were doing was not allowed and that [MedMen] was not their personal piggy bank,” and that his departure “was compelled in the face of unreasonable, continuing and substantial personal financial and legal risk if he stayed.”
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