Former House Speaker John Boehner’s sudden embrace of the cannabis industry this week put one question on a lot of people’s minds: What is Acreage Holdings?
You may know them better as High Street Capital, the firm where the emphasis is on the capital not the high.
On Wednesday, Boehner and former Massachusetts Gov. William Weld announced that they would be joining the advisory board of Acreage, a multi-state cannabis company with holdings in both medical and adult-use states. Acreage officials said Boehner and Weld would also join the company’s official board of directors as soon as that body is assembled.
You may be forgiven if you’re drawing a blank on Acreage. You may know them better as High Street Capital Partners, the New York-based private equity firm led by financier Kevin Murphy. At High Street, the emphasis has always been on the capital, not the high.
Acreage CEO Kevin Murphy
Murphy, a former investment banker with Stanfield Capital, Lazard, and Cantor Fitzgerald, founded the firm in 2014. His executive team is drawn straight from the Wall Street elite: Bankers Trust, Skadden, Goldman Sachs, Warburg Pincus, the Blackstone Group.
In 2014, the firm invested in Denver-based Dixie Brands, one of the iconic brands of Colorado’s early adult-use years. Over the next two years, the firm took equity positions in medical marijuana companies in Illinois, Maryland, Florida, California, and New York. In late 2017, the firm changed its name to Acreage Holdings.
Today, the firm’s investments (it’s not clear if these are ownership or major positions) include cannabis companies in 11 states.
Here’s an overview of the company’s investments, presented at an ACG (Association for Corporate Growth) webinar in May 2017:
Their Plans: $3B and an IPO
Green Market Report editor Debra Borchardt joined Acreage CEO Kevin Murphy on a panel at the ICR Conference in January, one of the largest investment conferences focused on growth companies. She reported:
Acreage Cannabis Holdings is invested in cannabis companies in 11 different states. CEO Kevin Murphy said, “We will see massive consolidation in this business. We will be on that podium and that is a fact. We are not going to give up this position anytime soon.” He said that his company estimates it will do $130 million in revenue in 2018 and projects that will rise to $3 billion by 2020. He also suggested that the company planned on going public this year.
Most cannabis industry investors expect Acreage to go public via Canada, where cannabis will soon be federally legal.
These guys clearly know money. With the recruitment of Boehner and Weld, they’re now politically connected.
But do they know cannabis? That’s where things get murky.
Then There’s This Lawsuit
We don’t know a whole lot about these guys, and yet Murphy is projecting $3 billion in revenue and an IPO within the next three years. Acreage just added the former Speaker of the House as a board member. That’s a big deal. The cannabis industry—and the legalization movement—want to know more about their intentions and their operations.
So I dug a little deeper into the company’s background. I didn’t find any skeleton-filled closets, but I did stumble across a civil lawsuit that, as lawsuits often do, offered a glimpse into the Acreage playbook. The court filings also contain insight into how today’s license-procurement game is played.
The case is Harris Silver v. Harold Chase Lenfest,et al. It was filed in federal court in Pennsylvania on Jan. 3, 2018.
Hired, but Not Contracted (or Was He?)
Here’s the nut of the dispute: In 2016, Acreage hired Harris Silver, a cannabis consultant, to lead the company’s bid for a medical marijuana license in Pennsylvania. Silver prepared an application that won a cultivation license, but then Acreage reneged on Silver’s payment—or so he claims. Acreage’s legal response indicates that they believe Silver was well-paid for his work and now has his hand out for more.
If you choose to swim with sharks, do not dive in naked and unarmed.
When you read the minor novel that is Silver v. Lenfest, though, a number of things become clear. For one, when a person chooses to swim with sharks, that person had better come armed with spears and a protective cage. For another, when it comes to their money and investments, the Acreage execs do not mess around. Acreage’s cannabis space isn’t groovy and “all good.” These are bankers who cut their teeth at Goldman. Caveat fucking emptor.
Before we dive into the documents, here’s a reminder: Nothing has been proven, and anybody can claim anything in a lawsuit.
That said, Harris Silver, the Venice, CA-based cannabis licensing consultant, pulls no punches in his characterization of the firm.
Silver Comes Out Swinging
Acreage “purports to be successful investors in the fast-growing field of licensed cannabis cultivation and dispensing and are seeking to cash in via an initial public offering,” Silver contends in his civil complaint. “But in fact, [Acreage has] suffered a string of failures in their efforts to actually obtain the cannabis licenses they sought.”
H. Chase Lenfest, the Philadelphia philanthropist, was curious about the emerging medical cannabis industry.
The company applied for but failed to get cultivation licenses in Massachusetts, Connecticut, Illinois, New York, and Maryland the complaint contends. So in the summer of 2016, Acreage began talks with Silver, who had, his lawsuit says, successfully obtained licenses for his clients in Connecticut and Illinois.
By early fall, according to Silver, the Acreage executives expressed interest in bringing Silver aboard as a partner to lead all of the firm’s future license applications. In the near term, Acreage was interested in obtaining a license in Pennsylvania, which had recently legalized medical marijuana.
Acreage executives held an ace in their hand: H. Chase Lenfest, the Philadelphia philanthropist and entrepreneur, was curious about the medical cannabis business. His connections led him to Acreage.
Meeting With the Man
Acreage CEO Kevin Murphy and managing member Melvin Yellin arranged a meeting with Lenfest at his apartment in downtown Philadelphia. According to Silver, the Acreage team asked him to pitch Lenfest on the idea of joining Acreage as co-owners of the Pennsylvania medical marijuana license.
Although Silver didn’t have a formal working agreement with Acreage, the suit says, he agreed to organize and offer the pitch to Lenfest, which included samples of cannabis products and a detailed diagram of all the steps necessary to prepare a high-quality application. “No one from [Acreage],” Silver claims in his lawsuit, “provided any input into those materials or even bothered to review them prior to the meeting.”
The pitch worked. Lenfest agreed to partner with Acreage to obtain a Pennsylvania medical marijuana license.
Almost immediately, things began to sour between Silver and Acreage. “After it appeared that Mr. Silver had successfully brought Mr. Lenfest on board,” Silver’s legal complaint maintains, “[Acreage] promptly backed away from its promise to bring Mr. Silver on as a full partner.”
Even so, Silver continued to work with Acreage on the Pennsylvania licensing bid. Near the end of 2016, Silver and Acreage CEO Kevin Murphy signed a term sheet that set forth Silver’s compensation should Prime Wellness obtain Pennsylvania licenses for cannabis cultivation and sale.
That compensation was substantial. Silver would be paid $180,000 to prepare the applications, as well as a 4% non-dilutable ownership interest in Prime Wellness, the suit says. Silver was allegedly promised a job as chief marketing officer of Prime Wellness and a bonus for each winning application: $150,000 for a cultivation license, $50,000 for each dispensary license. (This term sheet does exist, by the way. It is literally Exhibit A in the lawsuit—but it was brought as evidence by Acreage Holdings, not by Silver.)
In late December 2016, according to the complaint, Acreage wired Silver $90,000—half his agreed-upon fee. Silver plunged into the application process, moving from LA to New York City to work full time out of Acreage’s offices.
Silver claims that Acreage’s Pennsylvania application “was in disarray” when he arrived. (Acreage says it was not.) It was early January. The application was due on March 20.
Silver says he worked nearly three months straight to get the bid ready. And he worked essentially without a contract.
The term sheet said right up front: “The parties acknowledge they must complete negotiations” on the terms. It was not a contract, Acreage’s attorney would later assert. It was an agreement to strike an agreement, an informal outline, nothing more.
Silver claims he tried to get Acreage to complete the deal, but the company dragged its feet. Murphy and others, Silver charges, assured him “that they were simply too busy at the moment but would get to it.”
Time’s Running Out
As the deadline for the Pennsylvania application neared, Silver continued to press for a signed contract. The Acreage executives, he says, continued to delay.
Finally, on March 20—the day the Pennsylvania license application was due—Murphy and Yellin, the top Acreage executives, presented Silver with a written contract. It was, Silver claims, “a new document that he had never previously seen.” He refused to sign it.
After a confusing back-and-forth about which version of the document Silver would sign, the consultant “reluctantly” agreed to sign a still-disputed version “to ensure that he had something signed in writing” from Acreage, the suit says.
That evening, Silver and the Acreage team submitted their license applications.
Three months later, on June 27, 2017, Prime Wellness (the medical marijuana company established by Acreage and H. Chase Lenfest) was awarded a cannabis cultivation license by the Pennsylvania Department of Health. The company did not, however, win a dispensary license.
Upon hearing the news, Silver contacted Acreage to inquire about his payments, equity, and bonuses. Also to see about that job as chief marketing officer of Prime Wellness. But the Acreage executives, the lawsuit alleges, did not respond. Through their attorney, Silver claims, they informed him that “they were not going to perform on any of the promises they had made to him and that he would not be Prime Wellness Chief Marketing Officer.”
“In short,” Silver’s complaint concludes, “as soon as [Acreage] got what they wanted from Silver” with respect to the Pennsylvania license, “they cut off all contact with him, in direct violation of the promises they had made to him.”
Contract? What Contract?
For its part, Acreage and its legal team is, well, going full-on legal on Harris Silver’s claims.
If Acreage led him down the garden path, Silver seems to have been all too eager to skip along of his own accord.
“Acreage has a policy of not commenting on pending litigation,” a company spokesman told me yesterday. “This case has been referred to outside counsel, and Acreage intends to vigorously defend itself against all claims asserted.”
That’s the official corporate boilerplate. The more interesting response is contained in the company’s court filings. The company is attempting to dismiss the case on jurisdictional grounds, but it doesn’t contest the broad outlines of Silver’s narrative. There may or may not have been promises made, Acreage essentially says in its response filed in court, but certainly there was no contract signed.
“The ‘term sheet’—which allegedly captures the terms of an ‘agreement’ for ‘equity,’ ‘bonus’ payments, and an ‘ongoing role’ with Prime Wellness—is an unenforceable letter of intent” that explicitly states both parties were still in negotiations,” Acreage contends. “This document confirms what is clear on the face of [Silver’s legal complaint]—there is no contract.”
A Cautionary Tale
Acreage may have the stronger legal hand here. The term sheet looks to be just that—a term sheet. And the Prime Wellness employment offer appears to clearly state that it’s contingent on the company winning both cultivation and dispensary licenses. The company won only the cultivation license.
It seems clear that, if you take Silver’s suit on face value, Acreage wrung what they could out of Harris Silver and ditched him when they got what they wanted. What led to this, I don’t know. Relationships sour; things happen in business as in life.
Silver, for his part, seems to have acted as his own incompetent agent by not demanding a binding contract before it became too late, leaving himself with little bargaining power. If Acreage led him down the garden path, Silver seems to have been all too eager to skip along of his own accord. And we do know that, at the very least, he walked away with $90k for his trouble.
This is the company you’re pairing up with, John Boehner. You seem like a sharp guy. The claims of Harris Silver may confirm to you that Acreage is no collection of fools. But here’s a piece of advice. Whatever your agreement with these guys, get it in writing.