Ohio medical marijuana company fined $300,000 over ownership dispute

COLUMBUS – State regulators have fined a medical marijuana company $300,000 for failing to get approval for a change in ownership.

Greenleaf Apothecaries, which owns five dispensaries, will have to pay that penalty, repay $12.5 million in loans issued by international cannabis company Acreage Holdings and abide by additional restrictions in order to transfer ownership to Acreage in the future.

The agreement allows the company to open dispensaries in Akron, Cleveland and Columbus in the coming weeks, after they clear final inspections.

The Ohio State Board of Pharmacy claimed Greenleaf Apothecaries was really under the control of Acreage Holdings, one of the industry's largest multi-state operators. Greenleaf Apothecaries opened one dispensary in Canton and one in Wickliffe, both under Acreage brand name The Botanist.

In July 2018, Acreage entered into a "management services contract" with Greenleaf Apothecaries, and agreed to loan the company up to $10.5 million, according to investor filings with the U.S. Securities Exchange Commission. It had similar agreements with related companies Greenleaf Gardens, a cultivator, and Greenleaf Therapeutics, a marijuana product manufacturer.

Ohio rules prohibit dispensaries from changing hands until after they've been in operation for one year.

In the settlement agreement, Greenleaf Apothecaries stated it had a "good faith basis to believe it was in compliance" with state rules but it acknowledged its agreements with Acreage are "contrary" to the pharmacy board's interpretation of the rules. The company has modified its management services agreement to comply.

The company is also barred from applying to transfer ownership of any of its five locations until 18 months after the last dispensary becomes operational. Greenleaf Apothecaries must also repay $3 million advanced by Acreage and promise to repay the remaining $9.5 million.

The settlement could pave the way for more dispensaries to open in the coming weeks. Of the state's 56 licensed dispensaries, 16 have not yet been approved to open. The pharmacy board has declined to answer The Enquirer's questions about how it is reviewing ownership issues.

The ownership dispute, first reported by The Enquirer in July, has delayed the opening of dispensaries in Cleveland, Columbus and Akron. The Cleveland dispensary could have opened in March, according to company officials.

Chief Operating Officer Kate Nelson said the company was happy to have resolved the dispute in a way that allows them to open the dispensaries while maintaining its relationship with Acreage. Nelson said opening dates will be set in the coming weeks.

"Our goal has always been to be the True North of Ohio’s medical marijuana program, and this resolution furthers that goal," Nelson said in a statement.

The pharmacy board began investigating the relationship in January, after Acreage issued a press release announcing the opening of the Canton dispensary. In June, the board sent a notice outlining its findings and accused the company of violating program rules.

The Enquirer obtained a portion of the notice through a public records request. The rest, including the board's findings, were blocked form release by a Franklin County judge.

In its annual report filed in April 2019, Acreage said it was providing "expertise, branding and design aesthetics, vendor relationships, and technical know-how" while Greenleaf maintains "operational control."

In court briefs, pharmacy board attorneys claimed the companies had already shared profits.

Greenleaf Apothecaries sued the board in Cuyahoga County Common Pleas Court. A judge there ordered the state to issue a certificate of operation, needed to begin sales, to the company's Cleveland store. The board was appealing the decision.

For its part, the pharmacy board agreed to drop the appeal and promptly conduct final inspections of the three dispenaries.