Verano Rejects Goodness Growth’s $861M Damages Claim From Terminated Merger Agreement

Verano is seeking a court dismissal of fellow multistate cannabis operator Goodness Growth’s request for a summary determination in ongoing litigation between the companies stemming from a terminated merger agreement in 2022.

Specifically, Goodness Growth filed an application for summary determination May 2 in the Supreme Court of British Columbia, seeking $860.9 million in damages from the terminated agreement.

On June 20, Verano publicly rejected the damages claim and announced it filed a notice of application with the court seeking a full trial instead of a summary determination, which Verano believes would deny due process and the fairness afforded by a full trial. The court has set Aug. 27 and 28, 2024, as the hearing dates for Verano’s application. 

“While Goodness Growth’s filings with the court may have been fit to bolster Goodness Growth’s public statements and press releases, Verano considers Goodness Growth’s application to the court to be no more than an effort to sway public opinion and put forward a baseless and irresponsible damages calculation in an attempt to create false hope for its investors,” according to a June 20 press release from Verano.

The definitive agreement from January 2022 was for Chicago-based Verano to acquire Minneapolis-based Goodness Growth in an all-stock transaction valued at $413 million. But in October 2022, Goodness Growth announced that Verano delivered a notice to terminate the agreement, stating that it believed Verano had no legal basis for doing so.

On the contrary, Verano stated in October 2022 that it was exercising its termination rights under the arranged agreement based on Goodness Growth’s “breaches of covenants and representations.” Goodness Growth rejected the claim that it made misrepresentations in its public filings.

Editor’s note: Verano claims there was a decline in value for Goodness Growth shareholders to approximately $182 million in the subsequent eight months of the original agreement. See details below.

Verano also asserted in October 2022 that Goodness Growth owed it a termination fee of nearly $14.9 million plus up to $3 million in transaction expenses.

“We believe the decision to terminate this arrangement agreement was in the best interest of Verano and our shareholders,” Verano founder and CEO George Archos said at the time.

While both companies are headquartered in the U.S., where cannabis is federally prohibited—meaning the federal court system is often not a viable forum for litigating disputes—Verano and Goodness Growth are both incorporated and publicly listed in Canada.

As part of Goodness Growth’s application with the Supreme Court of British Columbia last month, the company claimed Verano breached the 2022 contract and “its duty of good faith and honest performance” to try and close the agreement.

“Verano appears to have sought to delay the consummation of the arrangement agreement to determine if the terms of the agreement remained economically favorable, at the same time that it struggled to gain control over its own internal financial turmoil,” Goodness Growth’s legal team wrote in the application.

The roughly eight months of the arranged agreement came during a timeframe in 2022 when U.S. cannabis companies suffered significant market declines, some losing up to half of their value, according to Goodness Growth.

For Goodness Growth, the transaction with Verano would have “unlocked” the company’s potential in key markets like New York and Minnesota, Goodness Growth CEO Josh Rosen said in the company’s release last month. Specifically, Goodness Growth’s search for a strategic partner came amid its owning licenses and assets in six states and Puerto Rico, which the company claimed it didn’t have the capital or operational expertise to fully capitalize on.

“We are committed to pursuing Verano for what we believe was a calculated and wrongful termination that deprived Goodness Growth of both access to capital and operational improvements,” Rosen said. “Our filing today represents the careful culmination of months of work: to compile what we consider to be a clear documentary record of what occurred and corresponding damages analysis. On the latter front, the math speaks for itself. We’re hopeful for an early determination and an outcome reflective of the record and the math.”

In Verano’s June 20 court response, the company denied Goodness Growth’s “unfounded damages claim” and requested the court exclude Goodness Growth’s damages report from the record.

Verano argued, in part, that:

• Verano had the right to terminate the arrangement because Goodness Growth’s board refused to reaffirm and update its qualified, outdated recommendation to its shareholders to approve the arrangement, where such refusal could be reasonably interpreted to mean that the Goodness Growth board members no longer unanimously supported the arrangement. The Goodness Growth Board recommendation made as of, and qualified by, Jan. 31, 2022, was based on outdated fairness opinions using a $413 million valuation and did not consider the change in circumstances over the subsequent eight months, including the substantial decline in value to Goodness Growth shareholders to approximately $182 million.
• Verano was acutely concerned that Goodness Growth was materially misleading its shareholders and was exposing Verano, as the acquirer, to a significant risk of shareholder litigation and economic risk if the arrangement was consummated, particularly in the United States. Verano believed that Goodness Growth had made material misstatements and omissions in its public filings and press releases regarding the Goodness Growth Board’s recommendation and the fairness opinions on which it was relying, as well as other material matters facing Goodness Growth.
• Goodness Growth did not fulfill its contractual obligations honestly and in good faith. Among other occurrences, Goodness Growth intentionally withheld from Verano a letter from a Goodness Growth shareholder’s legal counsel threatening to oppose the court’s approval of the arrangement unless Goodness Growth addressed the outdated and misleading fairness opinions and Goodness Growth Board process, which were the same concerns raised by Verano that Goodness Growth refused to remedy. Verano first learned of the letter 16 months later, when it was produced through the discovery process in this litigation.
• Despite Verano’s objections and concerns, Goodness Growth filed materials with the court seeking an interim order regarding the arrangement, which expressly sought a declaration that the disclosure to Goodness Growth’s shareholders and Goodness Growth’s board recommendation were adequate. However, Goodness Growth did not disclose to the court that Verano had objected to the disclosure numerous times and requested that the Goodness Growth Board reaffirm its recommendation, nor did Goodness Growth disclose to the court that it had received notice from a shareholder regarding the outdated and inadequate disclosures in its proxy statement.
• As of October 2022, the completion of the construction of Goodness Growth’s Johnstown, N.Y., cultivation facility continued to be substantially delayed from the original completion date of May 2022 to a new target date of the first quarter of 2023, almost a year later with no assurances. As of March 2024, the Johnstown facility’s construction was still incomplete. On April 1, 2024, Goodness Growth publicly announced that it intended to sell its New York assets, including the Johnstown facility, and as part of the sale, the buyer was required to invest an additional $20 million in financing to complete the facility. Cost overruns and further delays caused Verano serious concerns about the project and Goodness Growth’s management.
• As of October 2022, legislation in Minnesota permitting the sale of hemp-derived THC-infused products for recreational use was described by Goodness Growth in a lawsuit it filed against Minnesota regulators as a “sea change” that “has caused and will cause [Goodness Growth] to lose patients, revenue and profit.” Goodness Growth challenged the constitutionality of the legislation on the grounds that it unfairly discriminated against Goodness Growth, which derived 51% of its revenues and substantial profits from Minnesota. Verano had serious concerns given Goodness Growth’s management’s own assessment of the Minnesota legislation’s material adverse impact on Goodness Growth’s revenues, profits and financial condition.
• Goodness Growth breached numerous covenants in the arrangement, giving rise to another separate and independent right for Verano to terminate, as the breaches were knowing and intentional and thus deemed incurable.
• Verano also had additional independent and separate grounds for terminating the arrangement agreement based on breaches of Goodness Growth’s representations and warranties, and among other material adverse events, Minnesota legislation; the cost overruns and delays in the construction of the Johnstown cultivation facility; and the material misrepresentations in Goodness Growth’s press releases and in its public filings.
  

If Verano prevails and the litigation proceeds to a full trial, Verano believes the trial will likely be scheduled for the spring or summer of 2026 based on the court’s current calendar.