After vowing to do so, Minnesota-based Goodness Growth Holdings filed a notice of civil claim seeking unspecified damages after multistate marijuana operator Verano Holdings Corp. terminated their acquisition deal.
Chicago-headquartered Verano had signed a definitive agreement on Feb. 1 to acquire Goodness Growth for roughly $413 million but then said on Oct. 14 it was backing out of the agreement.
In the Oct. 21 notice of civil claim – filed with the Supreme Court of British Columbia to start a lawsuit – Goodness Growth reiterated what it alleged after the acquisition was terminated: The deal was scrapped after it refused a lower price from Verano for all of the outstanding shares of the company.
Verano alleges Goodness Growth “breached covenants” and that it is owed millions in termination fees.
Neither Verano nor Goodness Growth responded to MJBizDaily requests for comment on Monday.
According to the claim:
- Verano first made an unsolicited offer for Goodness Growth in August 2021 – an all-stock deal valued at 425 million Canadian dollars (roughly $309 million). Goodness Growth declined that offer, deeming it too low.
- After receiving proposals from four other parties, Goodness Growth agreed to an exclusivity term in second Verano’s proposal and then accepted an all-stock deal valued at $413 million (whereby Verano would issue 0.22652 shares for each share of Goodness Growth as well as 22.652 shares for each Goodness Growth super voting share).
- Verano’s stock price declined by nearly 47% between January and October, from $13.40 to $6.95.
- Between March and July, Verano “interfered” with Goodness Growth’s attempts to complete the proxy statement required by the U.S. Securities and Exchange Commission (SEC) to complete the deal. Goodness Growth alleges Verano did not provide information in a timely manner and sought to add adjustable exchange ratios or other steps not included in the arrangement agreement.
- Goodness Growth filed the proxy with the SEC on July 20. Then, on July 25, Verano put Goodness Growth on notice of alleged breaches of the arrangement agreement and provided notice of its “right to terminate the Arrangement Agreement.”
- On July 27, without notifying Goodness Growth, Verano announced it would have to restate its financials from five previous quarters.
- In August, Verano asked Goodness Growth to consider a lower consideration at about 20% less than the original arrangement.
- On Sept. 1, Verano stated that “if (Goodness Growth and Verano) are unable to find common ground, (Verano) will be exercising (its) legal right to terminate the Arrangement Agreement.” Goodness Growth refused.
- On Sept. 8, Verano proposed a 5% reduction in the value of the deal and said it would waive a New York regulatory approval condition if allowed by the state. Goodness Growth refused.
- The restated financials meant the proxy needed updates, which the SEC required by Sept. 14. Goodness Growth alleges Verano didn’t supply all its updated information until the night before it was due and “suggested that it would provide input on the response and draft amendment to the proxy statement if Goodness Growth agreed to renegotiate the purchase price under the Arrangement Agreement.”
- Goodness Growth supplied its amended proxy on Sept. 14.
- When the SEC sent its second comment letter, Verano again failed to provide information in a timely manner and “used the review of drafts as a pretence for asserting that the parameters of the proposed Plan of Arrangement had changed.”
- After sending its response, Goodness Growth received notice from the SEC on Oct. 7 saying it would approve the proxy statement and would have no further questions and a hearing was scheduled for Oct. 14.
- On Oct. 13, Verano delivered a Notice of Termination. On Oct. 14, Goodness Growth accepted the repudiation.
Goodness Growth is seeking damages for breach of contract, good faith and honest performance as well as special, punitive, aggravated or exemplary damages.
According to the notice, “Goodness Growth has suffered and will suffer loss and damage as a result of Verano’s breaches as described above, including the transaction costs associated with the Arrangement Agreement, opportunity costs in relation to other potential transactions both during the exclusivity period and following the Arrangement Agreement, and loss of synergies associated with the proposed transaction.”
Shares of Goodness Growth dropped by about 60% after news of the scrapped deal got out.
Those share prices hadn’t changed Monday on the Canadian Securities Exchange (GDNS) and recovered by only 1.24% on the U.S. over-the-counter markets (GDNSF).
Verano’s shares Monday were down by 2.88% on the CSE (VRNO) and by 3.19% on the OTC markets (VRNOF).
Kate Robertson can be reached at kate.robertson@mjbizdaily.com.
