Scotts Miracle-Gro cannabis unit sues TerrAscend over expansion into New York market

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Scotts Miracle-Gro’s Hawthorne subsidiary is suing the executive chair of multistate operator TerrAscend and his investment company, alleging the MSO exec is trying to undermine Scotts’ purchase of a coveted cannabis license in New York in violation of federal antitrust law.

The lawsuit, filed in a federal court in Manhattan, presages what could be a protracted fight for privileged positions in what are still limited-license markets in heavily populated East Coast states.

It’s also a test of the power of cannabis industry players: The suit pits a marijuana heavyweight with “exclusive” rights to leading brand Cookies – TerrAscend – against a much bigger publicly traded mainstream company – Scotts – that sits just outside the Fortune 500.

Last March, Toronto-based RIV Capital announced an agreement to purchase Etain Health, one of the 10 vertically integrated medical marijuana companies in New York, in a combined stock-and-cash deal worth $247 million.

RIV Capital is an investment firm bankrolled in part by Hawthorne Collective, one of Scotts’ cannabis-focused subsidiaries that’s actively trying to expand its footprint in the northeastern United States.

But RIV Capital’s leading shareholder is Jason Wild, who is the executive chair of TerrAscend, which has licenses in six states and a significant presence in northern New Jersey, outside New York City.

The Etain deal – and with it, the acquisition of a medical cannabis dispensary in Manhattan – closed in December.

RIV Capital used $150 million in Ohio-based Hawthorne cash to fund the deal.

According to the lawsuit filed Monday by attorneys for Hawthorne, TerrAscend also coveted Etain, and Wild “tried to stop” the deal for “TerrAscend’s benefit.”

The lawsuit alleges that an investment vehicle called JW Asset Management, of which Wild owns 40%, also owns $159.4 million worth of TerrAscend stock versus a $4.4 million stake in RIV Capital.

The suit claims that Wild “pressured RIV Capital’s Board to call off the Etain deal” and tried to thwart the acquisition in several ways, including:

  • Threatening to buy a New York state hemp license.
  • Suing RIV Capital in Canada,
  • Triggering an attempted takeover of RIV Capital’s board of directors, where Hawthorne controls three seats.

The suit alleges that attempts to block RIV Capital’s expansion into New York violate the Clayton Act, which is part of U.S. federal antitrust law.

Representatives for Wild and New York-based JW Asset Management have yet to respond to the suit, according to the court docket.

TerrAscend, JW Asset Management and Hawthorne did not immediately respond to MJBizDaily requests for comment.

TerrAscend, which has offices in New York and Toronto, won one of New Jersey’s vertically integrated medical marijuana licenses in 2018 and was one of the former MMJ-only operators that expanded into adult-use sales in that state in April 2022.

The company runs three retail outlets in New Jersey and is one of only four MSOs “licensed within Northern NJ, adjacent to NYC,” the company reported in an August 2022 investor deck filed in court along with the lawsuit.

That also means that TerrAscend is one of only four MSOs selling cannabis in the New York City metro area.

New York’s vertically integrated registered organizations, including Etain, are shut out of the state’s adult-use market until nonprofit and social equity operator-owned dispensaries can open first.

TerrAscend owns interests in major brands including California-based retail chain The Apothecarium and Michigan-headquartered Gage Growth Corp.

Through Gage, TerrAscend owns Cookies-branded stores in three Michigan cities as well as Toronto.

TerrAscend also has “exclusive” rights to the Cookies brand in New Jersey, according to the August 2022 investor presentation.

Chris Roberts can be reached at chris.roberts@mjbizdaily.com.