Former owners of a Pennsylvania medical marijuana business defrauded their partner and owe her $24.5 million, a Philly judge ruled

The former owners of an early Pennsylvania marijuana dispensary defrauded their partner and now owe her $24.5 million, a Philadelphia judge ruled last week.

The lawsuit alleges that the former owners of Ilera, which in 2016 became one of the first medical marijuana businesses in Pennsylvania to obtain a “super license” to both cultivate and sell cannabis, defrauded partner Shannon Hexter out of millions of dollars by persuading her to give up more than half of her stake in the company based on false financial information.

Hexter was an early partner in Ilera’s operations in Pennsylvania, with a 12% equity stake in the company. The Maryland resident and graduate of Pennsylvania State University leased land in Fulton County to Ilera to cultivate cannabis through a business entity called Big Bite Real Estate LLC.

Hexter alleges in legal filings in Common Pleas Court that Ilera Healthcare’s former CEO, Greg Rochlin, used credit lines from the successful medical marijuana operation in Pennsylvania to expand into Louisiana in 2018. Rochlin and other Ilera executives, including then-chief financial officer Lisa Gray, told Hexter that she didn’t have a claim on the Louisiana operation, her lawyers say in legal filings. But they offered her a deal: Give up 8% of your share in the Pennsylvania company in favor of 4% in the Louisiana company.

Rochlin told Hexter that the smaller percent of Louisiana operation was worth more than her Pennsylvania stake, Hexter’s lawyers said in a legal filing. She claims she was told that the company was valued at $59 million, but it was sold for much more not long after.

Ilera’s Pennsylvania operation was acquired in 2019 by TerrAscend, a Canadian cannabis business, for a valuation of $125 million to $225 million. Hexter lost $10 million to $18 million by swapping her equity in Pennsylvania to the Louisiana venture, the lawsuit claims.

The 2020 complaint filed in Common Pleas Court names multiple business entities related to Ilera, such as Ilera Holdings LLC and Ilera Healthcare LLC, as well as five of the company’s top executives, including Rochlin and Gray. TerrAscend is not a party in the suit.

“This was a case where five sophisticated investors sought to take advantage of their less sophisticated partner by presenting an incomplete picture of what was happening at the company and with the company’s money,” said David Feuerstein, a partner at New York City-based Feuerstein Kulick law firm, who represented Hexter.

Lawyers for the defendants said in court filings that Hexter was looking to deepen her partnership with the owners of Ilera’s Pennsylvania operation, who invited her into their Louisiana venture. And they contend Hexter is an expert in medical marijuana with experience filing more than a dozen license applications.

But when the Pennsylvania business sold for more than the owners expected, Hexter searched for someone to blame for not netting more money, the defense lawyers argued.

“Hexter should not be allowed to run away from an arm’s length transaction negotiated by her lawyer because she is now unhappy with the deal she made,” defense lawyers wrote in an August brief.

Common Pleas Court Judge Paula Patrick held a four-day bench trial in July and ruled last week that Hexter is owed $24.5 million.

Rochlin, Gray, and other defendants could not be reached directly. Michael S. Hino, a partner at Troutman Pepper law firm who represented the defendants, said he intends to appeal the ruling.

“We strongly disagree with the court’s order as a matter of law and fact and stand by our position,” Hino said via email.