Poor pot sales don’t justify the failure of a B.C. cannabis company to follow through on a deal to purchase a Calgary-based retailer, a $130-million lawsuit claims.
Four20, which had a network of retail stores throughout Alberta, alleges Tilray Inc. and its B.C. subsidiary, High Parks Shop Inc., have reneged on a deal to buy the Calgary company’s operations.
In a statement of claim filed in Calgary Court of Queen’s Bench, Four20 seeks an order finding Tilray has breached an arrangement agreement reached last August to purchase the retailer for $110 million.
The plaintiff is seeking that amount in damages, plus additional aggravated or punitive damages of $20 million.
“It is acknowledged that the cannabis industry is experiencing industry-wide challenges, however such challenges were specifically contemplated in the arrangement agreement and are not grounds to terminate (the deal),” the court document states.
The claim goes on to concede “that the defendants are experiencing various pressures from its other operations that they may not have been anticipating.”
But it says those issues “do not justify the defendants failing to perform their arrangement agreement obligations in good faith.”
In February, Tilray laid off 10 per cent of its workforce and earlier this month its stock price plunged by 15 per cent when it missed fourth quarter targets.
Despite those problems, the lawsuit asserts, the company has failed to follow through on necessary steps to complete its Four20 purchase.
It also alleges Tilray and High Park “have advanced spurious breach and termination allegations” against Four20 to justify not completing the deal.
The claim says on Jan. 28, “the defendants gave notice that Four20 was, or would be at the time of closing, in breach of the arrangement agreement.”
A week later a second notice was sent to Four20 alleging a Company Material Adverse Effect.
“The notices were deficient as they failed to provide enough detail to allow Four20 to cure such alleged breaches,” the lawsuit states.
“The arrangement agreement specifically provides that any breach notice must specify ‘in reasonable detail all breaches’ so as to provide the party alleged to have been in breach with an opportunity to cure. The breach notice failed to provide detail, let alone reasonable detail of all breaches.”
In August the companies announced a deal which would see Tilray, through High Park, acquire all shares of Four20 for a total purchase price of up to $110 million in cash, or shares and promissory notes.
Statements of defence disputing the unproven allegations haven’t been filed.
On Twitter: @KMartinCourts
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