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Illinois-based 5 Guys Management Inc. is suing Michigan cannabis companies Great Lakes Holistics Muskegon (GLH) and Redbud Roots Inc., along with their directors, alleging the defendants orchestrated a $1.5 million investment fraud involving a failed dispensary. The lawsuit, filed in Michigan federal court, accuses company officers of misrepresentations and misusing funds, leading to the venture’s collapse.

Allegations of Misrepresentation and Fraud

The complaint centers on a Muskegon dispensary located on W. Laketown Avenue. Christopher Fanta and Alex Leonowicz, directors of GLH and Redbud Roots, allegedly persuaded 5 Guys to invest $1.5 million for a 22.5% ownership stake in the business. According to 5 Guys, the defendants withheld critical information, including the fact that the dispensary had previously failed under their operation.

Fanta and Leonowicz allegedly used incomplete and misleading documents, such as a private placement memorandum, to entice the investment. They also purportedly fabricated profit-and-loss statements and projected lucrative buyout deals that never materialized. These included claims that a national cannabis company might acquire the dispensary for $55 million and that defendant Jacob Ownbey, a 50% owner of the dispensary, would buy it out for at least $3 million.

Dispensary Collapse and Alleged Deception

Despite these promises, the dispensary abruptly closed in February 2023, two weeks after 5 Guys was told it was worth $6 million to $10 million. The lawsuit also alleges Fanta and Leonowicz conducted a sham "forensic audit" of the dispensary’s financials to mislead investors, but no audit report was ever produced.

The fraud came to light partly through litigation between Fanta, Leonowicz, and Ownbey. In that case, Ownbey claimed he had invested $1 million in the dispensary and covered its operating expenses, while Fanta and Leonowicz invested nothing. He also alleged he was unaware of 5 Guys’ investment or ownership share. Conversely, Fanta and Leonowicz accused Ownbey of withholding financial information, raising questions about the authenticity of profit-and-loss statements provided to 5 Guys.

Legal Actions and Counsel

5 Guys claims it has recovered only $250,000 of its $1.5 million investment. It is suing for damages, alleging fraud, breach of fiduciary duty, and other misconduct.

The plaintiffs are represented by Mark S. Demorest and Michael K. Hayes of Demorest Law Firm PLLC. Counsel for the defendants was not immediately available for comment.

Broader Implications

The lawsuit underscores the risks associated with investments in the emerging cannabis industry, where regulatory challenges and financial transparency remain concerns. If the allegations are proven, the case could serve as a cautionary tale for investors navigating this growing but volatile market.