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A New Jersey federal judge refused to toss a cannabis company’s explosive allegations that a lender fabricated a loan default to grab almost $2 million, ruling that the complaint lays out plausible claims that the lender reneged on binding promises.

In an order filed Saturday, U.S. District Judge Zahid N. Quraishi denied a motion by Advanced Flower Capital Inc. (AFC) and AFC Agent LLC seeking dismissal of a suit brought by subsidiaries of Justice Cannabis Co. The judge rejected AFC’s contention that the companies were unquestionably in default on their loans.

A Bitter Multistate Business Feud

The case is one part of a sprawling fight between the Justice Cannabis entities — Hayden Gateway LLC, Bloc Dispensary LLC and JG HoldCo LLC — and their lender, AFC, along with AFC officers. AFC claims the borrowers defaulted on loans meant to fuel their cannabis operations. The Justice entities counter that AFC, working with Timothy Bossidy, the former chief restructuring officer installed by the lender, deliberately destabilized the companies to take control of their assets.

AFC has lodged a separate suit against Justice Cannabis’ owners, alleging misuse of funds. Meanwhile, Justice Cannabis sued Bossidy in March for breach of fiduciary duty and conversion, accusing him and AFC Gamma of intentionally steering the company toward collapse to plunder its holdings. Judge Quraishi granted an injunction in May blocking AFC from seizing any Justice Cannabis assets.

Disputed Defaults and Alleged Broken Promises

In its dismissal motion, AFC insisted at least one default occurred when the Justice entities failed to provide audited financial statements and failed to maintain their Pennsylvania cannabis license, both conditions required under the lending agreement.

Judge Quraishi found otherwise. The complaint, he said, plausibly alleges that AFC waived the financial-reporting requirement after deeming the audits too expensive and unnecessary because AFC already had full access to the accounts.

On the Pennsylvania facility, the judge said the plaintiffs adequately alleged an enforceable oral promise by AFC not to foreclose on the property after the license lapsed. According to the complaint, AFC had instructed the Justice entities to shutter the Pennsylvania operation and consolidate operations in New Jersey — the very decision that led to the loss of the license.

“AFC decided to shut down the facility and have plaintiffs focus on operations in New Jersey,” Judge Quraishi wrote. “Defendants cannot now reverse course and argue that plaintiffs’ lack of a Pennsylvania permit is a breach when defendants had a hand in the nonrenewal.”

Loan Uncertainty Blocks Refinancing, Court Says

The judge also dismissed AFC’s argument that the request for declaratory judgment was premature. With the loan maturing in May 2026, he said, the borrowers face ongoing harm from uncertainty about the remaining principal and whether previous payments should have been applied differently.

As long as the size of the loan remains in dispute, the Justice entities cannot seek refinancing, and the court found they should not be forced to risk financial fallout simply because the parties disagree on the balance owed.

AFC’s contention that it intends to sue for collection in New York after the loan matures also failed to convince the court. Judge Quraishi wrote that even if AFC pursues future action elsewhere, the Justice entities are entitled to clarification now — and that resolving the dispute in New Jersey is “hardly inconvenient.”

Attorneys on the Record

Representatives for both sides were not immediately available for comment Monday.

The plaintiffs are represented by Michael B. Homer, Jamie Hoxie Solano and Constantine Economides of Dynamis LLP.

The defendants are represented by Kevin H. Marino, John D. Tortorella and John A. Boyle of Marino Tortorella & Boyle PC, and Kevin S. Reed, Jacob J. Waldman and Jason Sternberg of Quinn Emanuel Urquhart & Sullivan LLP.