Judge Lets Advanced Flower AFC Contract Breach Suit Proceed in High-Stakes Cannabis Loan Clash
America ı By Rihem Akkouche
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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.”
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