A minority owner in one of Michigan’s largest marijuana processors had his Pennsylvania offices raided last week by the FBI, according to a report by Lancaster Online.
The raid comes amid an investor dispute involving more than $100 million and an ATM network that plaintiffs say doesn’t wholly exist, according to court filings.
Agents raided the Lancaster, Pa., offices of Daryl Heller’s Paramount Management Group and Heller Capital Dec. 5, according to a report by Lancaster Online. Heller Capital has a minority stake in Jackson-based Choice Labs and Au Gres-based cannabis cultivator Glorious Cannabis Co.
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The FBI’s Thursday seizure of boxes from the Heller Capital office occurred months after ATM company Paramount and Heller failed to honor a settlement agreement with investors in an ATM network. The settlement called for Paramount to pay investors $138 million in back payments and turn over ownership of its ATM network, according to court records.
Heller’s legal troubles will pose a test for Michigan’s Cannabis Regulatory Agency, which has revoked owners’ licenses in the past as part of cannabis complaints, but has not conducted enforcement based on the activities of separate companies outside the state’s regulated marijuana market. The FBI action suggests that troubles at the ATM company may be going beyond a civil business dispute, though Heller has not been charged with a crime.
The FBI did not immediately respond to Crain’s on an inquiry on the matter. It declined to provide details about any investigation to Lancaster Online beyond confirming the raid occurred.
Plaintiffs in the civil suit have alleged that Heller and Paramount falsified the size of the ATM network to attract more investors.
Heller’s Heller Capital is a minority owner in both cultivator Pure Green LLC doing business as Glorious Cannabis, and Choice Labs, in which Glorious serves as the parent company.
Choice Labs produces the popular cannabis brands CannabisPM gummies, Crude Boys flower and Drip vapes; and operates a processing facility on a 10-acre lot as well as a dispensary in Jackson. Glorious cultivates and processes marijuana primarily for pre-rolled joints.
Neither Choice Labs nor Glorious Cannabis were named in the lawsuit in Pennsylvania brought forth by ATM investors; nor a similar suit in Oakland County Circuit Court.
Heller did not respond to several emailed inquiries on the matter.
“The company is aware of what’s happening, but it’s something that concerns a set of non-cannabis businesses he owns,” Lance Boldrey, partner at law firm Dykema Gossett and attorney for Choice Labs. “We’re not going to speculate on hypotheticals.”
But an FBI investigation into Heller and his investment firm could embroil Glorious and Choice Labs and their licenses in the state. If the FBI raid leads to criminal charges, it could cause Michigan cannabis regulators to take notice. In other instances, regulators have forced owners to sell stakes in cannabis companies due to misdeeds.
Troubles with the ATM business
For Heller, the troubles began in August when more than 2,700 investors in his ATM business alleged in a Pennsylvania lawsuit that Heller and his company stopped making payments in March. Many of the investors are reportedly members of the Amish and Mennonite communities, according to reporting from Lancaster Online.
The investors suspected fraud after Paramount stopped making investor payments in April, even though Paramount had previously reported margins exceeding 23%. In 2022, Paramount reported net income of more than $65 million on revenue of nearly $278 million, according to the investors’ lawsuit.
During an investigation by investors, the plaintiffs’ expert witness testified in court on Friday that that nearly 18,000 of the list of 28,000 ATMs purportedly owned by Paramount did not exist or were owned by other companies, Lancaster Online reported. So far, Paramount and Heller haven’t turned over the serial numbers or the location of the ATMs in its network, which reportedly does include all the ATMs at Pennsylvania Turnpike service plazas across the state.
The Friday hearing was to hold Heller and Paramount in contempt of court for not following the a settlement agreement that included repayment and control of the ATMs.
Heller and Paramount CEO Randall Leaman both invoked their Fifth Amendment right not to incriminate themselves in the Friday court hearing. The judge ultimately ordered a $50,000-per-day fine on Paramount for each day it does not turn over the ATMs to investors, beginning on Dec. 7. That daily fine jumps to $100,000 on Dec. 14, Lancaster Online reported.
A similar case recently played out in Oakland County Circuit Court. In April, Paramount agreed to purchase 250 ATMs from an entity called Superior Group ATMs LLC for $2.6 million. Superior Group was created on the same date of the transaction. Jeffery Sieving, partner at Northville-based cannabis law firm Urban Legal Group PLC, served as the registered agent for Superior. Urban Legal also represented Paramount in the case.
According to the lawsuit filed by Superior, Paramount failed to make the first payment for the ATMs in May. In the lawsuit, Superior sought more than $6 million including late fees and interest from Paramount and Heller. Though, in this case, it appears Paramount folded and paid Superior as the two parties settled and the case was dismissed on Nov. 25, according to court records. Details of the settlement were not disclosed.
The CRA’s response to Heller’s legal issues remains unknown. The agency declined to comment specifically on this case.
Regulators may have room for action
It’s unclear whether the CRA would take into consideration the alleged misdeeds of an owner’s other companies not directly related to the state’s industry.
But in a statement to Crain’s, the CRA did say it would take action on a company’s owner if it determined their extracurricular behavior could impact the “integrity” of the cannabis company.
“While we can’t comment on specific cases, it is important to note that the rules allow for applicable licensing standards to be contemplated at renewal,” the CRA said in a written statement. “The rules also afford the CRA the ability to consider whether or not to grant a state license if the applicant (or anyone meeting the definition of applicant) has a pattern of convictions involving dishonesty, theft, or fraud that indicate the proposed marijuana establishment is unlikely to be operated with honesty and integrity.”
The CRA issued a formal complaint in 2020 against Southfield-based vertically integrated cannabis operator PharmCo Inc., alleging the company was selling product outside of the state’s cannabis tracking system.
As part of its settlement with the state, PharmCo’s owners — James Skinner, Stephanie Skinner, Oakshire Holdings Limited, Ferndando Di Carlo and Simonetta Di Carlo — were required to sell their stake in PharmCo and agree to never participate in the state’s regulated marijuana market again. In 2022, Detroit-based Red, White & Bloom acquired PharmCo’s 11 dispensaries and two cultivation locations as part of a deal to buyout the owners.
Owners of Stash Detroit, Candid Labs and The Reef were also forced to sell ownership stakes and prohibited from the industry as part of complaint settlements with the CRA.
Heller’s legal problems also come at a time when Michigan’s cannabis industry is under intense pricing pressure.
The average price for an ounce of cannabis flower in Michigan’s adult-use market fell nearly 21% to $73.99 — a record low— between the start of the year and October, cutting into margins for the industry.
Two major cultivators have shuttered in the past two weeks.
Chicago-based PharmaCann told employees last week it would shutter its 207,000-square-foot LivWell Michigan cultivation site in Warren, laying off 222, in January.
Fluresh LLC, doing business as Tend.Harvest.Cultivate. announced it was closing down its $46 million, 105,000-square-foot grow facility in Adrian at the end of November.
Dustin Walsh is a senior reporter for Crain’s Detroit Business, covering health care with a focus on industry change and operations, as well as the state’s emerging cannabis industry. He is also a regular columnist on all things health, labor, economics and more.
