Cannabis delivery firm Eaze and its billionaire investor accused of fraud
Lawsuit accuses Eaze of fraud in 2021 Green Dragon acquisition.
A new lawsuit filed against Eaze, the once high-flying firm that pioneered on-demand cannabis delivery nearly a decade ago, accuses the company of committing fraud when it began talks to acquire a Colorado-based marijuana firm, Green Dragon, in 2021.
The three cofounders of Green Dragon claim that they were deceived into selling their own successful company to San Francisco-based Eaze, which was then allegedly in “dire financial straits,” a fact that was allegedly kept from them. The Green Dragon cofounders also say Eaze is violating California’s cannabis law by illegally “renting” cannabis licenses from other dispensaries, instead of simply acting as a transportation middleman, a charge that the company denies.
The plaintiffs claim that Eaze “fraudulently acquired and raided Green Dragon for their own personal gain” and that they “lost millions of dollars” in expected revenue. As their concerns grew over time, they claim that they were shut out of the decision-making process within the company and were cut out of “secret meetings” between board members, then lost their own board seats and their executive-level jobs. The three Green Dragon cofounders were ultimately forced out of Eaze in February 2023.
Fundamentally, the trio says, they would have not entered into any business arrangement with Eaze had they known that the company was in such trouble. They and their attorney declined to comment.
“As outlined in our complaint, our profitable, family-owned business was fraudulently taken from us and irreparably destroyed,” Alex Levine, 29, one of the plaintiffs, told Forbes. He, and his father, Andrew Levine, and his step-mother, Lisa Leder, built and grew Green Dragon.
Eaze CEO Cory Azzalino, who is named as a defendant in the suit, said in an email to Forbes that he and Eaze “deny all allegations and intend to defend themselves against all claims of wrongdoing.”
The suit also names two other investors as co-defendants. The pair, Thomas Jermoluk and James Henry Clark, together own a 35 percent stake in Eaze, the largest share in the company, and were on its board from 2019 until February 2023.
In an emailed statement sent to Forbes, Jermoluk and Clark “deny all allegations,” noting that “the facts will come out in discovery.”
In the same statement, the investor pair further expressed their frustration."We will say this: Jim and TJ have been friends and partners for almost 40 years, and together have served on the boards of over 30 companies, including boards of numerous public companies,” they said.
“Never in that time have we run into people like the plaintiffs, who are supremely confident in their own opinions, but we believe lack appropriate business knowledge and knowledge of legal obligations as directors."
Clark, who cofounded two legendary tech companies, SGI and Netscape Communications, has also been a veteran investor in numerous Silicon Valley giants, including Apple and Facebook. Forbes estimates Clark’s net worth at $3.7 billion.
The lawsuit was first reported by WeedWeek and SFGate.
Financial unease has swirled around Eaze in recent years. The cannabis company has reportedly had cash flow problems before, dating back at least to 2020. In 2021, its former CEO Jim Patterson pleaded guilty to one count of conspiracy to commit bank fraud as part of a scheme that allowed Eaze to skirt rules about accepting credit card payments. (The company stopped accepting credit card payments in 2019, and currently only accepts cash or bank transfers.)
The new civil lawsuit paints a picture of a company on the brink of financial collapse, which was seemingly only kept afloat by the acquisition of Green Dragon.
Back in 2021, Eaze was on track to become America’s largest cannabis delivery service with the acquisition of Green Dragon. The company said in a press release at the time that Green Dragon was a “multi-state leader” in the cannabis industry, and added that together the two companies would “operate 42 delivery and storefront retail locations and serve markets with a combined value of nearly $10 billion.”
At first, the merger was enticing, according to the complaint: the plaintiffs would jointly receive a 30 percent equity stake in Eaze and get C-suite-level jobs; two would get seats on the board of directors. But the complaint alleges that after the deal was completed in August 2021, the arrangement quickly went south.
The lawsuit alleges that when Eaze met with Green Dragon’s leadership in 2021, Azzalino and other defendants told the trio that Eaze had $20 million in cash, a figure that would soon rise to $70 million after a Series E raise. However, the suit states that by the time of these meeting, the defendants “had already spent most of the $77,000,000 raised/to be raised in the Series E financing to fund Eaze’s operational cash burn.” The plaintiff’s attorney, Garrett Llewellyn, declined to elaborate.
The complaint also states that Eaze and its leadership did not provide board meeting minutes or presentations to Green Dragon management in the run-up to the completion of the acquisition in early 2022, “because they knew (and internally discussed) that if Plaintiffs had learned the true state of affairs they would have pulled out of the Merger.”
According to the complaint, Eaze came dangerously close to missing payroll in early 2022, and only avoided doing so because of the merger. The plaintiffs also say that as they began to learn more and more details about Eaze and its financial situation, they were pushed aside. At least one time, the plaintiffs claim, the board “had these secret meetings specifically to avoid providing Plaintiffs the opportunity to object to the misconduct set forth in this litigation.”
Eaze’s CEO Azzalino told Forbes that the company is “in a healthy financial position.”
“[Eaze] expects to be cash flow break even by the end of 2023,” he continued. “As a growing company, Eaze has raised capital over the past three years to meet its funding requirements, which is typical for both businesses in the cannabis industry, as well as technology startups.”