Cannabist: a section 11.3 motion for the consent Sugarloaf withheld

Since 2021 Columbia Care LLC has been the exclusive manager of a single medical cannabis dispensary in Rockville, Maryland, responsible for its staffing, regulatory compliance, inventory management and financial administration in return for a management fee of US$10,000 a month, and funding the store's operating costs to the extent its gross sales revenue falls short. The licence remains at all times the property of Sugarloaf Enterprises, LLC, which has no right to end the agreement before its term. A second agreement gives Columbia Care an exclusive and irrevocable option to buy 100% of Sugarloaf Enterprises from Sugarloaf Holdings, LLC for an exercise price of US$100. The company "used the common MSA structure … to allow it to assume certain operational rights and economic benefits in advance of a formal regulatory transfer," says Curt Kroll, a partner of SierraConstellation Partners LLC, the parent company's chief restructuring officer, in the Affidavit of Curt Kroll, affirmed Oct. 14, 2026, paras. 1, 11–12, 14.

Both agreements are among the assets being sold with the rest of the group's Maryland business to Free State Botanicals, per the Affidavit of Curt Kroll, Oct. 14, 2026, para. 24. When Justice Conway approved that sale on August 18, as reported here that day, the endorsement recorded counsel's confirmation that the contracts would either be assigned on consent or the parties would return to court for an order on a future motion, per the Endorsement of Justice Conway, Aug. 18, 2026, para. 6 n. 1. The applicants' motion record dated October 14, 2026 takes the second route. It asks Justice Dietrich for an order under s. 11.3 of the CCAA assigning to Free State Botanicals LLC all of Columbia Care's rights and obligations under both agreements, effective on the closing of the Maryland sale, and is returnable on a date to be set, per the Notice of Motion, Oct. 14, 2026, pp. 1–2.

A condition of closing

The Maryland asset purchase agreement of August 7, 2026 makes third-party consents a closing deliverable, and for each Sugarloaf agreement the seller parties "will either (x) obtain consent" from the Sugarloaf counterparty "or (y) obtain an Order from the Canadian Court authorizing and approving the assignment" under s. 11.3 of the CCAA, per the Affidavit of Curt Kroll, Oct. 14, 2026, para. 28 and Ex. "K" (Schedule 2.6(b) of the Maryland APA). The companion agreement for the Frederick cultivation property is conditional on the asset purchase having closed, so the assignment, in the applicants' words, "is required for closing of the entire Maryland Transaction," per the Notice of Motion, Oct. 14, 2026, paras. 8–10.

Each agreement bars assignment without the other party's prior written consent, the option agreement excepting an assignment by the option holder to an affiliate. Under the management agreement, "Any consent required under this Agreement shall not be unreasonably withheld," per the Affidavit of Curt Kroll, Oct. 14, 2026, para. 26 and Exs. "C" (ss. 22, 27) and "D" (s. 7).

Both date from the group's June 2021 acquisition of Green Leaf Medical, LLC, for which the company's press release of June 11, 2021 put total upfront consideration at approximately US$240 million in cash and stock. The agreements, Kroll says, were entered into "to address a regulatory hurdle preventing the closing of the acquisition" of the Rockville dispensary, and Kroll is advised by the company's chief executive, David Hart, that the consideration "included the Company paying full value for the Rockville Dispensary based upon its rights under the Sugarloaf Option Agreement to acquire ownership of Sugarloaf Enterprises," per the Affidavit of Curt Kroll, Oct. 14, 2026, paras. 10–11, 13.

Sugarloaf's letters

Sugarloaf's position is set out in the affidavit Philip Goldberg, a manager of Sugarloaf Holdings and chief executive of Sugarloaf Enterprises, swore on August 17. Goldberg swore that legislation Maryland passed in 2024 prohibiting "straw ownership" of cannabis licences applies to maintaining such structures as well as to entering into them, and that "there is a material risk that the regulator could revoke the Sugarloaf Enterprises dispensary license" if the parent company seeks to transfer the two agreements to Free State Botanicals, per the Responding Affidavit of Philip Goldberg, sworn Aug. 17, 2026, paras. 1, 9–10.

On September 8 the applicants' counsel, Stikeman Elliott LLP, formally asked for consent and said the applicants would bring a s. 11.3 motion if Sugarloaf did not change its position by September 14. The company had met representatives of the Maryland Cannabis Administration about the sale, including the assignment, the letter said, "and the MCA has not raised any issues to date regarding the regulatory compliance of those agreements," per the Affidavit of Curt Kroll, Oct. 14, 2026, Ex. "Q" (Stikeman Elliott LLP letter, Sept. 8, 2026), p. 2.

Jacob Styburski of Dentons US LLP replied for Sugarloaf on September 16. "While there was a reasonable basis for the parties to enter into these contracts in connection with the original sale of Green Leaf Medical," the letter says, "considering the regulatory positions taken by the MCA since then, and the additional legislation passed by the Maryland legislature after the current amended versions of the contracts became effective, we believe this contractual structure is now clearly in conflict with Maryland law." It goes on: "Particularly due to the new 'strawman' ownership statute referenced in the Goldberg Affidavit, our client cannot agree to consent to the assignment of these contracts, as doing so could be considered an effort to facilitate the continuation of an illegal ownership/management structure under Maryland law." Sugarloaf's counsel, the letter says, was "surprised to learn" of the company's meeting with the MCA and that no concerns had been raised, and had since "reached out to the MCA on a no-names basis." By the letter's account, the MCA confirmed, among other things, that for a separate option agreement to be permitted alongside a management agreement, its full text would have needed to be disclosed to and approved by the MCA when it approved the management agreement, that the MCA approves contracts only by written notice, and that if it learned a material agreement like an option had not been approved alongside the management agreement, "the MCA would engage in enforcement actions, likely leading to the revocation of the license," per the Affidavit of Curt Kroll, Oct. 14, 2026, Ex. "R" (Dentons US LLP letter, Sept. 16, 2026), pp. 1–2.

The same letter set out the terms on which Sugarloaf would consent. It would do so if the company could provide "clear written guidance from the MCA" confirming that the regulator had reviewed the current amended agreements and that it "(i) consents to the current management and option agreement structure, (ii) will permit the assignment of the Sugarloaf MSA and the Sugarloaf Option Agreement to a third-party buyer (assuming that the buyer meets the other requirements applicable to an MSA assignee), and (iii) will not engage in enforcement actions" over the current structure or the proposed assignment. "Unless and until you are able to provide such assurances from the MCA, our client remains unwilling to risk incurring legal liability by helping your client to maintain and extend an unpermitted licensing structure," per the Affidavit of Curt Kroll, Oct. 14, 2026, Ex. "R" (Dentons US LLP letter, Sept. 16, 2026), p. 2.