MI Marijuana shop closed and didn’t pay its weed bill, lawsuit claims. It’s not the first.
BAY CITY, MI – The pungent marijuana that once lined the walls and filled display cases inside Bay City’s Diamond Cannabis store disappeared with customers months ago.
Employees and managers also moved on, but heavy unpaid debt lingers, according to several lawsuits reviewed by MLive.
Marijuana industry insiders and attorneys tell MLive this cut-and-run scenario is a growing problem in the 4-year-old, $3 billion-a-year Michigan market.
Diamond Cannabis
Diamond Cannabis, owned by Southfield-based Emerald Bay Provisioning, opened at 816 Washington Avenue in downtown Bay City, MI next to a barbecue restaurant in late 2021.
A 2021 Cannabis Regulatory Agency (CRA) licensing report listed the investment partners as Michael Yaldo, Omar Salah and Ramia Kirma, although a 2023 lawsuit filed against the company no longer lists Kirma as an owner.
The early response was overwhelmingly positive. Customers were happy, according to Google business reviews. But the success didn’t last.
By mid-November of this year, a ladder, some boards piled in the now-vacant marijuana showroom and stickers for a brand of rolling papers on windows were all that remained of Diamond Cannabis Company.
The owner of a neighboring cell phone and computer repair shop said he told the landlord about the marijuana shop’s departure in late summer.
Diamond Cannabis joined eleven other licensed marijuana retailers in Bay City that have closed their doors, according to CRA licensing reports.
Business troubles began mounting late last year.
Between December 2022 and June 2023, three lawsuits seeking more than $1 million, including nearly $50,000 in unpaid invoices, were filed against the marijuana shop, according to court records.
The Cannabis Regulatory Agency in March and April opened separate complaints alleging the business sold marijuana with inflated THC potency on labels, made unreported sales and failed to maintain required video surveillance records.
Months later, Diamond Cannabis locked up and vacated and businesses owed money were left scrambling to collect, according to lawsuits.
The first lawsuit was filed in MI Bay County Circuit Court by Lansing-based JIS, which operates the cannabis brand Bowhouse that sells “Michigan grown craft cannabis,” according to its website.
“Essentially, (businesses) made these large deliveries and didn’t get paid at the time, and then the defendant closed up shop,” said Troy-based attorney Jacob Kahn, who represents two businesses, including Bowhouse, that sued Diamond Cannabis.
In October 2022, Diamond Cannabis found Bowhouse on Leaflink, an online market place for wholesalers, and ordered nearly $30,000 of cannabis flower and other products, according to invoices submitted with the lawsuits.
MI court filings said Diamond Cannabis was supposed to pay upon delivery but never did. A lawsuit was filed in December 2022 and Diamond Cannabis entered a consent agreement committing to pay monthly installments of $2,811.90, but the business failed to make any payments after its first on April 1.
A default judgement was issued by the court.
MLive was unable to reach any of the Diamond Cannabis or Emerald Bay Provisioning representatives named in various lawsuits.
Not the only case
The Diamond Cannabis closure isn’t unique. Nearly 14% of Michigan’s marijuana retailers have closed or not renewed licenses since the industry opened in December 2019, according to online Cannabis Regulatory Agency records. That’s nearly 125 marijuana shops that are no longer operating statewide.
And many of those businesses left unpaid debt in their wake, according to several attorneys who spoke to MLive.
“It’s a problem that’s been going on at least a year (and) I think that it’s just hitting a more critical point now,” said attorney Denise Policella of the Cannabis Attorneys of MI. “We get a whole bunch of clients calling us, saying we need to sue for this, we need to collect on that. We get a barrage of demand letters and collection letters.”
The payment issues have led licensed businesses to ask state officials for help. The Cannabis Regulatory Agency (CRA) is now considering rules that would allow the agency to deny licenses or renewals to businesses with civil judgments or court orders related to unpaid debts.
“This will help ensure that licensees are paying bills and will address a concern that has been raised by many in the industry,” the CRA proposal said.
Policella said some of the collection issues have “ramped up due to several larger companies having financial issues that’s had a … domino or cascading waterfall effect on smaller businesses … because it’s a very small, semi-incestuous industry.”
Supply has outstripped demand
Patrick Frakes, the chief revenue officers with RAIR, a marijuana business that operates a grow facility in Jackson, as well as retail shops in Lowell and Kalamazoo, has seen the collection issues from both angles and said it is a “very real problem.”
“At one point this year we were owed $218,000 of past due invoices,” Frakes said. “I’m one if the highest-ranking executives with our company and I’m chasing these guys, spending hours and hours a week, trying to get this money.”
The problems originates with businesses unprepared for the “price compression that occurred in Michigan over the last two years,” according to Frakes.
“Everybody uses that expression, the race to the bottom,” he said. As markets became increasingly saturated and competitive, retailers kept giving better deals and driving prices down, Frakes said.
“None of us operators were planning for market prices to be lower than when it was a caregiver state,” Frakes said. “Caregivers were getting $2,000 per pound forever and now the market doesn’t even average $1,000 per pound.”
RAIR has tightened its sales terms due to collection issues and now only accepts cash on delivery from new customers.
Kahn said businesses are struggling because the supply of marijuana in the state “has outstripped the demand.”
“And I think a lot of businesses are failing as a result of that,” Kahn said.
Blacklisted
Frustration with unpaid debts and limited collection options have led some in the industry to take action outside of traditional courts. They’re using social media.
Brandon Hauck of Mount Pleasant, who manages a marijuana company, created the Blacklist of MI Cannabis Facebook page in late October with his fiancée, Kate Sikkila, who also works in the industry.
It allows posters to share information about businesses with outstanding debts, after Hauck said page administrators review the validity of outstanding invoices.
But that’s not foolproof, said Frakes with RAIR, whose company was previously placed on the Blacklist and since removed.
Of the eight allegedly unpaid invoices posted to the site, six were already settled and listed in error, Frakes said. He complained to the page administrators, proved the payments and the business was removed from the blacklist.
Even so, Frakes thinks the social media blacklist is “incredibly important” because so many people are wasting time pursuing payment, and the site is a tool to speed up the process or warn others.
Hauck said the purpose of the page is to help businesses make informed decisions about who to work with, and in some cases, compel nonpayers to fulfill debts.
“There are some people being paid already,” Hauck said, less than two weeks after creating the page that’s grown to 1,200 members.
Unable to collect
It hasn’t been easy to collect outstanding debts, even with the help of the courts, said Kahn, the attorney who secured judgements for two marijuana businesses that sold to Diamond Cannabis and were never paid.
Kahn is left trying to figure out what to do about Diamond Cannabis stiffing his clients.
Lawrence-based Great Lakes Natural Solutions, a licensed marijuana processor, sold Diamond Cannabis $20,060 worth of bulk and prepackaged marijuana flower in October 2022 but never received payment.
“The defendant has promised payment multiple times but has failed to keep said promises,” the lawsuit said. Diamond Cannabis “has sold cannabis products supplied by (Great Lakes Natural Solutions) to its customers.”
Diamond Cannabis never responded to the claims and a $67,092.66 default judgement was issued on Sept. 14, according to court records.
“I haven’t been able to collect on either of those judgments,” said Kahn. “The business shut down, it doesn’t have any assets, as far as I know, it doesn’t have any money in the bank, it doesn’t have anything I can use to satisfy those judgements …
“It’s not like they went out of business with $30,000 of marijuana on the shelf. So what happened to that money that they received for the goods my clients provided them?”
