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Cannabis Cultivators in Fight Over Ouster From CompanyLock Icon

5 min read

The majority owners of Natural State Medicinals Cultivation of White Hall voted in September to expel a married couple from the company. The problem is, the pair don’t want to go.

The couple, Dr. Scott Schlesinger and his wife, Dr. Kelli Schlesinger, of Little Rock, said in Pulaski County Circuit Court filings that the other owners want to remove them in retaliation for “calling the [company and its other owners] on their many bad acts.” They also allege that the owners removed Scott Schlesinger because he shared “confidential information” with attorneys for a former employee.

The removal vote was unanimous — with the exception of the Schlesingers, who took the dispute to arbitration. But they also raced to Pulaski County Circuit Court on Sept. 23 to block the outster while arbitration was pending. They named the company and its eight other owners as defendants.

The couple said in court filings that if they lose their membership, they lose access to monitor the company and its owners. The couple, who own 22.9% of the facility, said in a November filing that Natural State Medicinals hasn’t attempted to pay them for their shares. They also said the company owed more than $2 million to vendors.

“Instead of paying these debts, defendants have chosen to pay themselves and bleed the company dry,” the Schlesingers said in a pleading.

The couple is anxious because if Natural State Medicinals can’t pay its bills and loses its license, the multimillion-dollar company and their investment in it “will be lost forever,” the Nov. 17 filing said. The couple said their damages are more than $60 million.

On Jan. 5, Pulaski County Circuit Judge Herbert Wright Jr. denied the couple’s request for an injunction because of pending arbitration.

But Scott Schlesinger also filed a shareholder derivative complaint in September against his company and others, including another owner, Dr. Alonzo Williams of Little Rock. In a derivative lawsuit, a shareholder sues on behalf of a company. Schlesinger alleged Natural State Medicinals, which has the legal name of NSMC-OPCO LLC, was involved in insider deals that weren’t in the financial interest of the company.

That case is pending, but the defendants have asked to have it dismissed.

Scott Schlesinger “is a disgruntled dissociated member who was removed from” the company by a supermajority of members for cause, according to a filing by Williams’ attorney, Jess Askew III of Kutak Rock in Little Rock. Askew said in the filing that that dispute should be settled in arbitration. He declined to comment on the case to Arkansas Business.

An attorney for NSMC, M. Evan Stallings of the Barber Law Firm PLLC of Little Rock, said the firm doesn’t comment on pending litigation. An attorney for the Schlesingers, Daniel Van Horn of Butler Snow LLP of Memphis, also declined to comment.

But the filings provide insight into the infighting at one of the state’s eight licensed medical marijuana cultivation facilities in Arkansas. The state’s booming cannabis industry last year reported $254 million in medical marijuana sales at 37 dispensaries. In 2020, cannabis sales were $175 million.

Resigns ‘in Protest’

Natural State Medicinals Cultivation was founded by medical professionals and pharmaceutical, business and cannabis industry experts, according to the company’s website.

Owners of the company include Williams, a gastroenterologist, and his wife, Susan Williams. Together they own 32.4% of the company. Alonzo Williams has been the company’s board chairman since sometime in 2020.

The company said its goal is “to provide the highest quality, pharmaceutical grade product for the patients of Arkansas.”

The Schlesingers have been members of NSMC since its founding. The company filed its incorporation papers with the Arkansas secretary of state’s office in 2017.

In 2018, the Arkansas Medical Marijuana Commission awarded Natural State Medicinals a cultivation license, making it one of five chosen to receive a license. The other three cultivation licenses were awarded later.

Between 2019 and July 31, 2020, Scott Schlesinger, whose primary specialty is neurological surgery, was listed as a manager of Natural State Medicinals Cultivation, but he resigned from the position in 2020 “in protest,” according to court filings. The court pleadings didn’t say what caused him to resign.

Kelli Schlesinger, whose primary specialty is neurology, also had been a member of NSMC since its founding. She was listed as its medical director until the end of July 2020. “She did not ask to be listed and resigned in protest in 2020 but has remained a member since then,” the couple’s filing said.

‘Malfeasance’ Alleged

Scott Schlesinger said in court filings that the removal was triggered by a meeting he had with attorneys for a former employee to “uncover malfeasance” by the defendants in the management of the company.

The filing didn’t say when that meeting took place, but as a result, the company’s other owners accused him of sharing “confidential information” with attorneys for a former employee.

Scott Schlesinger denied that he shared confidential information. And even if he did, that wouldn’t be grounds for “cause” to terminate his membership, his filing said.

Scott Schlesinger, through his attorney, also sent the other owners a draft demand for arbitration before the vote to remove them.

On Sept. 16, the Schlesingers were voted out of the company — an act Scott Schlesinger said was in retaliation for calling the defendants “on their many bad acts.”

At the Oct. 7 meeting of the Arkansas Medical Marijuana Commission, NSMC made a request to change the ownership of the company to reflect that the Schlesingers were voted out.

Little Rock attorney Danny Crabtree represented the Schlesingers at the hearing and objected to the move.

The commission voted to table the request because it was being contested. As of Feb. 3, there have not been any ownership changes and the Schlesingers remain owners, state spokesman Scott Hardin said via email.

Financial Concerns

The Schlesingers said in filings that they are “very concerned about the financial viability” of the company.

“Despite new competition coming on line and no clear business plan, the managers of NSMC decided to borrow tens of millions to expand operations,” the Schlesingers said in their filing.

The couple said that the company attempted to borrow $25 million, and when they asked for documents to show how the money would be spent, they were denied access.

“The company is in extreme danger of insolvency, and Defendants continue to misuse company funds, attempting to drain the company of resources before Plaintiffs even have a chance to get back into the company,” the Schlesingers alleged in a Nov. 15 filing.

“Between the company’s debts and the Defendants blatant disregard for basic business principles, Plaintiffs have severe concerns regarding the collectability of any damages or judgment unless they are allowed to once again help control the company,” the Schlesingers’ filing said.

Even though NSMC said it has voted out the Schlesingers, the couple said that the company had not attempted to pay for their shares in the company as required. But even if NSMC paid the Schlesingers, they didn’t think the company would value their shares at the highest amount.

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