Oregon entrepreneur Nitin Khanna, accused of securities fraud earlier this year by some of his former business partners, filed a $516 million counterclaim this week alleging he was actually the victim of a scheme that reduced the payout of his marijuana business.
The Portland Business Journal first reported this week’s filing, which lays bare the dysfunction and discord that devalued the all-stock transaction and continues to plague the deal.
The new allegations are the latest in a series of scandals that have plagued Khanna’s former company, Cura Cannabis, also known as Select. Cura sold two years ago to a Massachusetts company called Curaleaf, which is among the nation’s largest recreational marijuana companies.
On Thursday, Curaleaf described Khanna’s claims as “baseless attempts to distract from the securities fraud case against Mr. Khanna and his controversial public record.”
In January, Curaleaf Chairman Boris Jordan filed a suit accusing Khanna and other investors of a $60 million securities fraud involving a related CBD company, Sentia Wellness. It accused Khanna of attracting investment to Sentia while hiding the business’ true financial condition and falsely claiming Goldman Sachs was working to raise money for the business.
Khanna and his associates with scamming them by hiding the Portland company’s true financial condition and by falsely claiming that Goldman Sachs was working to raise money for the business.
In this week’s counterclaim, Khanna, his brother and two business associates accuse Jordan of actions “which appear to be the typical type of tactics used by Russian oligarchs.”
They allege that Jordan manipulated the fact that he was a shareholder and board member of Curaleaf, Cura and Sentia to ratchet down the acquisition price for Curaleaf.
“He used his position to enrich himself at the expense of Cura Partners and its shareholders,” Khanna alleges in this week’s litigation.
The accusations are complex but boil down to this:
Cura sold both recreational marijuana and CBD, a hemp-based product that contains no psychoactive ingredients. After Curaleaf agreed to buy Cura, Cura began spinning off its CBD business into Sentia. The new litigation claims that Curaleaf then demanded Cura lower its price for the deal.
“Cura Partners could not refuse this discounted offer. It had already transferred the other part of its business — the CBD business — to Sentia,” Khanna alleges in this week’s litigation. “It had only a few months of cash on hand and the acquisition was in the middle of a regulatory approval process that could extend indefinitely, raising the prospect that Cura Partners would run out of money before its acquisition.”
Complicating matters, Jordan’s own investment firm, called Measure 8, owned a stake in Cura.
“Measure 8 threatened to veto Curaleaf’s acquisition of Cura Partners, even though it was led by the same person—Mr. Jordan—who negotiated the deal in the first place,” according to this week’s counterclaim. “It successfully leveraged its veto power to acquire approximately 1.2 million additional shares of Curaleaf stock to offset the price reductions that Mr. Jordan negotiated.”
Other investors were unhappy with the lower price, according to the litigation. So to ensure the deal went through, Khanna and other shareholders agreed to pay the dissidents additional Curaleaf shares acquired in the transaction, unless they received additional shares triggered by “earnout targets” for Cura’s Select brand of recreational marijuana.
In the suit, Khanna alleges that Jordan canceled Select orders and new Select products after the acquisition, ensuring the brand didn’t meet the earnout targets and forcing Khanna and his associates to cough up the settlement payments to the other Cura investors.
In its statement Thursday, Curaleaf did not condemn Russia’s invasion but said that Jordan “opposes the violence, bloodshed and destruction in Ukraine and has called for negotiations to end the war and stop the suffering.”
Despite the lawsuit’s allusion to “Russian oligarch” tactics, Curaleaf’s links to Russia could have been no surprise to Khanna. The connections had been widely reported before Khanna took on Jordan and Measure 8 as investors when he was running Portland-based Cura in the years before its sale.
Khanna stepped down as Cura’s CEO in 2018 after women in the marijuana community highlighted a past rape allegation against him.
In 2014, Khanna settled an allegation that he had assaulted his wife’s hairdresser on the morning of his own wedding. Khanna denied sexual assault and did not face criminal charges. Prosecutors said DNA evidence showed he had sexual contact with the woman, but they opted not to bring charges against Khanna after concluding they couldn’t prove the contact was nonconsensual.
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