Unpaid Debts and Legal Woes: The Closure of Bay City's Diamond Cannabis

December 18th, 2023 Business & Industry
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In the heart of Bay City, the once thriving Diamond Cannabis store, a venture of Southfield-based Emerald Bay Provisioning, stands empty. Opened in late 2021 at 816 Washington Avenue, this marijuana retailer was initially met with positive customer feedback. However, in a stark turn of events, it has become emblematic of a growing concern in Michigan's $3 billion marijuana industry: businesses abruptly closing, leaving a trail of unpaid debts and legal complications.

Diamond Cannabis, initially backed by investors Michael Yaldo, Omar Salah, and Ramia Kirma (the latter no longer associated as per a 2023 lawsuit), showed early signs of success. But by mid-November 2023, the store was deserted, with only remnants of its past - a ladder, some boards, and rolling paper stickers on windows - hinting at its former life. The neighboring businesses noticed the exit during the summer, marking a silent end to what was once a bustling retail space.

This closure isn't an isolated incident in Bay City, where Diamond Cannabis joined a list of eleven other marijuana retailers that have ceased operations, according to the Cannabis Regulatory Agency (CRA). The issues came to a head with the filing of three lawsuits between December 2022 and June 2023, seeking over $1 million in unpaid debts, including nearly $50,000 in unpaid invoices. Moreover, CRA complaints in March and April alleged the business misrepresented THC potency, made unreported sales, and failed to maintain necessary video surveillance records.

One notable lawsuit was filed by JIS, operating the cannabis brand Bowhouse, known for "Michigan grown craft cannabis." Represented by attorney Jacob Kahn, the lawsuit details how Diamond Cannabis, after finding Bowhouse on the online marketplace Leaflink, ordered nearly $30,000 worth of products but failed to pay upon delivery. Despite a consent agreement for monthly installments, the payments ceased after the first installment, leading to a default judgment by the court.

Diamond Cannabis' story reflects a broader trend in Michigan's marijuana market. Nearly 14% of the state's marijuana retailers have closed or not renewed licenses since December 2019. This has resulted in numerous businesses grappling with unpaid debts, a challenge highlighted by attorneys Denise Policella of Cannabis Attorneys of Michigan and others. Policella emphasizes the cascading effect of these financial troubles, particularly on smaller businesses.

The CRA has recognized this growing issue and is considering rules to deny licenses or renewals to businesses with civil judgments or court orders related to unpaid debts. This move aims to ensure financial responsibility within the industry.

The root of these challenges, according to Patrick Frakes of RAIR, lies in the market's unexpected evolution. RAIR, which operates a grow facility and retail shops, has experienced the problem firsthand, with $218,000 in past due invoices at one point. Frakes points to "price compression" and market saturation as primary factors driving down prices and putting strain on businesses.

Collecting outstanding debts remains a significant hurdle, as evidenced by the experiences of attorney Kahn and his clients. Even with court judgments in hand, recouping losses from businesses like Diamond Cannabis, which shut down without assets or apparent funds, proves daunting.

Diamond Cannabis' rapid rise and fall serve as a cautionary tale in Michigan's burgeoning marijuana market, highlighting the need for more stringent financial practices and regulatory oversight to ensure stability and fairness in this evolving industry.

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