Elevate ADK faces lawsuit from its founders | News, Sports, Jobs

Eli Emery stands among shelves of cannabis products at Elevate ADK in Saranac Lake. (Enterprise photo by Aaron Marbone)

SARANAC LAKE — A bitter lawsuit behind the scenes of Elevate ADK puts the Tri-Lakes’ only licensed cannabis dispensary at risk of closing, but General Manager Eli Emery Boice says he is confident the lawsuit will be dropped and the store will stay open.

The three founders of the cannabis retailer’s parent company — Douglas Butdorf, Thomas Gosrich and Eduardo Suarez, all of Plattsburgh — are fighting with the company’s majority shareholder and store’s general manager in court.

The founders are asking the court to dissolve the corporation, “in a last-ditch effort to recover some return on investment.” They allege they have not been paid dividends from the business, that they have essentially been cut out of the business and that the owner, Adam Hainer, and general manager, Boice — who uses his middle name Emery as his last name — are keeping poor records, embezzling funds, and violating state and federal laws, putting their license at risk of not being renewed when it comes up for renewal in January.

“Hainer has engaged in oppressive actions toward the complaining shareholders and has looted, wasted or diverted corporate assets for non-corporate purposes,” they allege in court documents. “Hainer’s unfettered control of the corporation has proven disastrous, and is creating an untenable level of risk and liability.”

Emery said the burden of proof is on the three founders bringing the lawsuit and he believes they have made “baseless claims.”

“We have everything available to us to disprove their claims,” he said.

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Joint venture

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Elevate ADK is owned by North Country Roots Inc.

Butdorf, Gosrich and Suarez founded NCR in 2015 to be part of the state’s medical cannabis industry. In 2022, when New York was rolling out its recreational cannabis industry, the complaint states that Hainer, who owns Juniper Hill Farm in Westport, approached them and proposed a partnership. Emery said Butdorf approached Hainer.

Hainer, as someone with a felony cannabis conviction in the past, was a “justice involved” individual whose state law gave preference to receive dispensary licensing.

The three founders surrendered their 90% stake in the corporation to give Hainer a 51% controlling share of the company, giving him full control of the business and the ability to receive one of those earliest licenses.

Elevate ADK received its temporary delivery license in May of 2023 and its retail license from the state Office of Cannabis Management in October. But the relationship between Hainer and the NCR founders sowed in the following months as differences in location preference, finances, hiring, practice, product and business strategy arose.

Hainer holds 51% of the 231,285 company shares, according to court filings. Butdorf, Gosrich and Suarez hold a collective 43.24%. Other minority shareholders hold the rest of the shares in chunks less than 2% each.

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Hazy details

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Both sides are accusing one other of conning the other in this business dealings. The initial court filing did not include much proof to back its allegations, but the store also does not have yet much public proof of its defenses or allegations in the public record either.

For the minority shareholder founders bringing the lawsuit, the issue is that they don’t have access to the business’ books. Hainer shut them out of the corporation’s accounts, Quickbooks, the point of sale system and disabled their email domains. In the shareholders’ complaint, they say they are uncertain if their years of documents and records and emails still exist and believe that they are being deprived of “significant evidence” that would support their claims.

Emery said the three founders were allegedly applying for cannabis retail licenses in Plattsburgh through family members, which he said violated a noncompete clause of the shareholder agreement and led to them getting shut out of the corporate accounts.

“Because they don’t have access to the books they’re saying ‘Oh, the books must be cooked,’” he said.

The two sides have conflicting accounts of what information these books contain. What is in these books won’t be publicly known until the court requests them.

The case is expected to start in Essex County Supreme Court on Aug. 5, when discovery can begin.

Emery said he believes several of the founders’ allegations are based on misunderstandings or assumptions, because they do not see the paperwork showing how things are aboveboard.

The founders say Hainer has refused to let accountants do a valuation of the majority cash business.

“Despite plaintiffs’ repeated requests, they have yet to receive auditable books, a trusted P&L statement, receipts for alleged expenses, or even contracts or invoices for vendors, let alone evidence of payment to vendors,” according to the complaint.

Emery said they haven’t stolen any money.

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Division over dividends

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The crux of the issue is money.

“Hainer has made it clear that he will never allow shareholders to recover any return on their investment,” the founders wrote in the complaint. “The corporation is (or at least should be) sitting on a very large cash reserve, for which plaintiffs have been refused any accounting or information.”

They estimate the dispensary brings in $60,000 per week on average, with that rising to $150,000 on holiday or summer season weeks, citing an “industry standard” 50% profit margin. The business makes money, the founders say, but they allege that Hainer has refused to issue them dividends.

“(He is) essentially taking a blanket position that all revenue will be ‘invested in the company’ for the long-term future,” the founders’ complaint states. They say they have “seen no evidence of such investment.”

The founders also said they’ve never seen reporting of revenue generated from the ATM and merchandise sales at the store.

At one point, they say they forged an agreement to be paid dividends, but the dividends were never issued.

Emery said the founders were demanding payments before the store paid its first year of taxes.

“We got to make sure our finances are in order before we pay anybody,” he said. “How can we pay somebody based on a profit that we don’t know we’ve made yet?”

Emery accused the founders of being “money driven.”

“They’ve made it pretty clear they were just there for their dividend payments,” he said.

The division sparked early on with a difference in philosophy for the business. The founders wanted to source from larger corporate companies, Emery said, but he chose to stock many smaller New York-based companies.

The founders said Hainer made the “unilateral” decision to pay himself a salary. The rest of them retroactively approved the salary with an agreement that he work to bring the store into compliance with state regulations, which they say he never did.

They also accuse Hainer of stopping NCR from paying off loans he made to make money on these loans, saying there was no “oversight or accountability” in this process.

They drafted standard operating procedures they say he did not adopt.

The founders accused Hainer of consolidating his authority by removing them from the board of directors to become the sole director and officer, as well as changing the shareholders agreement to dilute their shares.

In turn, Emery said the minority tried to take control of the license. He said in a board meeting with a 3-1 vote to remove him as general manager may have violated OCM regulations. As a majority owner, he said Hainer has full control of the company.

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License

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The founders say Hainer’s actions risk their license not being renewed and that he has refused to correct these actions, despite their demands.

They accuse Hainer of using personal vehicles to do deliveries, violating OCM regulations. Emery said they have lease agreements for all these vehicles. They also accuse Hainer of violating federal labor laws by having H-2A visa temporary agricultural employees from his personal farm build cannabis storage equipment, and do construction and vehicle maintenance. Emery said this is “100% untrue.”

“They were really just trying to throw anything at the wall to see what sticks,” he said.

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General Manager

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The founders were highly critical of Emery in their court complaint, alleging that he has treated customers and employees “poorly,” refuses to follow any “reasonable” accounting standards or security protocols and is a “fugitive from justice” with open criminal warrants in Utah and Florida, which creates an “unnecessary liability” for non-renewal of their license.

“Emery has proven a disaster for the business,” they wrote.

Emery said these allegations are not true.

In 2015, Emery was identified as suspected to have fled a motel in Utah while a SWAT team executed a search warrant. Emery, 20 at the time, and a 19-year-old friend, allegedly stole handguns from one of their uncles and traded them for drugs at the motel. Police arrested the others involved, but he ran.

After the founders learned about this in February, they voted to suspend Emery with pay, investigate the issue and create recordkeeping standards. They said Hainer “brazenly refused to execute the board’s vote.”

Emery argues that the OCM and Marijuana Regulation and Taxation Act don’t say anything about legal status in other states and that background checks are not required for employees, just investors. He said he has a clean record in New York and has lawyers working on these cases in other states.

The complaint accused Emery of dipping into tips left for employees. He said when the store opened, its payment processor had a tipping option they eventually got turned off. All employees sign contracts that they do not accept tips, he said, so they couldn’t legally be paid tips. He added that they are compensated fairly for their work.

Emery said the total number of tips before the system was amended came to $70.

“I have never personally benefited from that,” he said. “That money stayed in the corporate account.”

The founders bringing the case are represented by the Albany-based Whiteman Osterman and Hanna law firm. Hainer and Emery are represented by the Albany-based Wagoner law firm.

Hainer, OCM and both law firms involved in this case were contacted for comment, but did not reply by deadline.

The founders are asking the court to make Hainer provide them with complete books and records. They’re asking the court to dissolve the company, liquidate its assets and pay them what they say they’re owed.

The court case in Essex County Supreme Court is scheduled to appear before Judge Allison McGahay on Aug. 5.

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