Investor Feud Leads Cannabis Brand Unrivaled to Bankruptcy

California Cannabis Operator Unrivaled Brands Files for Chapter 11 Bankruptcy Amid Ongoing Legal Battle with People’s California

California-based cannabis operator Unrivaled Brands, a subsidiary of the legacy cannabis company Blüm Holdings, has filed for Chapter 11 bankruptcy protection, marking a significant turn in a prolonged legal and financial struggle. The filing, submitted on Monday, reflects mounting financial pressures for Unrivaled and highlights an ongoing dispute with one of its primary investors, Santa Ana-based People’s California.

The bankruptcy filing follows multiple lawsuits and accusations from both parties, with Unrivaled alleging that People’s California engaged in aggressive litigation tactics and conduct detrimental to Unrivaled’s operations. This latest development underscores the turbulence within the cannabis industry, as businesses continue to face complex financial and legal challenges in an evolving market.

Background of the Dispute: Legal Battles Begin

The conflict between Unrivaled Brands and People’s California began in July 2022, when People’s California, a manufacturer specializing in distillate cartridges, filed a lawsuit against Unrivaled, claiming a breach of contract. This initial lawsuit sparked a series of legal disputes that have since escalated, with Unrivaled accusing People’s of further misconduct.

At the time of the initial lawsuit, Unrivaled was already facing significant financial instability, with liabilities nearly double its assets. The company had been struggling to navigate both internal restructuring efforts and external financial pressures, with litigation costs adding another layer of complexity. Unrivaled’s allegations against People’s California include claims of aggressive tactics that contributed to their financial instability.

Financial Woes and Corporate Restructuring

The filing reveals that Unrivaled Brands was in a financially precarious position, with liabilities exceeding its assets. According to its latest earnings report as of September 30, Unrivaled listed $27.3 million in assets against $34.49 million in liabilities, highlighting a challenging financial outlook. This financial strain is rooted in broader market pressures within the cannabis industry, where profitability remains elusive for many operators.

In January, Unrivaled joined Blüm Holdings as part of a corporate reorganization that included a reverse stock split. This restructuring was intended to stabilize the company’s finances and streamline operations, but it appears that these efforts were insufficient in offsetting Unrivaled’s mounting debt. Through Blüm Holdings, Unrivaled operated several popular brands, including the well-known Korova edibles line, but even these established product lines were unable to provide the financial support needed to avoid Chapter 11.

Continued Litigation and Financial Claims by People’s California

In July 2024, People’s California filed another lawsuit against Unrivaled despite a prior settlement agreement. According to Unrivaled’s recent statements, People’s had already received over $60 million in value from Unrivaled since 2021, including a $9 million payout in July 2024, as part of a settlement intended to resolve all pending litigation. Unrivaled claims that the settlement was meant to close all legal disputes with People’s California and its principal, Kavanaugh, but despite the agreement, People’s continued to pursue further legal action.

People’s California is now listed as Unrivaled’s largest creditor, with $14.8 million in claims. This debt, coupled with Unrivaled’s ongoing operational challenges, pushed the company to seek bankruptcy protection in hopes of reorganizing its debts and regaining financial stability.

Allegations of Property Interference and Defamation Claims

In addition to the financial claims, Unrivaled has accused People’s California of various forms of property interference and improper conduct. Unrivaled alleged that People’s directed contractors to remove “Blüm” signage from Unrivaled’s Santa Ana location and attempted to take over designated parking spaces at the same site in April 2024. These actions reportedly disrupted Unrivaled’s operations and added further strain to the already fraught relationship between the two entities.

Adding another layer to the dispute, Unrivaled issued a statement in March claiming that one of People’s principals was involved in a legal matter unrelated to the cannabis business. This claim led to a defamation lawsuit from People’s California, further intensifying the already contentious legal battle. This accusation and the ensuing defamation lawsuit have only deepened the divide between the two companies, drawing additional media attention and public scrutiny.

Implications for Unrivaled and the Broader Cannabis Market

The bankruptcy filing by Unrivaled Brands is a stark reminder of the challenges faced by cannabis businesses, especially those operating in states with competitive and heavily regulated markets like California. The cannabis industry’s volatile nature, compounded by high operational costs and complex legal requirements, makes it challenging for companies to sustain long-term profitability.

For Unrivaled, Chapter 11 provides an opportunity to reorganize its finances and potentially restructure its business operations to meet its obligations to creditors, including People’s California. However, the filing could also impact the company’s ability to operate its brands and meet consumer demand, especially as ongoing litigation and debt obligations continue to weigh heavily on its future.

Possible Outcomes and Industry Impact

As Unrivaled proceeds with its bankruptcy case, the company will likely negotiate with creditors, including People’s California, to address its financial obligations. If successful, the reorganization could allow Unrivaled to stabilize and resume normal operations. However, if restructuring efforts fall short, Unrivaled may be forced to liquidate assets or cease operations entirely, a move that would impact employees, suppliers, and consumers connected to its brands.

For the California cannabis market, Unrivaled’s bankruptcy and the underlying legal dispute serve as a cautionary tale. The case underscores the financial fragility of many operators in the cannabis sector and highlights the need for effective financial planning and sustainable growth strategies. Additionally, the high-profile feud between Unrivaled and People’s California may prompt other businesses to reconsider investor relationships and emphasize transparency in contractual agreements.

A Tumultuous Chapter for Unrivaled Brands

Unrivaled Brands’ Chapter 11 bankruptcy filing marks a critical juncture for the California-based cannabis operator, which has been entangled in financial challenges and legal disputes for over two years. With People’s California positioned as its largest creditor, Unrivaled’s future hinges on the success of its reorganization efforts and its ability to resolve ongoing litigation with its investor.

As Unrivaled navigates the bankruptcy process, the case serves as a broader reflection of the operational and financial hurdles facing cannabis companies in California and beyond. The outcome may not only shape Unrivaled’s fate but also influence best practices and regulatory discussions within the cannabis industry as it matures and seeks stability.