Legal Civil War At Co Dispensary Native Roots

Westword reports

The ownership group behind Native Roots, one of Colorado’s largest dispensary chains, is involved in an internal battle over $100 million.

Native Roots operates twenty dispensaries in Colorado, as well as numerous marijuana cultivations and infused product facilities. Yet through multiple expansions over the past four years, company co-owners Josh Ginsberg and Rhett Jordan have been in financial and legal clashes with partner Peter Knobel, according to Denver District Court documents, with Knobel currently fighting an arbitration decision that would award $100.5 million to Ginsberg and Jordan.

Native Roots was founded by Ginsberg and Jordan in 2009 as a medical marijuana dispensary, but quickly became one of Colorado’s larger retail operations after recreational sales began in 2014. According to Jordan, that’s when Knobel originally entered the operation, investing in Native Roots through his company, Brightstar LLC.

“In 2014, capital was very hard to find, and good investors were hard to find. He’s a successful developer with good experience in a lot of fields that apply to our industry,” Jordan says of the original partnership.

Brightstar took majority control of Native Roots in 2016, but Jordan says that wasn’t the cause of the infighting.

Ginsberg sued Brightstar in 2017, alleging a breach of the operating agreement between him and Jordan and Brightstar. Jordan, who eventually joined the lawsuit, says that Knobel and Brightstar violated a shotgun clause in their operating agreement. A special provision in business agreements, such a clause typically allows one partner to try to force other partners to sell their stake, or buy out a partner who wanted to sell their ownership. According to Jordan, Ginsberg and Brightstar attempted to buy each other out.

“Ultimately Josh found the money, and Peter didn’t go along with it,” Jordan says.

The operating agreement stipulated that partner disputes would be settled by an arbitrator. In 2021, an arbitrator sided with Ginsberg and Jordan, awarding $53.6 million to Ginsberg and $46.9 million to Jordan, plus interest.

“At one point in time, my other two partners got into a quarrel that resulted in all of us bringing this arbitration together. Four-and-a-half years later, this is where it ended,” Jordan says.

Not quite. Brightstar and Knobel are challenging the arbitration decision in Denver District Court, and according to Knobel’s attorney, Hugh Gottschalk, the battle isn’t over.

Josh Ginsberg

Gottschalk’s versions of events related to the shotgun clause differ from Jordan’s, and he says that Brightstar was the partner in the Native Roots operating agreement, not Knobel, who was later added to Ginsberg and Jordan’s compliant.

“The arbitration was entered against Peter Knobel, even though Peter Knobel never signed an arbitration agreement and was not a party to the contract subject to the arbitration dispute,” Gottschalk says. “Although we believe the arbiter made various errors entering his award, we believe he had zero basis in entering the award against Mr. Knobel.”

Court documents claim that Native Roots owed $62 million in loan payments to Brightstar as of 2020, with an interest rate of $13,000 per day.

Ginsberg and Jordan are challenging the motion by Knobel and Brightstar attorneys to vacate the arbitration order.

In the meantime, Native Roots still maintains the same ownership structure, with Brightstar as the majority owner. A final decision in the arbitration process won’t necessarily change that, Jordan says, adding that Native Roots is still applying for new business licenses in Colorado and looking at further expansion.

“As we’re going through the proceedings, I don’t know where it’s going to go or what the options are,” Jordan says. “My greatest interest is continuing the success of my company, labor force and my team, and staying true to our roots.”

Josh Ginsberg couldn’t be reached for comment.