COMMITMENTS AND CONTINGENCIES

9 Months Ended

Mar. 25, 2023

Commitments and Contingencies Disclosure [Abstract]


18.			COMMITMENTS AND CONTINGENCIES

Contingencies

The Company’s operations are subject to a variety of local and state regulations. Failure to comply with one or more of these regulations could result in fines, restrictions on its operations, or losses of permits that could result in the Company ceasing operations. While management of the Company believes that the Company is in compliance with applicable local and state regulations as of March 25, 2023 and June 25, 2022, marijuana regulations continue to evolve and are subject to differing interpretations. As a result, the Company may be subject to regulatory fines, penalties or restrictions in the future.

Claims and Litigation

From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. The Company recognizes legal settlement expense when litigation losses related to pending or threatening lawsuits could be reasonably assessed to have resulted in a probable loss to the Company in an amount that can be reasonably estimated. The Company recognizes legal settlement gains when a favorable settlement is awarded to the Company and payment is received. Gain and losses related to claims and litigation are recorded as a component of Other Operating (Income) Expense in the Condensed Consolidated Financial Statements. As of March 25, 2023, there are also no proceedings in which any of the Company’s current directors, officers or affiliates is an adverse party to the Company or has a material interest adverse to the Company’s interest.

In March 2020, litigation was filed against the Company in the Superior Court of Arizona, Maricopa County, related to a purchase agreement for a previous acquisition. The Superior Court of Arizona, Maricopa County granted summary judgement in favor of the Company on all counts in July 2022. The Company is currently in process of recovering certain fees and costs associated with the lawsuit from the plaintiffs, and the plaintiffs have filed an appeal of the summary judgment decision. The Company believes the likelihood of a loss contingency is neither probable nor estimable. As such, no amount has been accrued in these financial statements.

In April 2020, a complaint was filed against the Company in Los Angeles Superior Court related to a contemplated acquisition in which the plaintiffs are seeking damages for alleged breach of contract and breach of implied covenant of good faith and fair dealing seeking declaratory relief and specific performance. The Company filed counterclaims including for breach of contract, breach of promissory note, unjust enrichment and declaratory relief. During the quarter ending March 25, 2023 the parties reached an agreement resolving the litigation under which the Company will receive $0.5 million plus interest under a twelve month payment plan. A second complaint, filed by separate plaintiffs arising from a separate dispensary acquisition transaction but alleging similar claims, remains pending in Los Angeles Superior Court

and is currently scheduled for trial in December 2023. With respect to this litigation the parties entered into a partial settlement agreement in August 2021 but claims including relating to a contractual provision providing for the payment of a true-up in Company shares under certain circumstances remain pending. With respect to this matter, the Company believes the likelihood of a loss contingency is neither probable nor estimable. As such, no amount has been accrued in these financial statements.

In November 2020, entities affiliated with former officers of the Company initiated arbitration against a subsidiary of the Company in Los Angeles, California asserting breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, and unjust enrichment. The claimants generally sought damages and compensatory damages according to proof, including lost earnings and other benefits, past and future, interest on lost earnings and benefits, reasonable attorney’s fees, and such other and further relief as the court deems proper. The Company asserted counterclaims, including for breach of the same management agreements. Subsequent to the end of the quarter ended March 25, 2023, the parties settled the arbitration with the affiliated entities agreeing to transfer all right, title and interest in the entities owning the retail cannabis licenses associated with the dispensaries operated by the Company under management agreements at LAX and Abbot Kinney to the Company and the Company agreeing to enter into a $6.5 million promissory note and $0.3 million in cash to the affiliated entities.

In October 2021, a suit for premises liability and negligence seeking unspecified damages for pain and suffering, disability, mental and emotional distress, and loss of earnings was filed against was filed against a third party defendant with regard to which the Company allegedly owes a duty of indemnification, in Los Angeles Superior Court. The Company participated in the mediation of this matter during the quarter ending March 25, 2023. After the end of the quarter the third party defendant settled with the plaintiff for the amount of $0.6 million. While the insurance company for the third party defendant may have potential indemnification claims against the Company the overall exposure of the Company with respect to this matter is limited by the settlement amount.

In July 2022, a complaint was filed in Los Angeles Superior Court by Baker & McKenzie LLP, a former law firm to the Company, seeking in excess of $0.6 million in legal fees plus accrued interest. A surety bond has been provided by us in accordance with the court’s mandate. The Company has filed a counterclaim against Baker & McKenzie claiming overbilling on total invoices propounded by the law firm to the Company exceeding $18.5 million. The litigation remains at an early stage and the likelihood of a loss contingency is remote. As such, no amount has been accrued in these financial statements.

In March 2023, the Company received a demand for arbitration from a business broker asserting unpaid fees related to a purchase agreement with respect to the sale of a cannabis asset. The broker seeks damages for breach of contract, unjust enrichment, and quantum meruit. The action remains in the early stages and no amount has been accrued in these financial statements.

In April 2023, an office furniture vendor brought suit against the Company in Indiana, Allen Superior Court, seeking damages for unpaid invoices. The litigation remains at an early stage and the likelihood of loss is remote. As such, no amount has been accrued in these financial statements.

The Company is the defendant in several complaints filed by various of its landlords seeking rents and damages under lease arrangements. First, in 2020, a complaint was filed in Cook County Circuit Court, Illinois against the Company by a landlord claiming the Company had failed to meet its obligations to apply effort to obtain a retail cannabis license at a property, for which the landlord is seeking rents and damages. Plaintiff’s motion for summary judgment was granted and resulted in judgment in favor of the landlord in the amount of approximately $7.2 million. After the end of the quarter ending March 25, 2023, the parties reached an agreement to significantly reduce the summary judgment award. Second, in July 2022, a complaint was filed against the Company in the United States District Court for the Southern District of New York by a landlord seeking damages under a lease on real estate located in Illinois. The Company filed an answer to the complaint arguing that the subject matter of the case was not appropriate for determination by a federal court in New York. The court thereafter permitted the action to be dismissed without prejudice, after which the plaintiff refiled the case in California against the Company as guarantor of the lease. The matter is in the process of being litigated in the Los Angeles Superior Court. The Company believes the likelihood of loss is remote. As such, no amount has been accrued in these financial statements. Third, in June 2022, a complaint was filed against the Company by the Company’s landlord at its cultivation center in Utica, New York, related to an agreement to purchase land next to the cultivation center, which land was also owned by the landlord. Plaintiff sought to enforce a land purchase agreement and is seeking damages. The Company settled this dispute during the quarter ending March 25, 2023 in the amount of $0.4 million. Fourth, in April 2022, the landlord at the Company’s dispensary location in Tampa, Florida, filed suit seeking damages under a lease, shortly after which the Company announced its plans to sell its Florida operations. The Company retained this lease and the associated litigation following the sale of its Florida operations. This litigation has been resolved via a settlement agreement in the amount of $0.1 million.