The Cannabis Control Commission is investigating marijuana companies Holyoke Gardens and Positronic Farms, according to a spokeswoman for the state marijuana regulatory agency.
The spokeswoman would not comment further because the investigation is ongoing.
The news signals mounting troubles for the companies, which had plans to launch a marijuana cultivation business in a former Holyoke paper mill. Last week, Secretary of the Commonwealth William Galvin charged Positronic Farms and its founder David Caputo with violating state securities laws. Caputo has denied wrongdoing.
Positronic Farms has not applied for a license with the Cannabis Control Commission, and Caputo is not licensed personally by the commission. In January, the commission approved a provisional license for Holyoke Gardens to grow marijuana. The company has not yet been granted a final license.
The commission has authority to scrutinize the relationship between Holyoke Gardens and Positronic Farms as part of that license application.
Positronic Farms rented space in a former paper mill at 5 Appleton St. in Holyoke, and leased that space to Holyoke Gardens. The companies were evicted in April.
In its license application to the commission, which was submitted in May 2018, Holyoke Gardens described Positronic Farms as a management company that supplied the property lease agreement and initial capital for Holyoke Gardens.
Holyoke Gardens officials wrote that the initial capital was repaid, and Positronic Farms “does not have any financial interest and will not have any direct or indirect authority over the establishment.”
However, documents obtained by The Republican / MassLive, which have also been provided to the commission, indicate a closer relationship.
In a memorandum of agreement signed by Holyoke Gardens board member Justin Goldberg and Caputo in November 2017, Goldberg agreed to apply for a marijuana cultivation license, then contract with Positronic Farms to supply the facilities, equipment, labor and electrical power needed to grow the marijuana.
Goldberg agreed to pay Positronic Farms “a fair price for the rent, electricity and services” that would be renegotiated quarterly — up to 90% of his profits.
The relationship would continue as long as Goldberg held the license. Both companies agreed not to contract with anyone else for these services.
Two independent marijuana attorneys with no connections to the companies reviewed the documents at the request of The Republican. Both said they believe state regulators would likely interpret this agreement as giving Positronic Farms a financial interest in or control over Holyoke Gardens.
After the securities charges against Positronic Farms were announced, Goldberg said Holyoke Gardens had no current relationship with Positronic Farms. “Positronic Farms was evicted from the building for failure to pay rent, and furthermore, they did not complete repairs for us to take occupancy and as a result breached the contract,” Goldberg said.
Goldberg did not respond to follow-up calls and an email regarding Holyoke Gardens’ past relationship with Positronic Farms. Holyoke Gardens board members Michael Lees and Irene Masse did not return calls. (On Facebook, Caputo has identified Masse as his fiancé, and an April 2018 video shows him proposing to her.)
Scott Moskol, an attorney who previously represented Holyoke Gardens, said he is no longer representing the company.
Caputo resigned from Positronic Farms in September 2018, the same month the Holyoke City Council halted consideration of Holyoke Gardens’ local permit. Caputo had identified himself as a volunteer spokesman and licensing consultant for Holyoke Gardens, and city councilors were concerned about an unlicensed marijuana growing operation discovered in Caputo’s home. After Caputo resigned, Holyoke Gardens received the permit.
Morriss Partee took over as president of Positronic Farms following Caputo’s resignation.
Partee and Positronic Farms attorney David Noonan both said the reason for creating Positronic Farms and Holyoke Gardens as separate companies was to navigate federal restrictions on marijuana businesses, which, for example, prevent many banks from doing business with marijuana companies. They believed if Holyoke Gardens paid 90% of its profits to Positronic Farms for rent and services — which Partee said was the intent of the agreement — Positronic Farms’ money would be treated as regular business income rather than marijuana proceeds.
According to information provided by Partee, Noonan and a Positronic Farms investor who asked not to be named, after the new Positronic Farms board took over, they discovered Caputo had potentially violated state securities laws. They realized they needed to raise more money to build out the cultivation facility, and they wanted to distance themselves from Positronic Farms.
Partee and other board members created a new company, the Norman Paper Company, with the Positronic Farms investors. They assigned the agreement with Holyoke Gardens to the new company.
“This action was taken to attempt to preserve the investment opportunity for [Positronic Farms’] 60 shareholders, knowing that actions of previous management had called into question its future viability,” Partee wrote in a letter to Holyoke Mayor Alex B. Morse earlier this month.
Beginning in December 2018, Partee said his company tried to negotiate a more detailed agreement with Holyoke Gardens.
Partee wrote in a March 13, 2019 letter to shareholders, “In order to move forward and raise the millions of dollars needed for an industrial-scale cannabis cultivation operation, we determined that we would need a solid Third-Party Logistics Agreement, with far more detail enumerated than the initial Memorandum of Agreement. Our corporate attorney advised us that the details of this agreement should have been worked out before the license holder submitted its application, but that is spilled milk at this point.”
In the same letter, Partee wrote that Norman Paper Company and Holyoke Gardens were considering merging. Partee showed The Republican a draft merger agreement dated April 2019. However, the two companies were ultimately unable to reach an agreement.
In April, Noonan, representing Norman Paper Company, wrote to the board of Holyoke Gardens that Norman Paper Company intended to sue Holyoke Gardens for breach of contract and other causes, and demanding that Holyoke Gardens preserve all documents relating to their joint agreement.
No lawsuit has yet been filed.
Holyoke City Councilor Rebecca Lisi, who voted against giving Holyoke Gardens the local permit because of its relationship with Caputo, said the council does not yet know what, if anything, the securities charges against Caputo will mean for Holyoke Gardens’ city permit. Council President Todd McGee did not return a call for comment.
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