John SchroyerFlorida-based Trulieve Cannabis Corp. (OTC: TCNNF) (CSE: TRUL) was slapped with a new lawsuit by California-based retail chain Catalyst Cannabis Co., which claims the southeastern multistate operator first sold it a coastal dispensary in 2023 and then secretly amended the shop’s federal tax returns for an extra refund of nearly $305,000.
The scheme was allegedly carried out by Trulieve following the sale of 805 Beach Break in Grover Beach during its exit from the California cannabis market. Catalyst said in the lawsuit that it paid “fire sale” prices for both the dispensary and the real estate the shop sits upon, because the dispensary was underwater financially and in danger of shuttering. The lawsuit was filed Monday in California Superior Court in Los Angeles County.
The dispensary itself was sold for just $37,500, but Catalyst asserted in its lawsuit that the sale agreement specifically required Trulieve to disclose all tax documents and that all of those documents be up to date and compliant with state and federal law. That, according to the lawsuit, didn’t happen.
After the original deal was struck in June 2023, Trulieve provided Catalyst with the original tax returns filed for 805 Beach Break, but in October it filed an amended return for 2021 with the Internal Revenue Service, before the sale of 805 Beach Break to Catalyst closed in December 2023.
In that amended return, Trulieve used the same tax strategy it used for itself last year to claim a $113 million tax refund from the IRS: It asserted that 805 Beach Break wasn’t subject to 280E, the federal tax code provision which bars marijuana businesses from claiming standard business deductions.
That amended return led to an IRS refund to 805 Beach Break for $304,960, and a check was issued by the IRS to the company. That check was wrongly sent to an address for Trulieve instead of Catalyst as the new owners of 805 Beach Break, according to the suit. Catalyst didn’t learn of the refund until May 2024, when it was notified by the IRS of the payment, but the company concluded that Trulieve must have received and cashed the check, despite the fact that Catalyst now owned 805 Beach Break.
“Defendants instead deposited the check issued to 805 into one or more accounts they owned or controlled,” the suit charges. “Defendants stole Catalyst’s identity in order to commit grand theft against Catalyst.”
Trulieve also amended 805 Beach Break’s 2022 federal return in February 2024, the suit claims, likely because the MSO began garnering press attention that month for its enormous $113 million IRS refund and “proprietary” tax strategy that it used to justify its exemption from 280E.
Not only that, but Catalyst learned in October last year that the IRS had selected 805 Beach Break’s 2021 and 2022 federal returns to be audited, specifically because of Trulieve’s 280E tax exemption strategy.
In November last year, Trulieve provided Catalyst with all of 805 Beach Break’s tax records, including the amended versions of the 2021 and 2022 federal returns, as well as a draft return for the 2023 tax year.
“Defendants in fact had disregarded IRS Section 280E in connection with all three returns – leaving 805 ‘holding the bag’ having to defend their novel and controversial 280E tax position,” the suit charges.
Trulieve did not immediately respond to a request for comment Wednesday.
Catalyst is suing for the $305,000 plus interest, as well as punitive and exemplary damages and a court declaration prohibiting Trulieve from either filing amended tax returns or cashing checks on behalf of 805 Beach Break. The suit charges Trulieve with promissory fraud, intentional and negligent misrepresentation, conversion, breach of contract, and violation of unfair competition laws.
The case is scheduled for a hearing July 9.
Catalyst v Trulieve
