Former partners in weGrow marijuana supply store embroiled in legal battle

The front gate at the Oakland branch of weGrow, the country’s first “out of the closet” company that sells indoor marijuana growing equipment, is now locked up and its former owners are embroiled in a series of heated legal battles.

The 15,000 square foot warehouse facility, located two miles away from the Oakland International Airport, opened last October with a press conference at which a number of city officials, including Oakland Mayor Jean Quan (a city councilmember at that time), showed up to support the store in front of the national media.

The weGrow store had initially been called iGrow—the retail store was founded in early 2010 and reportedly made a half million dollars in its first few months. The store’s rebranding was meant to be  a stepping-stone to launch a national chain.

Derek Peterson speaks at the weGrow grand opening last October.

At the time, the opening of weGrow was just one sign of Oakland’s nascent cannabis industry. Pot advocates were beating the drum for Proposition 19—an initiative that would have legalized recreational marijuana use in the state—and the Oakland City Council was planning to issue permits to several industrial-scale cannabis farms within city limits, which they expected would generate tax revenue for the city. “When the [marijuana] production facilities come online, we are estimating in the first few years five to eight million dollars,” in tax revenue generated, said Quan at weGrow’s kickoff party last year.

According to the city’s Finance and Management Agency, Oakland’s four existing medical marijuana dispensaries had generated approximately $35 million in gross sales in 2010.

But Proposition 19 didn’t pass November’s ballot. Since last fall, both the Oakland City Attorney and Alameda County’s District Attorney have sent warnings to Oakland councilmembers that permitting pot farms could lead to federal prosecution. And weGrow store shut its doors to the public in February, 2011, as the business partners who launched it filed multiple lawsuits against each other.

Today, looking at the empty front yard of what was once was a bustling business, many may find the store’s current situation confusing. But Dhar Mann definitely isn’t one of them. The 27-year-old owner of weGrow, whose family owns several Oakland taxi companies, says he knows exactly where the company is going. Instead of being a retail storefront, Mann said, “The Oakland weGrow is [now] our franchise training and distribution center.”

“With our new franchise program,” Mann said, “weGrow is able to give individuals interested in entering the medical marijuana industry an opportunity without having to dispense or cultivate cannabis.”

Mann said he just helped launch a new weGrow store in the state’s capitol about a month ago, and another two franchises—one of which, at 20,000 square feet, will be the largest weGrow so far—are set to greet customers later this month in Arizona, where medical marijuana was legalized last November. More stores, Mann added, would be sprouting in other states such as Colorado, Michigan and New Jersey in the coming months. “When the 16th state legalizes medical cannabis,” he said, “you can bet we’ll be there.”

Mann said weGrow later plans to open several franchise locations in the Bay Area, including one in Oakland in the near future.

But not everyone is bullish about weGrow’s future. Mann’s former partner says that that the Oakland store struggled to pay its bills and employees and was losing money. Oakland weGrow “obviously shut down because they were running at a loss,” said Derek Peterson, a former minority owner in the company. “He’s having franchises open up the stores under their own money.”

Peterson is the CEO of GrowOp Technology, a hydroponic manufacturer and distributor that used to supply weGrow. While Peterson and Mann were united six months ago at the grand opening of the Oakland megastore, the two are now suing each other, including over Peterson’s claims of unpaid bills.

“I didn’t want my reputation being tied to a guy who has a track record of using other’s service and never paying for them,” said Peterson, who said that he decided to start pulling back from the partnership as early as last October.

In February, Peterson filed several small claims actions against weGrow employees for compensation for credit card and computer theft. Peterson said those actions will be followed by claims of more than $13,000 against Mann for unpaid invoices and reimbursement.

According to court files, Your Girl Friday Interiors, a company owned by Peterson’s wife Amy Almsteier, also filed a small claim action for $5,000 in unpaid bills for its design and remodeling services.

In addition, an East Bay Express report on February 28 says that similar plaintiffs include another vendor and a former weGrow employee named Daizha Valere, who now works for Peterson. Valere told the East Bay Express that she was underpaid when she was working as a cashier for weGrow last year. “It was a complete mess. Bills weren’t getting paid. People were constantly coming in and harassing us for money,” she told the Express. The article also includes the reporter’s statement that “Mann said Valere might have been underpaid.”

But in a recent email Mann said that the Express reporter misrepresented his statement and Valere was paid in full. “Daizha is Derek’s secretary and will promote his fallacies to stay loyal,” Mann said.

Mann stated that weGrow always pays its bills.

Mann also says that many of the legal claims against him are really Peterson’s doing. “During the separation, Derek preemptively filed small claims actions under his wife’s name and best friend’s name to give the appearance of separate parties suing me,” Mann said regarding the lawsuits.

In addition to his allegations of unpaid bills, Peterson said that another factor behind his decision to wind up the partnership was that he believed he had been kept in the dark about weGrow’s financial situation. Peterson said that Mann had led him to believe that the business was profitable, but that an email accidentally sent to him by Mann’s accountant indicated that weGrow was losing money. Peterson further alleges that Mann tried to hide this information from him and other investors.

Mann said that he can’t disclose weGrow’s earnings because it is a private company, but cited the company’s growth as a sign of prosperity. “We’ve only been in business for just over a year,” Mann said. “And within that time we went from a single hydroponics store in Oakland to a global brand, with possible expansion into Canada next year. ”

Mann has also filed lawsuits against Peterson. The first one is for a $20,000 non-payment of rent and the second one, which was just filed a few days ago, accuses Peterson and other defendants associated with GrowOp of “fraud, breach of contract, breach of fiduciary duty, conversion and damages of over $2 million,” Mann said.

Mann’s second lawsuit claims that Peterson failed to fulfill his contractual duty of transferring roughly forty percent of GrowOp’s share to Mann, while Mann, “acting on reliance of Peterson’s promise … worked hard to add substantial value to the company,” the suit states.

The lawsuits are likely to keep coming. “A new lawsuit for defamation of character for his meritless slander is underway,” said Mann.

Peterson also said that two larger lawsuits are going to be filed against Mann in the coming weeks.

While their owners continue to battle it out in court, both companies seem to be moving on. Peterson said he’s trying to establish GrowOp partnerships with contractors overseas, mainly in Asia. He also said he’s working on GrowOp’s IPO and hopes to bring the company into the stock market by the end of the year.

Mann, on the other hand, is also upbeat about weGrow’s future. “While litigation and partnership separations are never easy for anyone involved, “ he said, “weGrow has more exciting things underway than ever before.”