The Empire Cannabis Club, known for its bold fight to keep open an unlicensed cannabis operation in New York City, has filed for bankruptcy. The Elfand Organization, also known as Empire Cannabis Clubs, filed for Chapter 11 in the Southern District of New York on Dec. 2.

Empire listed six addresses for the company and claimed its assets were in the $1 million to $10 million range. The debts totaled over $3.4 million and were outlined as follows:

• 424 Broadway lease $584,155
• BNN Fulton Flushing lease $327,642
• 833 Manhattan Ave. lease $201,108
• 268 Metropolitan lease $65,850
• NYSIF Workers Comp policy $95,369
• ADT security contract $8,152
• Spectrum $4,652
• ConEd $271
• Iakovos Inc. lease $12,000
• 172 Allen Realty lease $60,000
• Vlasic Labs products $4,137.50
• IRS Treasury Dept. taxes $5,058.83
• NY State taxes $250,157.78, $1,514,356.08 & $290,315.05

Empire’s legal state of mind

Green Market Report previously wrote that Empire Cannabis Clubs was suing New York closing its unlicensed cannabis stores which had operated since 2021. Empire’s five locations in New York City were raided on Aug. 29, with law enforcement officials entering each shop within the same 30-minute timeframe, owner Jonathan Elfand told Green Market Report. The New York Sheriff’s Department ordered all five stores closed as part of New York City’s Operation Padlock.

The Empire stores have remained closed since the raids, but the chain is still doing business via delivery for its roughly 196,000 members, Elfand said at the time. Elfand and Empire have never shied away from the fact that the five clubs have been providing members with high-quality marijuana goods, but the legal argument they’re relying on is that the business model is fully compliant under the 2021 state law that legalized recreational cannabis, the Marihuana Regulation and Taxation Act (MRTA).

“As long as you’re not profiting, you don’t need a license,” Elfand said. Empire has always operated as a not-for-profit organized under New York state law. “So at my club, all I do is I facilitate members to be able to acquire (cannabis goods).”

Details of how the club works are outlined on Empire’s website, but the basic business model revolves around a simple membership fee of $24.99 per month. With that monthly payment, Empire members can acquire cannabis from any of the clubs with zero markup. That, Elfand said, is the key to Empire’s legality.

Elfand also said that since its founding, it has paid “millions” in taxes to the state and city, the suit asserts and had a payroll of $3.2 million last year for roughly 75 employees. Gross sales at Empire reached $2.5 million in the second quarter of 2024, according to court records.

Operation padlock

Since that case was filed in September, a judge declared Operation Padlock unconstitutional in October for one dispensary called Cloud Corner. Cloud Corner was allowed to reopen but it wasn’t clear if that ruling applied to other unlicensed operations. This week, New York’s cannabis czar Dasheeda Dawson told Green Market Report that most of the unlicensed shops closed down by the New York City sheriff have remained shuttered, which has been a boon to the legal dispensaries.

“Operation Padlock continues. We meet on a regular basis … with the enforcement agencies. We’re at a point now where we’ve had success in really shutting down a good amount of the stores,” Dawson said. “Mostly, we’re not seeing those reopen.”

Elfand Organization LLC 2024Chapter 11 Petition

Earlier this year, Irwin Naturals Inc. (OTC: IWINF) appeared to wear out its welcome as a client of East West Bank (EWB). Now, the supplements company has filed for Chapter 11 bankruptcy.

Green Market Report reported in July that Irwin Naturals quit making payments on the $40 million loan provided by EWB. The bank responded by suing the company and accusing CEO Klee Irwin of self-dealing and diverting funds from the company.

To prevent further diversion of money and self-dealing, the bank said it would take steps to exercise its voting rights. On May 13, EWB said it removed Irwin from the board and appointed Michael Tucker as a board director. The bank said in its complaint that the Irwin borrowers owed $18,439,983.53, while Klee Irwin himself owed $7,635,447.

The bank had asked the court to appoint a receiver for the company and remove Klee Irwin from the company altogether.

Ch. 11 strategy

By May, Klee Irwin announced he would declare bankruptcy, which would also be another event of default under the loan agreement. And this latest filing appears to be him following through on that threat.

However, Adam Stein-Sapir, a bankruptcy expert with Pioneer Funding Group, said that by filing under Chapter 11 – as opposed to Chapter 7 – the company believes it has something to reorganize instead of just liquidating.

“As Irwin’s lender, EWB was also able to sweep all cash and generally prevent the business from continuing to operate,” Stein-Sapir said. “The bankruptcy filing can be seen as an action by Irwin to retain control of its operations and put a pause on the California state court proceedings. They’ll be in a position to regain use of their cash so long as they make certain payments to EWB.”

Stein-Sapir added, “Over the coming weeks and months, Irwin will either try to refinance EWB, come to new terms on repayment, or sell the company.”

Irwin himself signed the bankruptcy documents and provided a list of creditors that includes the legal firm Clark Hill, which is owed $41,639 and Canadian accounting firm MNP LLC, which is owed $124,457.92. Irwin Natural also owes money to the Canadian Securities Exchange; Sheri Orlowitz, chair of the board of the Council for Federal Cannabis Regulation Foundation; and cannabis advocate Rod Kight.

Stein-Sapir said additional creditors may be added to the list, as the bankruptcy form noted the company’s other subsidiaries DAI US Holdco Inc. and 5310 Holdings LLC. The company has 45 days to file a complete list.

Irwin hasn’t filed any financial statements in months. The company last told investors in March that it was closing its ketamine clinics and returning its focus to the supplements business. Orlowitz and Kight both resigned from the board, and CFO Sean Sand left the company.

While Irwin supplements are still on the market, investors will find that the investors tab on the company’s website no longer works. Irwin’s stock is also under a Cease Trade Order with the British Columbia Securities Commission and in default for failing to file financial statements.

Irwin Naturals lnc. 2024Chapter 11 Petition