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New lawsuit claims Denver businessman schemed to monopolize Illinois marijuana industry

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CHICAGO — A colorful Denver businessman and unsuccessful city council candidate schemed to monopolize the new medical marijuana industry in Illinois, according to a lawsuit that has joined a parade of legal challenges from competing marijuana business applicants in the state.

Medponics Illinois filed the lawsuit Monday in Lake County. It claims Kayvan Khalatbari and his Denver companies have controlling interests in more than three Illinois cultivation centers.

If true, that would violate Illinois regulations. But some industry insiders say Khalatbari has played by the rules and, while he's an owner in one Illinois company, he's merely a contract consultant for another — a much lower level of involvement.

"That's not gaming the system. That's staying within the letter of the law," said Kris Krane, a cannabis consultant who is familiar with the Illinois industry and is not involved in the lawsuit.

Messages seeking comment on the lawsuit from Khalatbari and Denver Relief Consulting were not immediately returned.

Khalatbari founded a Denver pizza chain called Sexy Pizza and has been an outspoken advocate for legal and regulated marijuana. Earlier this month, he lost an election for an at-large Denver city council seat.

The new lawsuit alleges Denver Relief Consulting and founding partner Khalatbari entered into agreements with two Illinois companies — Cresco Labs and Progressive Treatment Solutions — "in a scheme to control and profit from more than three different cannabis cultivation centers," said attorney Kathleen McDonough, who represents Waukegan-based Medponics.

Between them, Cresco and Progressive now hold four cultivation permits and are in the running for a fifth.

PHOTO: FILE - In this Aug. 25, 2014 photo, marijuana store Denver Relief co-owner Kayvan Khalatbari, right, talks with his employee Jeff Botkin at his medical and recreational marijuana shop in Denver. A new lawsuit has been filed involving Illinois medical marijuana, this one claiming Khalatbari schemed to monopolize the state’s new industry. Medponics Illinois filed the lawsuit Monday, May 18, 2015, in Lake County. It claims Khalatbari and his Denver Relief Consulting companies have controlling interests in more than three cultivation center companies in violation of Illinois rules.(AP Photo/Brennan Linsley, File)
FILE - In this Aug. 25, 2014 photo, marijuana store Denver Relief co-owner Kayvan Khalatbari, right, talks with his employee Jeff Botkin at his medical and recreational marijuana shop in Denver. A new lawsuit has been filed involving Illinois medical marijuana, this one claiming Khalatbari schemed to monopolize the state’s new industry. Medponics Illinois filed the lawsuit Monday, May 18, 2015, in Lake County. It claims Khalatbari and his Denver Relief Consulting companies have controlling interests in more than three cultivation center companies in violation of Illinois rules.(AP Photo/Brennan Linsley, File)

"He calls himself different things," McDonough said. "He was the front man for Progressive ... much more than an adviser. And he's the CEO of Cresco Labs, which has three permits."

Progressive Treatment Solutions won one permit and plans to build a cultivation center in East St. Louis. It's in the running for another permit in a region that includes Lake County.

The Illinois Department of Agriculture is still reviewing applications in the Lake County region. The plaintiff in the lawsuit, Medponics, applied to grow marijuana in the Lake County city of Zion.

"Medponics wants the license in Lake County," McDonough said. "They put an enormous amount of effort into that process."

Khalatbari is a principal officer and part owner in Cresco Labs, which now holds three Illinois cultivation permits after another challenger on Monday dismissed legal claims that had tied up one of the permits. Khalatbari is also a part owner of a Denver-based cannabis consulting company.

Out-of-state consultants like Khalatbari helped with many of the Illinois companies' applications, said Krane, a managing partner in 4front Advisors, a cannabis consulting company with offices in Phoenix and Boston.

"The only expertise in Illinois is going to be from the black market," Krane said. It would make sense, he said, for an inexperienced Illinois operator to get help from a consultant in a state with a legal market like Colorado.

What's more, with only a few qualified consultants, prohibiting companies from using the same advisers "would be like saying no more than three operators could use AT&T for telecommunications," Krane said.

Charles Bachtell, a founder and principal of Cresco Labs, said Khalatbari's involvement in the Illinois industry complies with the law. Of the allegations in the lawsuit, Bachtell said, "It's just not true."


AP Medical Writer Carla K. Johnson can be reached at https://twitter.com/CarlaKJohnson

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