Cronos Group Inc (NASDAQ:CRON), a Canadian cannabis company, announced in August its acquisition of Lord Jones, a 2-year-old startup for $300 million.

This acquisition deal amount is believed to be 75 to 150 times the actual value of Lord Jones as per the valuation in 2018. The Cronos’s CEO, who co-founded Lord Jones, collected 40% of the cost price and an addition $20 million deemed as the deal’s fees. This was associated with his part ownership in the private-equity firm that carried out the deal.

Michael Gorenstein, Cronos CEO, and Jason Adler, a board member, together own Gotham Green Partners, a private-equity firm. According to MarketWatch, Gotham Green Partners paid for a 40% stake of Lord Jones deal, summing up to $12.8 million. This will mean a double gain for Gorenstein.

The Involvement of Gotham Green Partners in the Deal

It is believed that Gotham Green used a pitch deck document in one of its funds for the potential investors in the Lord Jones acquisition deal. As the document stipulated on the management-fee structure, Gotham Green made $21 million as fees from the deal. These fees were a portion of the $107.3 million profit from the valuation of Lord Jones shares.

Concerning the fact that Gorenstein is involved in both companies, Anna Shlimak, Cronos spokeswoman, said that “In connection with the transaction Gotham Green will receive consideration commensurate with its ownership stake in Redwood. Like all general partners in Gotham Green, Mike Gorenstein will be compensated accordingly”.

According to a Canadian regulator, the deal’s negotiations were carried out by a special committee, with the majority being the appointees of Altria. Adler and Gorenstein were not involved in the negotiations. Gorenstein received $23 million of Cronos stock from the deal. The deal was negotiated to $75 million stock and $225 million in cash. This was deemed a valuation way above the industry and other investors’ valuation of Lord Jones.

Although the deal might have raised some eyebrows, there was no evidence of illegality in the deal’s operations. It only happened that the Cronos CEO, Michael Gorenstein, had more to gain from it, which is not illegal.