Control over GenCanna, a Kentucky hemp and CBD company that had filed for Chapter 11 bankruptcy in February is now being disputed in a 6th circuit bankruptcy appellate court.

Massachusetts-based cannabis company MariMed, a major stakeholder in GenCanna, filed a notice Thursday showing intent to appeal an order from the U.S. Bankruptcy judge who found that MariMed had acted improperly by attempting to replace members of GenCanna’s board of directors and force out president Steve Bevan and CEO Matty Mangone-Miranda, according to Law 360.

The appeal comes after the bulk of GenCanna’s assets were sold to its largest creditor, New York-based private direct lender MGG Investment Group for more than $75 million. GenCanna is reportedly working on settlement negotiations with MGG Investment Group to resolve claims from the committee of unsecured creditors.

MariMed holds the largest equity interest in GenCanna’s parent company, with a $34 million claim, according to court records.

The multistate cannabis operator entered the hemp-derived CBD business with a $30 million investment in GenCanna Global in February 2018. Under the deal, GenCanna was to become MariMed’s supplier of hemp-derived CBD, and the two companies planned to develop CBD products and brands together. MariMed also planned to create a business unit focused on CBD consumer products.

The company opposed the sale plan and proposed reorganization, but when it was unable to come up with the money, GenCanna accepted the purchase offer from MGG Investment Group.

GenCanna Global has since appointed veteran executive Andrew Barnett as its new CEO.

MariMed president and CEO Robert Fireman, a GenCanna board member, teamed up with fellow board member Michael Falcone to form a voting bloc controlling 52% of GenCanna’s parent company shares. They then ousted Miranda, Bevan and another board member, installed Fireman as chairman, appointed a new CEO, and directed the new leader to get the bankruptcy case dismissed and develop a plan to liquidate the company within 30 days.

GenCanna’s Miranda and Bevan filed a motion asking the bankruptcy judge to intervene, arguing that MariMed’s moves violated board rules and the bankruptcy automatic stay, and involved unauthorized use of estate property.

MariMed said it was trying to get the most of GenCanna’s assets, as its settlement from the bankruptcy was around $1 million, but its claims were worth far more.

The bankruptcy judge ruled for GenCanna, issuing an order on July 2 that called the reorganization a clear violation of the automatic stay and that any actions taken by the newly appointed directors and management would be void.

“Using an equity position that has no chance of recovery to object to a settlement that is not even filed is an obvious attempt to exercise control over the case and enhance the creditor interests,” wrote U.S. Bankruptcy Judge Gregory Schaaf of Kentucky about MariMed’s claims.

“Further, this also suggests clear abuse of the governance process that would warrant action in this court if an injunction was requested. For now, that analysis is not required.”

The new appeal targets Schaaf’s order.

MariMed is listed on over the counter markets as MRMD.

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