On Monday, Massachusetts adult-use cannabis retailers resumed sales after two months of lockdown in response to the COVID-19 outbreak. Adult-use retailers are among the first “nonessential” businesses to return to operations under strict guidelines, pursuant to the Governor’s order.
Back in March, Governor Baker deemed adult-use cannabis retailers “nonessential,” which was a departure from the adult-use industry’s classification in other states where cannabis has been legalized. However, the Governor’s order permitted medical cannabis dispensaries to remain open, with the admonishment that sales be conducted in a manner that would to limit contact between employees and patients (curbside pickup, social-distancing, etc.) The disparate treatment between medical and adult-use retailers was subsequently challenged in court. On April 16, the Massachusetts Suffolk Superior Court, denied the plaintiffs’ plea for an emergency preliminary injunction in their suit against the Governor, the aim of which was to have recreational marijuana establishments added to the list of “essential” businesses.
Nonetheless, the commencement of phase one with respect to adult-use cannabis retailers could not have come sooner. Like other consumer-facing retailers, the adult-use cannabis industry has felt the economic strain of COVID-19. Obligations to pay rent, lost sales, and other business expenses dealt a blow … Keep reading
“Weedmaps”, which has been called the cannabis industry’s largest technology company, was given a fright on Halloween of last year. Weedmaps’ parent holding company, “Ghost Management Group, LLC”, received a subpoena to testify before a federal grand jury and provide certain documents and information to the U.S. Attorney for the Eastern District of California. The wide range of records and other items contained in the request spooked the cannabis industry, as Weedmaps was asked to share materials regarding at least 30 marijuana plant-touching companies that it does business with. Being the so-called “Yelp of cannabis”, Weedmaps is uniquely situated in having access to a significant amount of data for a large number of retail marijuana enterprises across the country, both medical and recreational. While the public became aware of the subpoena in early March of this year, it wasn’t until just recently that a copy of the order was made generally available, revealing the broad scope of the information being requested and containing the names of several household-name cannabis companies.
The U.S Justice Department has, since the time of the Cole Memorandum, taken a limited approach in pursing legal action against state-law compliant marijuana enterprises, instead concentrating … Keep reading
United Cannabis Corporation (“United Cannabis”) and its wholly-owned subsidiary, UC Colorado Corporation, filed for Chapter 11 bankruptcy protection in the Bankruptcy Court for the District of Colorado on April 20, 2020. United Cannabis’ primary line of business is operating extraction facilities to convert compounds of industrial hemp flower into finished CBD products, while also deriving a limited amount of revenue from licensing its IP to plant touching businesses. The United Cannabis bankruptcy proceeding could be a unique test case for the cannabis industry. Here is what you need to know:
Cannabis: How Much is Too Much? What makes this case so fascinating is that, following the passage of the 2018 Farm Bill, certain hemp/CBD companies are now able to file for federal bankruptcy protection, which relief was denied to plant-touching and, for the most part, ancillary businesses. United Cannabis’ business generates nearly all of its revenue from CBD product sales, with only (at most) a de minimis amount of revenue derived from IP licensing fees to medical and recreational marijuana businesses. According to the company’s recent SEC filings, the United Cannabis reported substantially all of its revenues – nearly $13 million – were derived from the sale … Keep reading
Cannabis legalization and program launches have been stalled as states have turned their focus to addressing the ongoing COVID-19 crisis. As was recently discussed on the CannaBusiness Advisory, the State of New York was gearing up to become the 12th state to legalize recreational cannabis in 2020 and had hoped to accomplish this by April 1st by including it in the state’s new budget bill that had to be adopted on such date. However, given the COVID-19 outbreak in New York, lawmakers fell under pressure to adopt a new budget while also dealing with the ongoing crisis. In that climate, with lawmakers unlikely to have come to a resolution on the topic, Governor Andrew Cuomo acknowledged that the state would not include recreational cannabis in its budget bill in an announcement on March 31st. Despite the delay, experts believe recreational cannabis in New York has a good chance of passage as a stand-alone bill prior to the end of 2020.
In Maine, the state’s Office of Marijuana Policy announced on April 10 that it would be postponing its long-anticipated spring 2020 launch of recreational cannabis sales in the state due to the ongoing COVID-19 … Keep reading
The Massachusetts Suffolk Superior Court, in a ruling by Justice Ken Salinger on April 16, 2020, denied the plaintiffs’ plea for an emergency preliminary injunction in their suit against Massachusetts Governor Charles Baker, which sought to have recreational marijuana establishments added to the list of “essential” businesses. In making its ruling, the Court came to the conclusion that the plaintiffs were not likely to succeed on the merits of their claims. Among other factors, this resulted in the Court’s decision to deny the plaintiffs’ motion that, if granted, would have permitted recreational marijuana establishments in the Commonwealth to re-open, after their effective closure by executive order of the Governor. The following summarizes a few of the ruling’s key elements.
- Court’s Jurisdiction. While the Court determined that the plaintiffs’ claims for declaratory judgment were invalid, as such relief is not available against the office of the Governor, their actions for temporary or permanent injunction are in fact colorable claims under which the case can proceed. In reaching this conclusion, the ruling indicates that although declaratory judgment cannot be provided as a remedy for the alleged violation of equal protection, “the Governor may [not] violate the constitution with impunity.” Following
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Given the current disruptions caused by the COVID-19 global pandemic, let’s focus on an immediate challenge confronted by companies actively engaged in fundraising efforts: The adequacy of risk factor disclosures to prospective investors, especially in light of the impact of the current pandemic.
Cannabis-related businesses that are actively raising capital are strongly encouraged to carefully consider the following key issues:
Risk Factors in a Private Placement Memorandum: When raising private capital, our cannabis clients typically include a private placement memorandum (“PPM”) in their package of offering documents to investors. A PPM is a securities disclosure document that provides certain necessary information about the company, its business, and the offered securities. From the company’s perspective, PPMs serve a dual purpose: PPMs are intended to act as a protective securities compliance instrument as well as an investor marketing tool. Notably, every PPM should include a risk factors section.
What are Risk Factors? From a company’s risk management perspective, risk factors are probably the most important section of the PPM. Risk factors are intended to disclose to prospective investors the risks that could lead investors to lose all or a portion of their investment. Generally, key categories include disclosures about the … Keep reading
Massachusetts Governor Charles Baker, in a response to the suit that was brought against him last week in connection with his decision to designate recreational marijuana businesses as “non-essential,” filed an “Opposition to Plaintiffs’ Motion for Preliminary Injunction” on Monday, April 13, 2020. The filing seeks to rebut the plaintiffs’ claims by offering counterarguments to their pleading for relief from the Governor’s executive orders that effectively shut down the recreational cannabis industry in the Commonwealth. The main thrust of the Governor’s argument is that the plaintiffs have failed to show a likelihood of success on the merits of their claims and, therefore, should be denied the injunctive relief they so seek. Below are some of the key takeaways from the response.
- Lack of Jurisdiction Claim. Governor Baker defends his issuance of the executive orders in question by taking the position that he, in his capacity as the Governor, is exempt from declaratory judgment. He highlights that the statute governing declaratory judgment expressly excludes such actions against the governor and his official acts. Building on this, he argues that, since the requisite jurisdiction does not exist, three of the plaintiffs’ claims must be dismissed and, as such, there is
… Keep reading
In certain states (not currently including Massachusetts), cannabis-related businesses have been deemed “essential” businesses by local governments. In those states, medical and/or adult-use programs have continued to operate during the COVID-19 pandemic. Nevertheless, cannabis business operators have had to quickly adapt to the changing environment and implement new safety protocols, including limiting the number of patients and customers in retail shops at one time, and providing new online and telephone ordering channels for products that can now be delivered and/or picked up curbside. Changes to standard operating procedures bring new challenges to the industry, including how to accept payment for purchased products.
Historically, state-licensed cannabis-related businesses have been cash intensive because marijuana remains illegal under federal law. Not only has the conflict between state and federal law caused banks and credit unions to stay away from marijuana-related business relationships, but it has also caused the largest payment card networks to prohibit cannabis credit card transactions.
Cash intensive businesses are often considered higher risk entities, in part, because of safety concerns that include being easy targets for theft. These concerns are heightened with the COVID-19 pandemic and worries about viral transmission via cash. Regardless of whether the new COVID-19 cash … Keep reading
On Tuesday, April 7, 2020, five recreational (adult-use) marijuana companies and one individual, a veteran of the U.S. armed forces, filed suit against Massachusetts Governor Charles Baker, seeking declaratory and injunctive relief that would, if successful, nullify the Governor’s executive orders to classify recreational marijuana establishments as “non-essential”, which has forced them to close shop. On March 23, 2020, in light of the COVID-19 crisis, Governor Baker issued an executive order that all “non-essential” businesses close their physical (brick-and-mortar) facilities until April 7, 2020 (extended to May 4, 2020 by a subsequent executive order). While medical marijuana establishments were deemed “essential” and therefore able to remain open, recreational marijuana facilities were not. The following are some of the key takeaways from the complaint filed in connection with the suit and related issues impacting the recreational marijuana industry as a result of their forced cessation of operations.
- Harm to Recreational Marijuana Businesses. The Governor’s executive orders were a gut punch to Massachusetts’ fledgling marijuana industry and likely killed a number of the commonwealth’s recreational marijuana companies in the cradle. Many of these businesses have only just gotten up of the ground and running, as a result of the lengthy
… Keep reading
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was recently passed in response to the COVID-19 pandemic to provide much-needed economic relief to individuals and businesses. The Small Business Administration (SBA) is now offering the Paycheck Protection Program (PPP) and federal disaster loans for working capital via the Economic Injury Disaster Loan (EIDL) program to small businesses and non-profits to help small businesses in the U.S. stay afloat during this historic emergency. Although these programs are not available to state licensed cannabis related businesses, it is available for hemp producers and manufacturers. Here are 5 take-aways about the SBA’s EIDL and PPP programs:
What do the SBA programs mean for marijuana-related businesses? In a 2018 Policy Notice, the SBA reaffirmed that marijuana-related businesses – including plant-touching and some non-plant-touching businesses – were ineligible to receive SBA loans. More recently, in March, the SBA reiterated that cannabis companies are not eligible for disaster relief loans because cannabis remains illegal under federal law. However, the SBA further clarified that hemp businesses are eligible for SBA-funded services, tweeting:
“With the exception of businesses that produce or sell hemp and hemp-derived products (Agriculture Improvement Act of 2018, Public Law 115-334), … Keep reading