Raising Capital in the Cannabis Industry: Fundraising Dos and Don’ts

Last year proved challenging for companies seeking to raise capital in the cannabis industry. The capital markets tightened and available funding dried up. Many of the industry’s publicly traded companies saw precipitous declines in valuations. Although fundraising efforts in the current environment still face genuine hurdles, there is cause for optimism that 2020 can be a banner year for companies seeking to raise capital in the industry.

It hasn’t been all doom and gloom for the industry’s capital raising efforts. In fact, venture capital firms invested almost $2 billion in U.S.-based cannabis startups alone through the first three quarters of last year – more than doubling the $835 million venture-backed investments in all of 2018. However, those taking a “glass half empty” view will focus on the decline in total funding from $967.1 million in the second quarter of 2019 to $452.8 million in the third quarter of the year.

With a hopeful eye toward further industry growth, this is the first installment of a series of posts that will discuss some of the important “fundraising dos and don’ts.”  While the volatility of many of the sector’s publicly traded companies has garnered the lion’s share of media attention, this … Keep reading

2020: New Year, New Opportunities

Now that the new year is here and in full swing, B&L’s cannabis advisory practice is taking some time to reflect on successes and shortfalls in the cannabis industry’s over the past 12 months. Following a momentous 2018 — which saw the passage of a federal Farm Bill legalizing hemp as well as marked increase in public support for legalization — this past year made clear that the industry has not yet reached its next phase of long-term growth.

In short, industry developments in 2019 have received mixed reviews — cannabis stocks fell sharply while federal legislation slowly progressed in Congress, bipartisan support for cannabis legalization continued to grow as several states were blindsided by the vaping crisis and so on. Thus, while the state of the industry remains strong (and we remain optimistic), its shortfalls reflect an industry still in its adolescence. Nonetheless, this was an exciting year as lawmakers on both the federal and state level

Federal Developments

In Congress, the dam appears to have broken on the introduction of cannabis legislation as there were several positive developments this year. For one, the long-awaited Secure and Fair Enforcement (SAFE) Banking Act was finally passed by the U.S. … Keep reading

See Capital Markets, M&A, and Beyond Panel here.

The Burns & Levinson 2019 State of the Cannabis Industry Conference concluded with a final panel, covering the current status of the industry’s capital markets and M&A transactions; finishing off with a look into the future.  The discussion centered on the effects of the industry’s recent nosedive earlier this year and how that has played out in the various related financial markets and asset classes.  Drawing across a broad spectrum of specialists, from investment bankers and accountants to operators and lawyers, the seasoned professionals on the panel echoed a few key points, which those in the industry should be aware of in the coming months, as they adjust to the fluid capital landscape on the horizon.

The cannabis industry is one that is continuously plagued by public sentiment, for better or worse, as seen over the past several days, with public cannabis company share prices rollercoasting up (when the U.S. House Judiciary Committee approved a bill legalizing marijuana) and down (with the FDA’s recent issuance of warning letters to companies selling CBD), often with intraday deltas in excess of 1,000 bps.  Over the past several months, the public sentiment and … Keep reading

See Hemp & CBD Panel here.

With the cannabis space continuing its significant pace of growth, the industry has witnessed new players enter the arena: hemp and cannabidiol (“CBD”). The demand for hemp and CBD has skyrocketed in recreational, industrial, and retail spaces, however, the Food and Drug Administration (“FDA”) has not kept up with this influx despite its prohibition of the sale of CBD. Attendees of the Third Annual State of the Cannabis Industry Conference had the opportunity to learn from the experts during our Hemp and CBD panel. Among other things, our panelists discussed future FDA enforcement actions and what possibility there is, if any, of regulations loosening.

Moderated by Scott Moskol, co-chair of Burns & Levinson’s Cannabis Business Advisory Practice, the panel opened with a brief discussion of the lack of standardization in the CBD industry despite the ubiquity of CBD products. Kevin Pilarski, the Chief Commercial Officer of Revolution Enterprises, underscored the need for independent third-party testing of CBD. With respect to compliance, Mr. Pilarski explained that until the industry standardizes a testing requirement it is difficult for hemp purchasers to know what they are getting. Such uncertainty threatens the overall stability of the … Keep reading

See Hot Smoking Topics in Operations Panel here.

The growth and legitimacy of the cannabis industry is at an all-time high with nearly two-thirds of the country in support of the federal legalization of cannabis. With such legitimacy and potential for further growth, it’s no surprise ancillary businesses are coming to the forefront to provide services to the cannabis industry. However, with so many new and ever-changing developments in the rapidly growing cannabis industry, ancillary businesses need to be positioned to understand and adapt to the complex landscape of the cannabis industry in order to provide sound advice and guidance to cannabis operators.

The Hot Smoking Topics in Operations Panel, presented by Burns & Levinson, examined the landscape of ancillary services provided to the cannabis industry and the Governor’s ban on vaping products.

Tina Sbrega, President and CEO of GFA Federal Credit Union, a well-capitalized, $540 million member-focused credit union, is at the forefront of providing services to the cannabis industry. Under Ms. Sbrega’s leadership, GFA Federal Credit Union created a subsidiary company in 2018 to provide banking services to cannabis operators, employees of cannabis operators and other companies willing to service the cannabis industry.

According to Ms. … Keep reading

See the State of the Cannabis Industry Panel here.

As previously blogged, Burns & Levinson hosted its third annual State of the Cannabis Industry Conference on October 23rd with over 200 attendees present. The conference began with its State of the Cannabis Industry Panel that examined where things presently stood on a national and local level within the industry. The panel opened with a reflected upon what has transpired over the past year and dug into what may be expected as legalize marijuana continues to come online throughout the country. Such an examination was led by Frank A. Segall, who moderated the panel of speakers in the State of the Cannabis Industry Panel.

Public support for cannabis legalization is at an all-time high, with nearly two-thirds of the country supporting federal legalization. Pursuant to such trends, the House of Representatives has shown increased willingness to support the increasing popularity of federal legalization. The “McClintock Amendment,” which would protect adult-use marijuana programs similar to that of the “Rohrabacher–Farr amendment,” which protects medical-use marijuana programs, passed the full House by a vote of 265-167; the Senate has yet to take action on the Amendment. Furthermore, the House passed the … Keep reading

See Full Interview with Steven Hoffman here.

In the rapidly growing multi-billion dollar cannabis industry, new developments frequently occur in capital markets, investments, M&A, and regulation. Attendees of the Third Annual State of the Cannabis Industry Conference had the opportunity to learn the ins and outs firsthand from many of the industry’s leading experts. In a Spotlight Interview, Frank Segall, Burns & Levinson Chairman, Business Law and Finance, sat down with Steve Hoffman, Chairman of the Cannabis Control Commission of Massachusetts (CCC).

With a background in business and finance, Hoffman admits that this was not a position he had sought after. He had never been in public service before and voted “No” to Question 4 in the original legislature that made marijuana legal in the state. Nevertheless, Hoffman has led a respectable campaign on behalf of the CCC that prioritizes transparency in all aspects.

With a staff of 65 people, the CCC operates with the mission of ensuring that there is room for small players in the big game. Hoffman stressed that there is a responsibility to ensure that the industry meets the expectations of its supporting voter base. To do so, the CCC must tackle problems such … Keep reading

See Keynote Address with Dr. Karen Munkacy and Dan Fireman here.

As previously blogged last week, Burns & Levinson hosted its third annual State of the Cannabis Industry Conference on October 23rd, with over 200 attendees present. The conference featured a keynote address by Dr. Karen Munkacy, Founder and CEO of Garden Remedies, Inc., and Dan Fireman, Founder and Managing Partner of Fireman Capital Partners, a private equity firm that invests in the consumer sector.

Dr. Munkacy is a physician, mother, and breast cancer survivor, who began her public health care advocacy with cannabis legalization in June 2011 when she testified in front of the Massachusetts Legislature’s Public Health Committee in favor of cannabis. Since then, she has built the only physician-and woman-led cannabis company in Massachusetts.

Mr. Fireman founded Fireman Capital Partners in 2008 and currently focuses on all aspects of the Fund’s investment strategy execution and portfolio company management. Over the last ten years, Mr. Fireman has been responsible for raising and investing over $250 million across 29 transactions, the total value of which exceeds $1 billion in aggregate today.

This dynamic duo partnered together in May 2019. At the Conference, they shared … Keep reading

State of the Cannabis Industry Conference: Capital Markets, Investments, M&A, Regulatory and Other Timely Issues

See 2019 Cannabis Conference Introduction Video here.

In both the Commonwealth and New England — and, indeed, the country — these are exciting times for the cannabis industry. As a consensus on the topic of legalization continues to build, technology and banking, specifically, are unlocking doors that have long barred entry to the industry, presenting visionaries and pragmatists alike with opportunities never before possible.

Potential, in many ways, is limited only by imagination. The cannabis market will influence, and be influenced by, countless others, including the biotech, agtech, finance, and manufacturing industries. The synergistic possibilities are endless.

From our first involvement in the cannabis industry in 2012, Burns & Levinson recognized those possibilities. It is in this spirit that we have, once again, convened dozens of national experts and professionals to explore those possibilities and bring the reality of legalization into sharper focus. Their strategic legal and financial perspectives are what separates this conference from other cannabis-focused conferences, workshops, and seminars, and it is our hope that their experience and insight will help industry players chart their own course for future success.

Held on October 23rd, Burns & Levinson’s third annual State of the Cannabis Industry Conference brought … Keep reading

SAFE Banking Act Passes House, Moves to Senate

Since the Secure and Fair Enforcement (SAFE) Banking Act (the “Act”) found bipartisan support in the House Financial Services Committee back in March,[1] the industry has been waiting for even the slightest sign of its legislative progress. Fortunately — on September 25, 2019 — the U.S. House of Representatives formally passed the SAFE Banking Act of 2019,[2] which marks the first standalone cannabis reform bill to ever pass the House. The Act, if codified into law, would unshackle the cannabis industry and open access to insurance, traditional banks and other imperative financial service companies.

Even as states have made marked progress on cannabis legalization, the federal government’s regulatory regime continues to burden the industry, including with respect to banking and similar services. Two primary issues plague the cannabis industry’s access to meaningful  financial services: (i) any business operating pursuant to a state law, whether it be a financial institution, real estate company, or any other ancillary operation working in connection with cannabis industry, is subject to risk of being construed as aiding or abetting a criminal conspiracy in violation of the Controlled Substance Act since those services do, in fact, facilitate and promote the marijuana industry; and … Keep reading