In Case You Missed It: Election Day’s Green Wave

If the 2020 elections taught us anything about the burgeoning cannabis industry, it is that more Americans believe cannabis should be legalized now than ever before. A recent Gallup poll, released on November 9th, found that 68% of Americans believe cannabis should be legalized, which is the highest percentage in more than 50 years of polling. This is extraordinary growth since the Gallup polls first began tracking the American consensus on marijuana legalization back in 1969. At the time, only 12% of respondents were in the legalization camp.

Instead of a Red wave or Blue wave, America experienced a Green wave this November, which transcended party lines. Six states passed varying degrees of cannabis legalization and many by a larger margin than the presidential election. Additionally, two other jurisdictions had psychedelics mushrooms on the ballot. So which states were the big winners this year?

  • Arizona – Approved adult-use legalization
  • Mississippi – Approved medical use
  • Montana – Approved adult-use legalization
  • New Jersey – Approved adult-use legalization
  • Oregon- Approved legalization of psilocybin for therapeutic uses and Approved decriminalization of non-commercial possession of controlled substances
  • South Dakota – Approved both medical use and adult-use legalization
  • Montana – Approved adult-use
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Part 4: Fourth Annual State of the Cannabis Industry Conference – Smoking Hot Topics: M&A, Investing, and Capital Raising

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As in past years, the Fourth Annual State of the Cannabis Industry Conference brought some of the industry’s top leaders and regulators to discuss and reminisce on the industry’s growth, the current state of the industry, and the future of the industry. With topics ranging from restructuring and workouts to hemp and CBD, the Conference concluded with its final panel, discussing the current status of the industry’s capital markets and M&A transactions with a panel of the industry’s top investors and funds. The panel’s discussions centered on the current state of capital in the industry, the recent valuation reset of the industry, methodologies, and determinations of deploying capital, and new trends and key developments in the past 2-3 years.

As many in the industry are well aware, raising capital in the cannabis space has never been easy. This year alone, capital raising has declined by 67% since last year, with $2.6 billion raised in the first half of 2020 compared to the $5.5 billion raised in the first half of 2019. However, the panelists noted that, while capital raises are down, the opportunity and leverage for investors has never been stronger. … Keep reading

Part 3: Fourth Annual State of the Cannabis Industry Conference – Demystifying Hemp & CBD

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Burns & Levinson’s Fourth Annual State of the Cannabis Industry Conference featured a panel of various hemp & CBD industry participants discussing the current climate of the market, legal developments and pitfalls, and projections on making improvements in 2021.

The panel was moderated by Burns & Levinson’s own Katrina Skinner, recently named a “Cannabis Trailblazer” by the National Law Journal.

So what is the state of the Hemp and CBD Industry?

The discussion was kicked-off by an overview from Julie Lerner on the pricing of the hemp and CBD industry over the past year. Julie is the founder and CEO of PanXchange, a web-based negotiation and trading platform for physical commodities.  She revealed that prices dropped significantly from July 2019 to May 2020, with the pricing of hemp biomass falling roughly 84%. Julie noted that the market is facing oversupply down the supply chain and provided notable insight from her experience in commodities compared to hemp. According to Julie, the industry will likely continue to see CBD develop in pockets servicing its respective regions, but with many bankruptcies and M&A ventures occurring in the space, its too early to … Keep reading

Part 2: Fourth Annual State of the Cannabis Industry Conference – Roadmap to Restructuring and Workouts in the Cannabis Industry

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Cannabis businesses face unique challenges when confronted with economic difficulties and financial challenges in an industry suffering from a lack of institutionalized capital. While cannabis remains federally illegal, bankruptcy court protection is denied to plant-touching and, in some circumstances, ancillary companies. Scott Moskol, co-chair of Burns & Levinson’s Cannabis Business Advisory Group, moderated the first panel at the firm’s Fourth Annual State of the Cannabis Industry Conference, exploring both the judicial and non-judicial options for operators, secured creditors, investors, and other stakeholders in the context of distressed transactions as well as other financial issues affecting the industry.

The panel opened with a brief discussion on the apparent financial strength of the cannabis industry, even despite the economic repercussions of the pandemic. Vicente Sederberg’s Charles Alovisetti noted that at the start of the COVID-19 crises there was widespread concern over the financial health of the industry but, the anticipated volume of distress did not materialize. Nonetheless, Mr. Alovisetti cautioned that some cannabis companies will experience distress and, therefore, it is vital that we consider the important questions that will arise in those circumstances – namely, what will happen to a distressed … Keep reading

Part 1: Fourth Annual State of the Cannabis Industry Conference – Interview with Steven Hoffman

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Burns & Levinson’s Fourth Annual State of the Cannabis Industry Conference featured a highly anticipated “Fireside Chat,” with Commissioner Steven Hoffman, Chairman of the Massachusetts Cannabis Control Commission, in an exclusive one-on-one Q&A with Frank A. Segall, co-chair of the Cannabis Business & Law Advisory Group at Burns & Levinson.  After a rousing interview at last year’s conference, Segall and Hoffman followed up this year with a lively and wide-ranging interview that touched upon several hot-button issues regarding the cannabis industry in Massachusetts.

Despite the pandemic serving as a backdrop, the interview opened with the Commissioner offering positive news to potential cannabis license applicants and applications currently in process. Despite relegated to working remotely since early March, the Commissioner noted that the CCC has seen an uptick in productivity of license processing during this time.  Since March, the Commission is averaging approximately 50 provisional licenses per month, increasing pre-pandemic numbers. Anecdotally, the Commissioner noted that the CCC had received fewer complaints regarding delays in the licensing process.

One source of frustration in the cannabis licensure process, according to the Commissioner, is the absence of a streamed process between cities/towns … Keep reading

Cannabis Control Commission Approves Policy Changes for Adult Use Delivery in Massachusetts

On Tuesday, October 20, 2020, the Cannabis Control Commission (the “Commission”) approved several policy changes with respect to its draft regulations; the most significant change being the re-categorization of two Marijuana Establishment types which, if enacted, would authorize licensees to provide limited delivery services to adult-use cannabis consumers in the Commonwealth. The approval comes after a public comment period which ended on October 15. A final vote on all policy changes to both the adult-use and medical marijuana regulations is scheduled to be held at a public meeting on October 29.

In its press release, the Commission states that the newly categorized Marijuana Courier and Marijuana Delivery Operator license types – which were previously referred to as the Limited Delivery License and the Wholesale Delivery License – will further the Commission’s mission to enable meaningful participation in the legal cannabis industry by communities that have been disproportionately harmed by marijuana prohibition. Further, the Commission asserts that such policy changes are necessary in order to satisfy consumer demand which is currently being met by the illicit cannabis market. In light of the Commission’s stated motivation behind the policy change, the draft delivery regulations currently specify that both newly categorized … Keep reading

Navigating the SPAC Trend in the Cannabis and Hemp/CBD Market

Special Purpose Acquisition Companies (SPACS) have had increased activity in the cannabis and hemp/CBD industries over the past year. Presently, these “blank check companies” have raised more than $3 billion. Investors and operators interested in partaking in these vehicles and participating in the public market should be aware of which SPACs will be looking to acquire participants in the cannabis and hemp/CBD industries and the tools they will need to navigate these somewhat rocky waters.

Understanding SPACs and the Cannabis Industry

While SPACs are not new to the public market, they have recently taken on some novelty by targeting businesses in the cannabis and hemp/CBD industries, and ancillary businesses to those industries.

Given the nature of these corporate vehicles, there is often limited information on the SPACs’ targeting businesses, as by design these types of companies do not have a firm business purpose.

SPACs typically have 18-to-24 months to purchase private companies or return money back to their investors. To the extent a hemp/CBD- specific SPAC or a SPAC that has expressed intentions of acquiring a cannabis operator, but has not yet combined with one, the SPAC may register on a U.S. exchange – and many of them have … Keep reading

Colorado Executive Order Pardons Thousands Convicted of Marijuana Possession

As marijuana reform happens across the country, Colorado continues to lead the way. On October 1st, Governor Jared Polis signed an executive order that pardoned almost 3,000 Coloradans who were convicted by the State of possession of one ounce or less of marijuana, thereby restoring all rights of citizenship without condition. In doing so, Gov. Polis stated that Colorado was “…finally cleaning up some of the inequalities of the past…” that were created by former anti-marijuana policies. The power to issue the pardons was included in a bipartisan bill signed into law in June that included provisions promoting social equity in Colorado’s legal marijuana market.

HB20-1424, titled Social Equity Licensees in Regulated Marijuana, changed the term “accelerator licensee” to “social equity licensee” in the Colorado Marijuana Code, as well as, amended those who qualified for such licensees. The accelerator licensing program pairs established marijuana business owners with disadvantaged applicants who may not have the necessary skills or access to traditional funding sources to enter the space. Under the new bill, social equity applicants can now apply for these licenses if the applicant is a Colorado resident and has not been the owner of a revoked cannabis license, … Keep reading

There’s Always Certainty in Taxes: IRS Issues Tax Guidance for the Marijuana Industry

During these unpredictable times, there is certainty in taxes. This month the Internal Revenue Service (“IRS”) posted a dedicated marijuana-industry specific webpage providing general tax guidance and FAQs for the predominantly cash-based industry.  The guidance does not signify a change to the existing law but rather reminds marijuana business owners of their responsibility to pay federal taxes.

This IRS guidance is on the heels of a report from earlier this year by the Treasurer Inspector General for Tax Administration (“TIGTA”), aptly titled “The Growth of the Marijuana Industry Warrants Tax Compliance Efforts and Additional Guidance.” In the report, TIGTA recommended that the IRS develop educational guidance to assist marijuana businesses in understanding their tax obligations.

In the recent tax guidance, the IRS confirms that marijuana businesses are subject to the limitations of Section 280E of the Internal Revenue Code. Section 280E explicitly disallows tax deductions or credits for businesses that traffic a Schedule 1 or controlled substance. Although marijuana may be state-legal, on the federal level it is still considered a controlled substance classified as a Schedule 1.  Section 280E greatly impacts the profitability of marijuana businesses, because they are not able to make the same tax deductions or … Keep reading

Changes to the Accredited Investor Definition

Marijuana-related businesses (“MRBs”) planning to raise money in private offerings should be aware of recent changes to the “accredited investor” definition under the Securities Act of 1933, as amended (“Securities Act”). The U.S. Securities and Exchange Commission (“SEC”) recently adopted a final rule (the “Final Rule”) amending Rule 501(a) of Regulation D promulgated under the Securities Act, which expands the definition of “accredited investor.”

Topline conclusion: These changes establish additional investor eligibility qualifications, thereby increasing the available pool of potential investors who may participate in private securities offerings. This is good news for MRBs hoping to raise money, particularly under Rule 506(b) or Rule 506(c).

When will these changes become effective?  The Final Rule will become effective sixty (60) days following its publication in the Federal Register. It is anticipated that the effective date will be sometime in early November 2020.

Will the Final Rule change the income and net worth standards required for individuals?  No. The income and net worth thresholds for individuals remain the same.  That is, individuals must still have an annual income of at least $200,000 (or $300,000, together with his/her spouse) or a net worth of more than $1 million (excluding the … Keep reading