In the fast-growing legalized cannabis industry, one of the major obstacles for businesses has been—and continues to be—access to banking services. Because cannabis remains a Schedule I drug and unlawful at the federal level under the Controlled Substances Act, the majority of federally regulated commercial banks will not accept customers that derive funds from cannabis-related activities, whether medical or recreational. While some businesses may attempt to disguise the nature of their funds, risking the potential closure or freezing of their accounts if discovered, many choose to deal primarily in unbanked cash, leading to an entirely different set of potential risks.
Cannabis banking advocates argue that forcing businesses to operate solely in cash can lead to undesirable consequences, including heightened risk in the community and stress on the business’s record-keeping and tax-reporting obligations. In an effort to further legitimize these businesses and reduce the potential risks associated with unbanked cash, some regional credit unions and state-chartered banks—particularly in states where cannabis has been legalized the longest (e.g., Colorado, Washington)—have quietly begun accepting cannabis-related clients, subject, of course, to increased diligence, disclosure, and compliance requirements.
These credit unions and banks work closely with the cannabis-related companies to ensure that all local … Keep reading
Not all cannabis-related companies are created equal. In fact, in the eyes of state and federal regulators, they differ significantly, depending on whether they “touch” the cannabis plant—and they’re treated accordingly.
The most common types of companies that do touch the plant are the “operators” that are cultivating, processing, or dispensing cannabis or cannabis products. “No-touch” companies generally provide a product or service pertaining to the industry, but avoid direct involvement with the plant itself. Examples include suppliers of cultivation-related products (e.g., fertilizer) and packaging, as well as providers of real estate, consulting, and legal services (like Burns).
The complexity of the regulations that apply to “touch” companies, as well as the rigor with which those regulations are enforced, also serves as a point of differentiation. Each state that has legalized cannabis, whether medicinal or adult-use, has enacted an enormous set of rules that govern its cultivation, processing, and sale. While there is no federal standard, cannabis operators generally need to ensure compliance with stringent guidelines regarding security, waste removal, advertising and branding, and packaging, as examples.
Generally, and unsurprisingly, “touch” companies are viewed by both observers of and players in the space as inherently riskier than their … Keep reading
While trademarks for cannabis products and many accessories are ineligible for federal trademark protection (because such goods are still unlawful at the federal level), the savvy cannabusiness operator should nevertheless approach their branding strategy thoughtfully and engage in some investigation into potential trademark conflicts before adopting a new brand or business name.
Importantly, trademark conflicts are not restricted to simply using the identical mark of a competitor. Instead, they generally turn on whether use of the mark is “likely to cause confusion” in the marketplace. In other words, if it is likely that consumers will assume a relationship between you and the senior trademark owner.
Earlier this year, for example, Woodstock Ventures LC filed suit against Woodstock Roots, LLC on the basis of trademark infringement. Since 1969, Woodstock Ventures has produced the annual WOODSTOCK®-branded music festival in New York. In the intervening years, the company has expanded its offering to include audio records, movies, clothing, and other promotional merchandise, all offered under the WOODSTOCK brand. It holds federal trademark registrations for these goods and services, all of which, on their face, have no obvious relationship to cannabis goods. However, and as Woodstock Ventures readily concedes and, in fact, boasts … Keep reading
This year is primed to be the cannabis industry’s biggest yet. Almost $3 billion of capital was raised in the first quarter of 2018, more than four times the amount raised in the first quarter of 2017. With the increase in capital investment comes an increase in the sophistication of investors, including institutional ones like venture capital and private equity sponsors.
As more institutional money pours into the cannabis industry, entrepreneurs are being held to higher standards of professionalism, and are now expected to understand basic venture finance and equity structures. Part of this understanding includes preferred equity, which is a general term used to describe any class of securities (e.g., stock, limited liability company [LLC] units, limited partnership [LP] interests, etc.) that has higher priority for distributions of a company’s cash flows or profits than common equity.
In its simplest form, the “preferred” component of the equity represents additional rights and privileges investors receive in return for their investment beyond owning a percentage of the company. In most instances, when a company takes on outside investors, it will have at least two classes of securities: common equity and preferred equity. The common equity will be that owned by … Keep reading