February 2020

Lessons of a Failed CBD Acquisition


Last Tuesday, February 18, 2020, Australis Capital Inc. announced the termination of its proposed acquisition (via merger) of Folium Equity Holding LLC, a fully integrated hemp/CBD operating company based in Colorado.  The transaction, announced in the middle of December 2019, was highly anticipated as a major step in the industry’s ongoing consolidation in the current down market.  Australis, a spin-off of well-known major cannabis player Aurora Cannabis Inc., was publicly listed on the Canadian Securities Exchange and over-the-counter in the U.S., as an investment company aimed at being the “beachhead” for Aurora’s U.S. cannabis investments.

Original discussions with Folium began about a year and a half ago when CBD was the “talk of the town” and hot industry.  Following a minority investment by Australis, it was contemplated that Aurora would ultimately acquire Folium.  However, as Aurora and Australis sought to demonstrate their independence (now being wholly-separate companies) and given the existing Australis minority investment, the strategy shifted to having Australis be the proposed acquirer, with a final merger agreement being reached in December of last year.  Yet, in the course of its diligence efforts over the intervening period following the signing of the merger agreement, Australis’ uncovered data and … Keep reading

A Search for Yield - Cannabis, Capital, and Credit


As highlighted in a previous blog post, a few months ago at Burns & Levinson’s Third Annual State of the Cannabis Industry Conference, several industry insiders and financial expert panelists forecasted a number of notable shifts in the cannabis capital markets to play out over the coming months.  We are now beginning to see some of those projections take form and come to fruition.  Of particular note, are the evolving patterns found in the fundraising efforts of cannabis operators and their pursuit for infusions of new capital, amidst a market segment reeling from a recent large scale financial downturn.  As sector participants descend on Boston for the 2020 Northeast Cannabis Business Conference, which kicks off today, players in the cannabis financial market would be well advised to take stock of these developments.  Of particular note is an increasing trend towards debt financing and a shift away from what has previously been an equity-investment heavy industry, exemplified by a number of high-profile transactions in the past few weeks involving several key players.

The recent dip in cannabis company valuations and related equity pricings has had a significant chilling effect on the industry’s equity markets, principally those concerning … Keep reading

Checking in on the SAFE Banking Act


While the legalization of medical and recreational marijuana continues to build momentum across the U.S., access to banking and other financial services has remained a consistent barrier to the legal marijuana industry. As we discussed back in October, there was major optimism when the Secure and Fair Enforcement Banking Act (the “SAFE Banking Act”) was finally passed by the U.S. House of Representatives in September 2019. However, this has remained idle in the hands of the Senate Banking Committee since September without any notable advancement.

The legislation, which does not address the decriminalization or legalization of marijuana, would provide a much needed safe harbor for banks and other financial institutions offering financial services to cannabis-related businesses. In addition to providing peace of mind to banks and credit unions that wish to service legal marijuana businesses, the legislation would also allow cannabis companies to move away from operating primarily on a cash basis, which has been a growing public safety concern for many of the affected businesses.

In December, the Chair of the Senate Banking Committee, Mike Crapo, proposed certain changes to the bill and requested public comment to assist with the Committee’s decision-making. Some of these proposals have … Keep reading

CBD as a Dietary Supplement – A Potential Regulatory Avenue for Retail Hemp Operators Selling THC Extracts


On January 13, 2020, Representative Collin Peterson, the Chairman of the House Agricultural Committee, introduced a new bipartisan bill, H.R.5587 (Bill 5587), in the U.S. House of Representatives that would potentially provide significant developments for the regulation of hemp-derived cannabidiol (CBD).  In short, Bill 5587 would (1) regulate CBD as a dietary supplement, provided all other applicable requirements for a dietary supplement are satisfied and (2) allow CBD to be included as an additive in foods that are introduced in interstate commerce and (3) mandate research by the UDSA on challenges faced in the industry.

First, a Recap of How CBD is Presently Treated.

The Agriculture Improvement Act of 2018 (2018 Farm Bill), removed industrial hemp containing not more than 0.3% of tetrahydrocannabinol (THC) and certain hemp by-products (such as CBD) from Schedule I of the U.S. Controlled Substances Act.  It further preserved the authority of the U.S. Food and Drug Administration (FDA) to regulate hemp/CBD and hemp/CBD-related products under the Federal Food, Drug, and Cosmetic Act and Section 351 of the Public Health Service Act. Accordingly, products containing hemp and hemp-derived CBD are subject to the same requirements as FDA-regulated products containing any other substance.

However, after the … Keep reading