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The Weedmaps Subpoena: An Industry Wakeup Call

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

COVID-19 Stalls Pending Recreational Efforts but Spurs Long-Term Industry Optimism

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

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Recreational Marijuana: Preliminary Injunction Denied in Suit Against MA Governor

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.

  1. 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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COVID-19: Risk Factor Disclosures When Raising Money in a Global Pandemic

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

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Governor Baker’s Response to Suit Regarding Recreational Marijuana Shutdown

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.

  1. 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
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Cannabis Endures, Despite COVID-19 Crisis

The cannabis industry, like nearly every facet of the economy, has been affected by the COVID-19 crisis, or the Coronavirus. Numerous states across the country have imposed a variety of measures to limit the spread of the Coronavirus, including stay-at-home orders, business closures and bans on gatherings between 5-10 people. While medically necessary, these measures have been financially difficult for many businesses across a variety of industries. However, COVID-19 has had a mixed impact on the cannabis industry.

Over the last few weeks – as the crisis ground many economic sectors to a halt – individual states have implemented a patchwork of policies to combat the spread of the Coronavirus and, ultimately, preserve their respective economies. Within the last month, seventeen states so far have issued stay-at-home orders, cautioned residents from leaving engaging in ordinary activity. Just this week, some Governors, including Governor Baker here in Massachusetts have issued orders minimizing non-essential activities outside of the home along with corresponding directions to close “nonessential” businesses. Of those seventeen states, fourteen have operational and integrated marijuana industries. Finally, nearly twelve of those fourteen have permitted some cannabis companies to remain operational during the Coronavirus crisis. In fact, only two Delaware … Keep reading

Raising Capital: Overview of Exemptions to Registration of Securities in Private Placements

These are uncertain times. Even before the world-wide COVID-19 pandemic, companies seeking to raise capital in the cannabis industry were facing challenges. However, some experts and insiders I’m hearing from are bullishly predicting that investors with dry powder will increasingly deploy capital for investment purposes. Other informed contacts are less optimistic, with forecasts painting a more negative outlook on the macro level.  As is often the case, both perspectives could turn out to be correct. Regardless, now, more than ever, with no accurate crystal ball in hand, it is critical for cannabis companies pursuing funding to be able to take comfort that they are properly navigating securities regulations.

This latest installment of my series on fundraising outlines at a very high level some of the most popular securities exemptions from registering securities.  Subsequent posts in this series will examine a number of these common exemptions in greater detail.

Under the federal securities laws, a company may not offer or sell securities unless the offering has been registered with the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”) or an exemption from registration is available.  A … Keep reading

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