On Tuesday, April 7, 2020, five recreational (adult-use) marijuana companies and one individual, a veteran of the U.S. armed forces, filed suit against Massachusetts Governor Charles Baker, seeking declaratory and injunctive relief that would, if successful, nullify the Governor’s executive orders to classify recreational marijuana establishments as “non-essential”, which has forced them to close shop. On March 23, 2020, in light of the COVID-19 crisis, Governor Baker issued an executive order that all “non-essential” businesses close their physical (brick-and-mortar) facilities until April 7, 2020 (extended to May 4, 2020 by a subsequent executive order). While medical marijuana establishments were deemed “essential” and therefore able to remain open, recreational marijuana facilities were not. The following are some of the key takeaways from the complaint filed in connection with the suit and related issues impacting the recreational marijuana industry as a result of their forced cessation of operations.
- Harm to Recreational Marijuana Businesses. The Governor’s executive orders were a gut punch to Massachusetts’ fledgling marijuana industry and likely killed a number of the commonwealth’s recreational marijuana companies in the cradle. Many of these businesses have only just gotten up of the ground and running, as a result of the lengthy
… Keep reading
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was recently passed in response to the COVID-19 pandemic to provide much-needed economic relief to individuals and businesses. The Small Business Administration (SBA) is now offering the Paycheck Protection Program (PPP) and federal disaster loans for working capital via the Economic Injury Disaster Loan (EIDL) program to small businesses and non-profits to help small businesses in the U.S. stay afloat during this historic emergency. Although these programs are not available to state licensed cannabis related businesses, it is available for hemp producers and manufacturers. Here are 5 take-aways about the SBA’s EIDL and PPP programs:
What do the SBA programs mean for marijuana-related businesses? In a 2018 Policy Notice, the SBA reaffirmed that marijuana-related businesses – including plant-touching and some non-plant-touching businesses – were ineligible to receive SBA loans. More recently, in March, the SBA reiterated that cannabis companies are not eligible for disaster relief loans because cannabis remains illegal under federal law. However, the SBA further clarified that hemp businesses are eligible for SBA-funded services, tweeting:
“With the exception of businesses that produce or sell hemp and hemp-derived products (Agriculture Improvement Act of 2018, Public Law 115-334), … Keep reading
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
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
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
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
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
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
New York is gearing up to become the 12th US state to legalize recreational cannabis, and the 2nd US state to do so by way of legislative measure (as opposed to voter initiative), as Gov. Andrew Cuomo vowed to legalize recreational cannabis in his 2020 State of the State address in early January. Gov. Cuomo followed up his vow as he introduced language legalizing recreational cannabis in the state’s budget legislation last week.
State legislators are also optimistic that a law regulating recreational cannabis will be enacted in the coming months. That is… if the Governor and the state legislature are able to agree to the details following the failure of similar efforts just last year… Contention remains on many fronts as the Governor and state legislators have been unable to agree, among other things, on the proper method to distribute revenue from taxing recreational cannabis. The legislature’s bill proposal seeks to dictate how much funding is allocated for drug treatment and traffic-safety programs. It also specifies that half of the new resources be invested into communities that were disproportionately impacted by laws that criminalize the possession and sale of drugs.
Such “social equity” provisions remain a … Keep reading
A few years ago, the Commonwealth was considered an East Coast cannabis trailblazer for legalizing adult-use cannabis in 2016. However, there is mounting criticism faulting Host Community Agreements (HCAs) for dampening the industry’s growth potential in Massachusetts. Let’s take a look at the basics and burden of Massachusetts’ HCAs:
As a prerequisite for filing an application for a license in Massachusetts, a marijuana establishment must execute a Host Community Agreement with municipality where it intends to be located. (1) A HCA is a negotiated contract between the establishment and municipality, which includes terms and conditions relating to how the establishment will operate in the local community. There is not a standard form HCA because each municipality will need to consider the relevant circumstances and effects of an adult-use establishment entering the local community. This is not a quick administrative decision- the municipality must first vote to consider whether it even wants an adult-use establishment within its borders and any limitation on the number of establishments permitted. After deciding to open its doors to an adult-use establishment, in negotiating the Host Community Agreement the municipality also needs to consider the financial impact and related fees to charge to … Keep reading