Member Spotlight: LivWell Enlightened Health

In December’s member spotlight, we speak with Neal Levine, who serves on NCIA’s Board of Directors, and is Senior Vice President of Government Affairs for NCIA Sustaining Member LivWell Enlightened Health. LivWell is a Colorado-based medical and adult-use cannabis dispensary with 14 locations across the state, employing hundreds of staff.  

LivWell Enlightened HealthLivWell - Logo

Cannabis Industry Sector:
Medical and Adult-Use Cannabis

NCIA Member Since:
February 2012

Tell me a bit about your background in cannabis and why you joined the team at LivWell.

Neal Levine, VP of Government Affairs
Neal Levine, Sr. VP of Government Affairs

I have been working on cannabis policy reform on the state and national level for the majority of my professional career. Specifically, I led or played a key role on the teams that first passed medical marijuana laws in Maryland, Vermont, Montana, Rhode Island, and Michigan; decriminalization in Massachusetts; and legalization in Alaska. I also led several teams which qualified initiatives via signature drives in several states, including the adult-use initiative that just passed on November’s ballot in Nevada. And I have been involved in some form or another in helping to develop industry regulations in many different states throughout the country after these laws have passed.

At some point I realized that I had switched from the lobbyist and campaign guy who was working on cannabis to the cannabis guy who was working on campaigns and lobbying. So I decided to shut down my political consulting practice and shift to the industry full time about a year and a half ago. Of all the cannabis companies existing today, LivWell Enlightened Health struck me as best placed, not only in terms of being successful in the industry but also in terms of presenting a positive example to cannabis entrepreneurs everywhere about how cannabis companies should engage with their industry peers, the legalization movement, their customers and patients, and the communities in which they operate. LivWell Enlightened Health has demonstrated time and again our willingness to fight for and defend the industry, and it has been my honor to lead the company’s continuing efforts in this regard.

What unique value does LivWell offer to the cannabis industry?

livwell_budtenderEvery single day we try to live up to our reputation as the industry leader. It starts with taking care of our people, whom we view as our number-one asset. Our entry-level positions pay several dollars above the minimum wage, we offer full health care to all of our employees at no cost to them, and we put 3% into a 401(K) annually for all of our employees which vests instantly and is not a match – they do not have to put in a penny of their pay, although they are certainly welcome to contribute as well.

Beyond the high-quality cannabis products we sell, the well-paying jobs we create, and the tax revenue we generate for Colorado, LivWell Enlightened Health has determined to be involved in events and initiatives throughout the communities in which we operate. That’s why we established LivWell Cares, a program designed to work hand-in-hand with our local communities both as good neighbors and as fully-involved partners in community development. Through LivWell Cares, we have participated in numerous charitable activities, sponsored several local events, and educated community leaders and public service officials on the products we sell and the industry that we help to lead. Our deep and committed involvement in working with our neighborhoods and engaging with the communities whose lives we touch through our business, including those who may not patronize our stores, is a value that is nothing less than a part of the fabric of our company and an important piece of our culture.

Cannabis companies have a unique responsibility to shape this growing industry to be responsible and treated equally as any other industry. How does LivWell help work toward that goal for the greater good of the cannabis industry?

You’ve touched on something that is very important. First and foremost, we strive every day to be the industry that we want to be a part of. We take our position as an industry leader very seriously, and conduct ourselves accordingly. If you are a part of our industry, you simply must be engaged in your communities. You must join together with allies to defend against the seemingly endless threats to our advancement. We must all band together and work collaboratively on big picture projects like tax reform, banking, and removing cannabis from the Controlled Substances Act, while running responsible and compliant businesses that take care of the people who chose to join our teams. If this is not a key component of your company culture, I believe that you will eventually fail.

As a company, LivWell Enlightened Health is very focused at developing industry-wide best practices, helping to shape state and federal lobbying priorities, working to end the unfair taxation of 280E, and making it easier for cannabis businesses to receive the banking services they need to operate successfully. I ran for the NCIA Board promising to focus on these issues, and having won the seat, I feel that I have a mandate and responsibility to do what I said I would do from the membership that elected me.

From the beginning, the leadership at LivWell Enlightened Health has been determined to be the most compliant company in the industry and to support policy-makers and regulators from throughout the country and the world as they build a common-sense regulatory regime in which we can operate. This was one of the primary aspects of our culture that first attracted me to the company. We frequently host delegations of government and elected officials who tour our facilities and speak with our executives to learn more about how legal cannabis actually works, and offer to share our expertise and work with them to construct a regulatory environment conducive to both business success and public health and safety. We believe these efforts have already helped encourage more regulatory consistency in cannabis policies across the country, and have helped remove the stigma our industry faces in the eyes of officials who previously had little to no experience with cannabis in any form. We have been highly encouraged by the reactions of those officials with whom we have worked, as they quickly realize that we are just like any other business and deserve to be treated as such.

livwell_farmBuilding a better environment for our industry also requires sustained engagement with our patients and customers, particularly when it comes to education. We call ourselves LivWell Enlightened Health for a reason. Education has always been an important part of our company, a point best evidenced by our industry-leading employee training program, LivWell University. This two-week intensive course includes classroom, online, and on-site components, and covers everything from the science of the endocannabinoid system to how to complete a compliant transaction. We view our employees as company and industry ambassadors. The training our employees receive allows them not simply to be good at their jobs, but also to be knowledgeable enough to answer our customers’ tough questions while being advocates for responsible use. We have even begun taking components of our employee training program and developing them into customer-facing materials so that our customers can feel more empowered to make intelligent choices when it comes to their cannabis consumption.

Why did you join NCIA? What’s the best part about being a member?

NCIA is our national industry association, and every single business either in our industry or supplying our industry has an obligation to join and support NCIA. Being an NCIA member means supporting our efforts to end the scourge of 280E, open up banking, remove cannabis from the Controlled Substances Act, and be diligent in our efforts to make sure the new administration does not roll back any of our progress. Outside of the financial obligation, I believe every member should participate in Lobby Days, where we get to engage with Congress as an industry.

The best part of being a member is the ability to be part of our amazing national cannabis community, and work collaboratively with so many intelligent and dedicated people on the normalization of our industry on the path to ending prohibition once and for all.


 

Member Post: Raising Money 101 – Introduction to U.S. Public Cannabis Stocks

by Charles Alovisetti, Vicente Sederberg LLC

Most readers are familiar with the two major U.S. stock exchanges – the New York Stock Exchange (NYSE) and NASDAQ. But in the world of cannabis, almost all publicly traded companies are not listed on a stock exchange. Instead they trade over-the-counter (OTC). In fact, as of the date of publication, only a handful of cannabis companies (or at least cannabis-touching companies, as for most of these companies, cannabis is only a small part of their overall business) are traded on a U.S. stock exchange. There are publicly traded cannabis companies outside of the U.S., but those are beyond the scope of this article.

These companies primarily trade on NASDAQ: GW Pharmaceuticals (GWPH), a UK-based pharmaceutical company best known for its drug Sativex, a cannabinoid-based treatment for multiple sclerosis spasticity; Insys Therapeutics (INSY), an Arizona-based pharmaceutical company that has a number of cannabinoid-based drugs in development; Cara Therapeutics (CARA), a Connecticut-based pharmaceutical company that has a cannabinoid product in preclinical development; Zynerba Pharmaceuticals (ZYNE), a Pennsylvania-based pharmaceutical company that has synthetic cannabinoids for transdermal delivery under development; and Arena Pharmaceuticals (ARNA), a California-based pharmaceutical company that has a pain relief cannabinoid drug in development. There is also a largely non-cannabis company, 22nd Century Group, Inc. (XXII), with a cannabis-focused subsidiary called Botanical Genetics, LLC, that trades on NYSE MKT, the NYSE’s emerging company marketplace for smaller-cap companies. NYSE MKT has lower listing requirements than the NYSE.

bull_new_york_stock_exchangeMassRoots (MSRT), a Denver-based social networking company for cannabis users, made headlines when it was denied approval to be listed on NASDAQ. According to MassRoots, the stock exchange justified the decision by claiming that the company was aiding and abetting the distribution of an illegal substance. Some speculate, however, that the decision considered the company’s low share price, although MassRoots stated it did meet the listing requirements with a market capitalization in excess of $40 million and more than 300 shareholders. NASDAQ did not publicly provide the grounds for its rejection.

As of the date of publication, the New York Stock Exchange has approved the listing of Innovative Industrial Properties, Inc. (IIPR), a newly-formed real estate investment trust focusing on the cannabis industry, though the SEC has not yet approved the offering prospectus of the company and no shares of Innovative Industrial Properties currently trade publicly. This seems to indicate that NASDAQ’s rejection of MassRoots may not have been entirely based on its alleged aiding and abetting.

The language of publicly traded cannabis companies

If these companies aren’t on stock exchanges but still trade publicly, where and how do they trade? It’s best to start with an introduction to the vocabulary of publicly traded cannabis companies. Here are several terms you will see discussed frequently in this area:

  • OTC: An acronym for “over-the-counter” and refers to securities (both debt and equity) that are traded in a context other than a formal exchange. It may refer to stocks, debt securities, or other financial instruments such as derivatives. In general, the reason why a stock is traded over-the-counter as opposed to on a stock exchange is because the company is too small to meet exchange requirements. The overwhelming majority of publicly traded cannabis companies trade OTC.
  • Pink Sheets: The National Quotation Bureau (now the OTC Markets Group) formerly published price quotations for stocks on pink-colored paper called the Pink Sheets. The National Quotation Bureau renamed itself Pink Sheets LLC in 2000 and subsequently Pink OTC Markets in 2008. In 2010, the name was again changed to its current one, OTC Markets Group. Because of this historical background, people will often refer to OTC stocks generally as trading on the Pink Sheets. Another synonym is Penny Stocks, based on the low price of some OTC stocks. There remains an official reference to the color pink – the OTC Pink® Open Market.
  • SEC: Shorthand for the Securities Enforcement Commission, a government commission created by Congress to regulate the securities markets and protect investors. Any public offering of stock is subject to review by the SEC.
  • Stock Exchange: A marketplace (which could be a physical location or an electronic platform) in which securities are traded. The core function of a stock exchange is to ensure fair and orderly trading, as well as efficient dissemination of price information for any securities trading on that exchange. Exchanges give companies, governments, and other groups a platform to sell securities to the investing public. Each stock exchange will have certain listing requirements – such as regular financial reports and audited earnings reports. The New York Stock Exchange (NYSE) is an example of a stock exchange.
  • OTC Markets Group (formerly known as the National Quotation Bureau, Pink Sheets LLC, and Pink OTC Markets): Operates an electronic quotation system called OTC Link that displays pricing for many over-the-counter securities not listed on a national stock exchange. All transactions are carried out between dealers. The companies listed on the OTC Market are broken into three tiers based on the quality and quantity of information the companies have made available. These tiers, starting with the designation for the most established companies, are as follows: OTCQX® The Best Market, OTCQB® The Venture Market, and OTC Pink® The Open Market.
  • OTC Bulletin Board or OTCBB: A system run by FINRA (Financial Industry Regulatory Authority). Broker-dealers who subscribe to the non-electronic system can buy and sell OTC stocks. Companies on the OTCBB must make all required SEC filings, but there are no other size or corporate governance requirements. Most OTCBB companies are quoted on both the OTCBB and one of the OTC Markets Group marketplaces.
  • Gray Market: Refers to securities that are not listed on any stock exchange or on the OTCQX, OTCQB or OTC Pink marketplaces. There is likely little investor interest in or information available about such securities.
  • Liquidity: Refers to how easy it is to buy or sell a security. This is a function both of the market for the security and of the legal restrictions on resale.
  • Bid-Ask Spread: The difference between the highest price that a buyer is willing to pay for a share of stock or another asset (the highest bid price) and the lowest price that a seller is willing to accept to sell it (the lowest ask price).
  • Broker-Dealer: An individual or firm who is engaged in the business of buying and selling securities. When the individual or firm is executing orders on behalf of clients (i.e., acting as an agent), it is acting as a broker. And when the person or firm is acting as a principal (i.e., trading for its own account) it is acting as a dealer.
  • Reverse Merger: In the OTC context, this refers to a transaction whereby the stockholders of a private company acquire the majority of the shares of a public shell company, which is then merged into the purchasing entity. As a result of the merger, the private company exchanges shares with the public entity, making the purchaser a public company. Reverse mergers allow the private company to become public without raising capital, as opposed to a traditional initial public offering (or IPO) which combines going public via an S-1 and undertaking fundraising. A reverse merger is also quicker than a full-blown IPO or an S-1 filing. The full legal ramifications of a reverse merger versus an IPO or direct S-1 filing are beyond the scope of this article.
  • S-1: The traditional method for taking a company public is by filing an S-1, which is an offering prospectus for the shares to be listed publicly. This can be accomplished as part of an IPO, which also involves a fundraising process typically run by an investment bank, or it can be done by a company directly without the involvement of a bank. A company wishing to become publicly traded will file an S-1 with the SEC. Once filed, the company and the SEC will then go through a process of comments and revisions. When the SEC is satisfied with the revised S-1, it will declare the offering prospectus effective and the company can sell shares to the public.

Why cannabis companies trade OTC

Why would a company want to trade OTC? The simple fact is that it’s very difficult to trade on the NYSE or NASDAQ. In addition to limitations that apply specifically to cannabis companies, as may have been the case with MassRoots, though not with Innovative Industrial Properties, both NASDAQ and NYSE have high financial standards that most cannabis companies are too small or too unprofitable to meet. It’s also not free to list on these exchanges; while both exchanges have multiple revenue streams, one way they make money is by charging fees to the listed companies. There are other, smaller stock exchanges (note that NASDAQ, for example, has three different tiers domestically: The Nasdaq Global Select Market®, The Nasdaq Global Market®, and The Nasdaq Capital Market®, with different standards for each tier, and has other international markets beyond the scope of this article), but each will have requirements that companies need to meet to be listed. That leaves the OTC markets as the main alternative to a company that wants to be publicly listed, but has not yet achieved the size necessary to be listed on a stock exchange.

But why would a company want to be publicly listed in the first place? There are several reasons, most of which only apply to a company that is listed on a major stock exchange (e.g., the prestige of being a public company or additional liquidity), but the primary reason offered for becoming an OTC-traded company is that it allows the company a way to increase the amount of capital it can raise and offers existing equity-holders greater liquidity. With limited exceptions, a private company can only freely sell its securities to accredited investors (i.e., institutions or people who meet certain income or asset thresholds). And, prior to the JOBS Act, private companies were prevented from any kind of widespread public advertising (which they can now engage in, but only if they take steps to ensure only accredited investors purchase the equity for sale). A publicly registered company, in contrast, is largely free to offer and sell its stock to all interested parties, regardless of whether they are accredited. It is also far less restricted in its ability to advertise the fact that its stock is for sale.

Buying publicly traded stock is also far easier – investors don’t need to know anyone at the company in question. If a potential investor has access to a computer or phone, buying OTC stock is straightforward. In theory, this opens a far larger marketplace for a company’s stock, providing liquidity and allowing it to sell additional equity to finance growth and operations.

The risks of OTC cannabis stocks

nasdaq_stock_market_displayThere are other, less honorable reasons why a company might want to trade OTC. When a public stock is widely traded, it’s difficult to influence the price of the stock. Imagine trying to materially change the price of Google’s stock – it would require a vast sum of money. But when a company’s stock is infrequently traded and information about that stock is limited, it’s much easier for an individual or group to influence a stock’s price. And information does tend to be quite limited when it comes to OTC stocks. In contrast to stocks listed on the major exchanges, not all stocks that trade on the OTC Link are required to be registered with the SEC. As a result, the overall level of information available for OTC stocks is both less detailed and less up-to-date than that of stocks traded on the NYSE or NASDAQ. It is also not uncommon for an OTC stock to be deficient in providing the limited information that is required.

Several government agencies have sought to warn the public about the risks inherent in cannabis OTC stocks. On May 16, 2014, the SEC’s Office of Investor Education and Advocacy published a press release that specifically warned investors about the risks of cannabis-related stocks. The SEC highlighted the fact that five cannabis OTC stocks had recently been suspended from trading due to concerns about the accuracy of publicly available information about their operations. Two of these companies were also implicated in potentially illegal activity involving the sale of securities and market manipulation. And on November 12, 2015, the Colorado Division of Securities issued a warning to investors to be cautious when considering investments in marijuana-related companies, binary options, and digital currency. The Colorado Division of Securities noted that marijuana-related investments “could be particularly susceptible to scams, such as ‘pump-and-dump.’” A “pump-and-dump” scheme is an illegal scam where people holding equity in a company convince the market that the shares are worth far more than they are by spreading false or misleading information, a process made easier by the thinly traded nature of OTC stocks and the lack of good information about them. Before the public catches on, they sell all or a portion of their shares for a significant profit.

With some exceptions, most cannabis OTC stocks have minimal analyst coverage, if any coverage at all. Most major companies that are publicly traded, in contrast, are studied regularly by analysts, who frequently publish reports about the status and direction of the companies they cover. Academic literature has shown that analyst coverage can decrease informational gaps between investors and management of companies. But if no one is covering an OTC stock, then shareholders must either study the company themselves or risk being left in the dark about the condition of the company. In addition, many institutional investors do not invest in OTC stocks, so the investor base of an OTC company will have far fewer, if any, institutional investors, and more retail (i.e., ordinary individual) investors. This means that holders of OTC stocks, absent the benefits of analyst coverage, cannot count on their fellow shareholders to be sophisticated or committed to monitoring the company either. OTC investors must often do their own due diligence on the companies in question.

Finally, it is important to understand the liquidity issues of OTC stocks. To return to the example of Google mentioned earlier, it is very easy to dispose of Google stock (or to be more accurate, Alphabet Inc. Class A stock) since there is a very active trading market for those securities. It would not be difficult to sell all the Google stock you hold at, or very close to, the current publicly listed price – unless the stock was currently reacting to major news or you were trying to sell a material number of shares. For an OTC stock, however, an investor should not take any of these advantages for granted. OTC stocks typically have significant bid-ask spreads since they are typically far less liquid than stocks traded on public exchanges – meaning that they are not as actively traded. That means in the event you decide to sell your stock there may not be a buyer readily available. And even if you could find a buyer for your stock, there is also the risk that your sale of stock could impact the quoted price, forcing you to sell at a lower price. This is why, unless there is an active market for an OTC stock, the quoted price may not be the price at which you can liquidate your position.

This is not to suggest that all OTC stocks are scams or even poor investments. But investors need to be particularly careful when evaluating these types of stocks and should be aware that not all publicly traded stocks are the same.

Key takeaways

In short, when it comes to OTC stocks:

    • A publicly traded stock by any other name: Any investment in an OTC stock is inherently riskier than an investment in a blue-chip stock trading on a public stock exchange. If you want to sell an OTC stock, it may not be possible to find a buyer. And OTC stocks can be subject to high volatility and at greater risk of fraud. This doesn’t mean that buying stock in a cannabis company trading OTC is necessarily a bad idea. But these kinds of investments demand an understanding of the risks involved.
    • OTC company beware: Any company considering listing as an OTC stock, whether by way of a reverse merger or otherwise, should carefully evaluate the costs and benefits of being publicly registered. Consider drawing on the private equity markets instead of the public markets. Please bear in mind that as a cannabis company, you will likely face heighten scrutiny by the SEC.
    • Know your terms: Not all OTC stocks are alike. The OTC Link has three marketplaces which are tiered based on the quantity and quality of information provided by the companies:
      • OTCQX® The Best Market: This is the marketplace with the most stringent requirements. To qualify, companies must meet financial standards, demonstrate compliance with US securities laws, be current in their disclosure, and be sponsored by a third-party professional advisor.
      • OTCQB® The Venture Market: Entrepreneurial and development-stage companies that are unable to qualify for OTCQX trade on this marketplace. Companies must undergo an annual verification and management certification process and be current in their reporting to be eligible.
      • OTC Pink® The Open Market: Defaulting or distressed companies trade on this marketplace, although some companies trade on The Open Market by design. Companies are further sub-categorized into one of three tiers by the level of information they provide: Current Information, Limited Information, and No Information.
      • Other Designations:
        Caveat Emptor: A concern exists about the stock, company, or person(s) controlling the company. The quotes will be blocked on OTCBB while a stock is labeled Caveat Emptor.
        OTC, Other OTC or Grey Market: Securities not traded on the three OTC Link exchanges. Public quotes are not provided by Broker-Dealers.

This information is educational only and shall not be construed as legal advice. Please consult your attorney prior to relying on any information in this article.


Charlie Alovisetti, Vicente Sederberg LLC
Charlie Alovisetti, Vicente Sederberg LLC

Charles Alovisetti is a senior associate and co-chair of the corporate department at Vicente Sederberg LLC. Prior to joining Vicente Sederberg, Mr. Alovisetti worked as an associate in the New York offices of Latham & Watkins and Goodwin where his practice focused on representing private equity sponsors and their portfolio companies, as well as public companies, in a range of corporate transactions, including mergers, stock and asset acquisitions and divestitures, growth equity investments, venture capital investments, and debt financings. In addition, Mr. Alovisetti has experience counseling portfolio and emerging growth companies with respect to general corporate and commercial matters and all aspects of compensation arrangements, including executive employment and consulting agreements, stock option plans, restricted stock plans, bonus plans, and other management incentive arrangements. Mr. Alovisetti has experience in both U.S. and cross-border transactions, and has advised clients across a range of industries including cannabis, technology, manufacturing, software, digital media, energy and clean tech, healthcare, and biotech. He holds a Bachelor of Arts, with honors, from McGill University and a law degree from Columbia Law School, where he was a Harlan Fiske Stone Scholar. Mr. Alovisetti is admitted to practice in both Colorado and New York and is a Level One Interprener.

Cannabis Caucus Takes Action!

by Brooke Gilbert, Director of Events and Education

At the end of October we wrapped up the fourth and final 2016 installment of our Quarterly Cannabis Caucus series. Thank you to the more than 700 attendees who joined us in cities across the United States throughout the month of October to network and to effect change on the local and national level!

We have a lot to be thankful for with the recent wins for cannabis in California, Nevada, Maine, Massachusetts, Montana, Arkansas, North Dakota, and Florida. However, a lot of uncertainty still lies ahead with the new administration. One thing we do know for certain is the Rohrabacher-Farr amendment currently offers the medical cannabis industry some amount of protection. This amendment bans the Department of Justice from spending money to prevent the implementation of state-level medical marijuana programs, in addition to removing funding for federal medical cannabis raids, arrests, and prosecutions in states where these programs are legal.

This important amendment needs to be reauthorized each year to stay in effect. At the end of September, Congress passed a continuing resolution to fund the government through December 9th. This means that in December, Congress will have to return and pass a funding bill for future government spending.

Throughout the final installment of our quarterly cannabis caucuses we urged attendees to take action by contacting your elected officials and asking them to sign on to a letter supporting the re-authorization of the Rohrabacher-Farr amendment. If you didn’t take action on-site at the caucus, we encourage you to take action now and contact your representative here:

TheCannabisIndustry.org/CallCongress

Weren’t able to make it to one of our caucuses in October? Check out the photo highlights below, and download the resources provided at the event on our Cannabis Caucus Resources page.

Thank you to our sponsors for making the final installment of our 2016 Quarterly Cannabis Caucuses possible!

Premier Sponsors
Atman Market
Cannasure Insurance Services
Canna Advisors
Guardian Data Systems
LivWell Enlightened Health
MJ Freeway
THC Design
urban-gro

Supporting Sponsors
CannaRegs
CRichter ~ HR Consulting

Media Partners
DOPE Magazine
Sensi Media

Event Hosts
California Cannabis Industry Association
Illinois Cannabis Industry Association
Marijuana Industry Trade Association of Arizona
Meadow
Newman Ferrara LLP

Be on the lookout for 2017 Quarterly Cannabis Caucus dates in the coming weeks. See you at the next Caucus in 2017!

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