In recent days, and for the second time in 2018, the state-legal cannabis industry is abuzz over a new memo issued by Attorney General Sessions. Having revoked the Cole Memo in a January memo, the Attorney General’s latest memo addresses the use of capital punishment in drug cases. Notably, he urges federal prosecutors to consider the death penalty in drug cases—including in circumstances that facially could include the operation of large-scale state-legal marijuana businesses regardless of compliance with local rules.
There’s no doubt “Sessions to Execute Legal Industry Members” makes for an eye-catching headline, but it’s time to pour some cold water on the hype: It’s highly unlikely that federal prosecutors would ever bring such a death penalty case. And even if prosecutors brought such a case, it’s even more unlikely that they could convince a jury to impose a death sentence that would stand up on appeal.
Given the fervor over this news, it’s worth explaining why the death penalty shouldn’t be keeping rule-following business owners up at night. But stepping back from the sensationalized headlines, it’s also worth considering what the real takeaway from the memo should be.
First, the prospect of a federal prosecutor seeking the death penalty against an individual for conduct she committed pursuant to a state-issued license and in conformance with a state-promulgated regulatory system are exceptionally low. Ask anyone who has actually interacted with federal prosecutors (and not just seen Goodfellas or American Hustle): Federal prosecutors are, unfailingly, exceptionally dedicated public servants who care above all about wielding their powers fairly and judiciously and getting the result right. They want to prevent serious crimes and put away threats to public safety. The idea that they would seek the death penalty against the owner of a state-licensed marijuana business operating in strict compliance with those rules is farfetched. After all, by their very conduct those individuals are demonstrating their ability to abide by the rule of law.
Certainly, Attorney General Sessions is not a fan of the state-legal marijuana industries. But it is an incredible leap to believe that he intends to have prosecutors seek the death penalty in such cases. As the memo says, the Attorney General “encourage[s]” prosecutors to seek the death penalty “when appropriate.” There has been no indication to date that Attorney General Sessions or any other federal prosecutor believe the death penalty is “appropriate” for a rule-following licensed cultivator in Colorado or retailer in Nevada.
Second, even assuming a hypothetical prosecutor brought such a case and secured a conviction for the underlying offense, they would still have significant constitutional hurdles. As an initial matter, under the Sixth Amendment, those prosecutors would need to convince a jury in the state where the conduct occurred (and is licensed) that sufficient aggravating factors existed to impose the death penalty. Without getting too deeply into the legal weeds, the U.S. Supreme Court reiterated in 2016’s Hurst v. Florida that before a defendant can be sentenced to death, he has “right to have a jury find the facts behind his punishment.” Convincing a jury of the defendant’s peers in a state where the conduct is legal that the defendant’s conduct warrants the punishment of death would be a tall task for any prosecutor.
Moreover, even assuming prosecutors secured a death sentence from the jury, any defendant would immediately appeal asserting that such a punishment violates the Eighth Amendment’s prohibition on cruel and unusual punishment. As the Supreme Court reiterated in 2008’s Kennedy v. Louisiana, punishment for a crime must be graduated and proportionate to the offense under currently prevailing societal standards. That is a heavy burden for conduct that is licensed and regulated in the defendant’s home state. Particularly daunting for the prosecution is the fact that the proportionality inquiry includes consideration of which states permit execution for the offense. In this hypothetical case, the conduct in question is (1) not a capital offense in the defendant’s home jurisdiction, (2) not illegal in the defendant’s home jurisdiction, and (3) actually licensed and regulated by the defendant’s home jurisdiction.
So, if rule-abiding business owners shouldn’t spend sleepless nights waiting for a death penalty prosecution, what should they conclude from this memo? Foremost, they should recognize that their efforts to comply with state rules on marijuana are more essential than ever.
The Attorney General’s memo makes plain that federal prosecutors will aggressively pursue drug crimes. To the extent that a state-licensed business appears to those prosecutors to be violating local law and diverting marijuana to the criminal market or selling to minors, that is a prime target for aggressive enforcement. Savvy licensees are already building robust compliance programs to avoid providing any appearance that they are not in strict compliance with local rules. In a federal enforcement environment in which the Attorney General is encouraging prosecutions with a clear intent to deter bad actors in the future, those efforts become even more essential.
In short, the prospect of a death penalty prosecution of the owner of a rule-following, state-licensed marijuana business is very remote. The way to keep it very remote is to focus on efforts that demonstrate that you are, in fact, following the rules.
Michael Cooper is the co-founder and managing member of MadisonJay Solutions LLC, the leading regulatory advisor to adult-use cannabis companies. A graduate of Harvard College and Harvard Law School, he previously served as General Counsel of MHW, Ltd., a leading provider of compliance services in the beverage alcohol industry, and in the litigation department of Cravath, Swaine & Moore LLP, known as one of the nation’s premier law firms for nearly two centuries.
In order to run a successful PR campaign or build your own PR department you will need a set of tools that you can pull from again and again. Here are key strategies you need to tackle in order to build a successful toolkit.
Define your story. Story telling is at the heart of every PR campaign and will drive everything you do. As you know, cannabis is on fire wth new products introduced everyday. The ones who tell their story in a compelling way are the ones that will stand out. Ask yourself: how is your company, product, or service better or different than any other on the market? Is your product the first of its kind? Are you a bootstrap entrepreneur? Have you been a cannabis activist since the 90s? Does your company help people in need? Your story will be the DNA that is weaved throughout your toolkit, from your elevator speech to speaking to media.
Develop a media list. This list should have the following components: reporters’ names, titles, contact information, what they cover on their “beat,” —and this one is important—what you have pitched them and when you have pitched them. This is your guide to keeping organized and remembering who you’ve contacted. Cannabis beats are starting to fragment now into silos like “business,” “products,” and “lifestyles.” Don’t make the mistake of sending a business-focused press release to a lifestyle reporter. It’ll be ignored. There are companies like Meltwaterthat provide a comprehensive and constantly updated media data base. While there is a yearly subscription, it will help save an immense amount of time since pulling together a media list is time intensive.
Develop a media kit. When sending out a press release or pitching media, you should provide them with everything they need to run your news. Include facts about company executives and leaders as well as their headshots, a company overview, press releases, and compelling photos and images of your product or service. The goal of a media kit is to make it easy for reporters to understand the who, what, why, when and how of your company and its unique story. If reporters are provided with all this information (most importantly high-quality images and photography) at their fingertips, your chances of coverage increase. Your media kit should be online, digital, and easy to access.
Develop a press release. This could be its own blog but for now here are the key steps. Keep it simple. Stick to the who, what, where, when and how. Write a compelling headline that helps your news stand out and write the body of the release in the inverted pyramid style, meaning, have your most important information in the lead paragraph then include less important news below. (Industry secret: Most reporters will stop reading after the first paragraph. Make it a good one!) Write your press release in Associated Press (AP) style. This is the language that reporters understand and will recognize when they see it. Be upfront and transparent, clear and concise. Reporters are too busy to dig for the news in your release so keeping it simple will help you get more coverage.
Distributing your press release. Using your media list, send one email at a time (never do a mass, BCC: pitch), customize your email and make it personal. The goal here is to build relationships with reporters, not spam them. It’s important to follow up after sending your release but don’t make yourself a pest as reporters are overworked, cover myriad beats, and are always under deadline. Always. If you want a broader approach distribute your press release through a wire service. The huge advantage here is the breadth of media outlets your press release will get in front of, however, you won’t get that personal touch point. Wire services can be expensive but depending on the scope of your news, entirely worth it.
Leverage social media. Again, this could be its own post, but the short take is: use your social media channels (Facebook, Twitter, Instagram, LinkedIn) to announce your news. Since a press release is written in a specific style for reporters, feel free to re-craft for your social audience in a friendlier, accessible voice. Reach out to reporters on Twitter with your news (with a big caveat: some do and some do not like to be pitched on social media and in public; do your research before tweeting a pitch). Lastly, when and if you get any coverage, you must post it on your social media pages. It’s a powerful way to increase your visibility, build credibility, and connect with new followers.
Carol Ruiz is co-founder and Partner of Higher Ground PR and Marketing. Janitor, construction crew clean up, waitress, documentary filmmaker, adjunct professor… just a few of the paths Carol Ruiz walked before finally finding what she would do for the rest of her life.
At these former gigs, as founder of NewGround PR & Marketing (a highly regarded agency in the real estate space), at Higher Ground, and at dinner tables the world over, Carol is a storyteller. Storytelling being the heart and soul of public relations, it’s no surprise that Carol was drawn to the world of PR.
Member Blog: How CBD Helps Patients With Debilitating Conditions
As a dispensary budtender or owner, you always want to do everything you can to better serve your patients. Oftentimes, that means suggesting different strains and types of medical cannabis based on specific conditions and symptoms. To do that, you and the rest of the staff must understand the chemical makeup of marijuana, including the intricacies of cannabidiol and other cannabinoids.
Cannabidiol and Patients With Chronic Illness
Cannabidiol (CBD) is one of the two primary chemical compounds, or cannabinoids, found in the cannabis plant. The other is tetrahydrocannabinol, more commonly known as THC. However, unlike THC, CBD does not have the psychoactive properties that cause the user to feel high.
Instead, CBD alone can provide patients with many of the pain-relieving benefits of traditional marijuana products without creating that euphoric, but often debilitating, “stoned” feeling. This allows patients who prefer to avoid that effect — like children, the elderly, and recovering addicts — to still benefit from healing powers of medical cannabis.
So, CBD can be used to treat the pain that results from many conditions and symptoms, including cancer, epilepsy, lupus, Parkinson’s disease and related diseases. You can also use CBD to treat mental health conditions, such as anxiety, depression, obsessive-compulsive disorder, insomnia, and schizophrenia.
How Can Budtenders and Dispensary Owners Talk to Patients About CBD?
As budtenders, part of your job is helping patients understand how using CBD to treat chronic conditions can help them. Remember, most people probably have not heard of CBD, and patients may be hesitant to learn about it. Start by explaining the benefits of using only this cannabinoid, such as being able to avoid the high while still finding pain relief. If they seem interested, encourage them to ask questions and tell them more about the specific products that would best treat their symptoms.
A general rule of thumb when discussing marijuana strains is that indica strains — as well as indica-dominant hybrids — have higher CBD content, while sativa strains and sativa-dominant hybrids have a higher THC content. Of course, every strain has a different ratio of CBD-to-THC, but there are many that have little to no THC at all.
While the CBD strains a budtender should recommend will depend heavily on the patient’s specific symptoms, here are a few examples you can choose from:
Swiss Gold
Sour Tsunami
ACDC
Valentine X
Harlequin
Frequently Asked Questions About Cannabidiol
The best way to prepare for patients’ questions is to think about what they may be. Here are three common concerns patients will likely have about CBD:
Is It Safe for Children?
Yes — in fact, it’s incredibly beneficial for children suffering from epilepsy, specifically. One study found that epileptic children experienced an 80 percent reduction in seizures when they used cannabis with a high CBD content.
Will It Still Work?
While everyone reacts to marijuana differently, countless studies have shown CBD is effective in treating all sorts of health conditions and symptoms, like the ones discussed above.
How Can I Ingest CBD?
You can ingest or administer CBD the same ways you would take any other form of marijuana, including by smoking or vaping the herb or oil, eating or drinking an edible product, applying it as a topical lotion or taking a tincture or capsule. However, be sure to check your state’s laws on how you can take your medicine, as each has different guidelines.
Learn More About CBD and Patients With Chronic Illness From MarijuanaDoctors.com
Interested in learning more about how your dispensary can better serve its patients? MarijuanaDoctors.com provides patients with the resources needed to find a trusted doctor in their area and to find reputable dispensaries so that obtaining medication is simple. Check out our other resources at MarijuanaDoctors.com for more information. For even more benefits, register your dispensary with our site today.
Member Blog: Picking a Fabulous Flack (Part 1 of 3)
Media relations is the bread and butter of any PR campaign, and picking the best PR strategy for your company is crucial. PR is often confused with advertising and while the lines have blurred in recent years, there are still key differences between the two practices:
In the traditional sense, an “ad” is conceived, designed, written, and placed in a media outlet, for a fee. PR is “earned media” meaning that a PR pro has convinced (or “pitched”) a member of the media to write a positive article about a company, brand, product, dispensary, or service. A PR agent may have a fee, but there is no cost attached to the appearance of the article, and the article not filtered through the suspicion and cynicism through which many ads pass.
Consumers understand that ads are biased – towards the advertiser! But a positive news story, written by a journalist, has much more credibility.
An ad’s message has been brainstormed endlessly by countless “creatives.” But an article is articulated in the voice, and perspective, of the journalist. A good PR person knows how to increase a company’s chances of positive publicity by developing relationships and trust with journalists, pitching journalists whose style and tone indicate they are looking for a good story to tell, and providing training for spokespersons to stay “on message” in interviews.
The credibility of a positive article makes PR a very attractive opportunity in the cannabis industry, particularly given the unfriendliness of major companies like Google and Facebook. So, how do you decide the best approach? In-house? Hire an agency? What about budget?
PR salaries can range anywhere from the mid $50,000s to well into the six figures for management. Agencies will structure pricing differently, often with an hourly retainer. PR folks can be stereotyped as offering big promises with few results. Especially in an emerging industry, deep industry experience is uncommon. Experience in the field is a huge advantage as the agency will have already formed relationships with journalists who cover cannabis and will not have as big a learning curve when taking on a new client.
When interviewing agencies, ask candidates for the names of editors and/or reporters they frequently work with and then contact the top three for references. And, perhaps even more importantly, ask for references from other clients the agency has represented. And while you’re at it, ask about the agency’s philosophy on media outreach. If the company uses a shotgun approach by sending out massive amounts of press releases versus developing a client’s story fully and strategically communicating it to carefully researched journalists, it would be wise to move on to the next candidate. PR is all about story-telling and while press releases are a good occasional tool to disseminate big news, the most effective PR pros are good story-tellers who understand that identifying the right publications and journalists and providing customized pitches that resonate with the journalists are the ones who’ll be the most effective.
If an agency you are interviewing guarantees a specific number of articles per month or quarter, it might be a good idea to pass on engaging it. Nobody can guarantee a specific amount of media coverage. Instead, ask for case studies and past results for evidence of an agency’s success rate.
Cost is a factor and rates vary. Average hourly rates for an agency focusing on cannabis seem to be between $125 and $200 an hour, and with firms clamoring to enter the industry, you can swap experience for a lower rate (but be careful… no relationships with cannabis media can equal no coverage.) And perhaps the most important factor of all is culture. Do you like them? Do they vibe with you? It’s vital that an agency understands its clients to their core and acts as a true partner. In cannabis, there is inherently a social justice and activist component to the work. An agency who lacks in that sense of “mission” should raise a red flag. What we as an industry do know, and the maturity with which we do it, has a major role in determining our industry’s future. Don’t forget that!
Carol Ruiz is co-founder and Partner of Higher Ground PR and Marketing. Janitor, construction crew clean up, waitress, documentary filmmaker, adjunct professor… just a few of the paths Carol Ruiz walked before finally finding what she would do for the rest of her life.
At these former gigs, as founder of NewGround PR & Marketing (a highly regarded agency in the real estate space), at Higher Ground, and at dinner tables the world over, Carol is a storyteller. Storytelling being the heart and soul of public relations, it’s no surprise that Carol was drawn to the world of PR.
Juicing is an increasingly popular health trend. Many people, from nutritionists to athletes, are consuming pressed vegetable juices to get the nutrients contained in leafy greens like spinach and kale. But what about cannabis?
Health Benefits of the Cannabis Plant
The leaves of the cannabis plant are rich in antioxidants, polyphenols and antibiotics, along with cancer-reducing and anti-inflammatory compounds. In fact, the U.S. federal government found in pre-patent research that CBD, which is a cannabinoid found in raw cannabis, is a stronger antioxidant than vitamins C or E.
Along with its nutritional value, raw cannabis can provide therapeutic effects and promotes basic cell function – activating receptors in your brain, releasing antioxidants, and removing damaged cells from the body.
Studies have also shown that consuming raw cannabis has the potential to treat lupus, arthritis and neurodegenerative diseases, help stimulate appetite and decrease nausea, prevent the spread of malignant prostate cancer cells, and prevent cell damage that can lead to serious illness and poor health.
Consuming Raw Cannabis
Consuming raw cannabis does not cause the “high” feeling that one gets when smoking cannabis or consuming it via edibles. This is beneficial for those who do not enjoy the psychoactive feeling often associated with marijuana.
By consuming the plant raw, one can receive all the nutritional and health benefits of the plant without feeling stoned. In fact, it’s been reported that you lose 99% of the health benefits of the cannabis plant when you smoke or cook it.
Juicing marijuana is the easiest and most convenient and way to consume the nutrients found in raw cannabis. Juicing the leaves of raw marijuana extracts essential minerals, vitamins and antioxidants, including:
Iron
Zinc
Calcium
Potassium
Selenium
Carotenoids
In terms of dosage, one suggestion is to consume 30g of fresh cannabis leaves per day.
Tips for Juicing Raw Cannabis
Add in 2- to 4-inch buds and 15 large fan leaves into a juicer. You can use the juice in smoothies with other vegetable and fruit juices, or freeze the juice to make ice cubes. Freeze leftover leaves to preserve their nutrients for future juicing.
Additional Tips for Juicing Cannabis:
Don’t use dry cannabis or nuggets that have already been cured for smoking.
Look for small, sticky crystals on the flowers and make sure that buds are amber colored.
Combine 1-part cannabis juice to 10-parts carrot juice to help reduce cannabis bitterness.
Additional Raw Cannabis Information
When incorporating raw cannabis into your diet, there are side effects to consider, including allergic reactions, possible ingestion of insecticides and pesticides, and compromised immune system from possible pathogenic exposure.
Consuming raw cannabis isn’t the best solution for fast symptom relief. Typically, it takes about three days to notice benefits. For some, the benefits may not be noticed for four to eight weeks as the nutrients build in your system.
To learn more about the benefits of cannabis, or to find a medical marijuana-recommending physician near you, visit MarijuanaDoctors.com.
Jason Draizin is the Founder and CEO of the Medical Cannabis Network and MarijuanaDoctors.com. Founded in 2010, MarijuanaDoctors.com is a secure portal for qualifying patients looking to connect and schedule an appointment with medical marijuana-certified physicians. The site has assisted in the certification of more than 300,000 patients in the U.S., and has established a network of more than 700 physicians nationwide.
Partner Blog: Ohio’s Medical Marijuana Program Begins Taking Shape
by Thomas Rosenberger, Executive Director of NCIAO
More than a year after Ohio legalized medical marijuana, the first licenses have finally been awarded. The Ohio Department of Commerce ended months of speculation by announcing 12 level II cultivator license winners on November 3rd, and 12 level I cultivator license winners on November 30th.
These 24 winners are now responsible for growing the supply of medical marijuana Ohio’s patients will use, a population estimated to be in the hundreds of thousands. The medical marijuana market in Ohio is expected to be worth $300-400 million once it matures, making the limited number of licenses available immensely valuable.
While we now know who the 24 cultivators will be, Ohio’s medical marijuana program is still nine months away from its September 8th, 2018 deadline to be operational. Processing, dispensary and testing licenses have all yet to be awarded, and already controversy and lawsuits are threatening to derail and delay the program.
It’s a scenario we’ve seen repeatedly in other states such as Maryland, and a scenario for which the industry must work together to prevent in Ohio. The National Cannabis Industry Association of Ohio was formed in July to foster collaboration between members, promote best practices and to serve as the voice of the industry in Ohio.
We’ve spent the past 5 months advocating for the industry and working to provide feedback to state regulators on various aspects of the program. Moving forward, our priority will be on ensuring Ohio’s program meets its statutory deadlines and licensed cannabis businesses are able to begin serving Ohio’s patients by September 8th, 2018.
Now more than ever, it’s crucial the industry come together to ensure Ohio’s medical cannabis program is not delayed. Ohio’s patients have waited long enough for relief, and the industry has a responsibility to ensure they wait no longer.
NCIAO is the Ohio affiliate of the National Cannabis Industry Association, the nations only industry-led organization engaging in legislative efforts to expand and further legitimize the legal cannabis market in the U.S.
Member Blog: Customer Privacy – Keeping Personal Information Secure and Compliant
Despite the national trend toward legalization and a growing consensus of acceptance among Americans, privacy is still a chief concern among many legal cannabis consumers. And across the industry, no one bears the burden of these concerns more than cannabis retailers.
As a cannabis retailer, you’re pulled in several directions. First and foremost, you’re beholden to state reporting requirements; on the medical side, this means validating recommendation letters and patient identification and storing this information securely.
On the adult-use side, you’re torn between the need to collect certain customer information for marketing and sales purposes and the overwhelming fear and distrust from customers concerning their personal privacy.
It’s a delicate balancing act—and as requirements continue to evolve, retailers need a system in place that’s both functional and flexible.
Determining Your Dispensary’s Needs
As a cannabis retail owner, your number one priority is compliance. And when it comes to patient and customer privacy, you need to determine exactly what your state’s requirements are per your particular operation.
If you’re a medical dispensary, your data security needs are going to be much different from that of an adult-use retailer, and vice-versa. If you run a joint medical and adult-use operation, you’re going to have to find a solution that caters to both.
Legal states have widely disparate laws concerning patient/customer privacy and data collection. For example, Oregon passed legislation earlier this year making it illegal for recreational retailers to keep customer information—such as names, addresses and birthdates—on file for longer than 48 hours.
On the other hand, medical dispensaries need some sort of system for identifying patients and their doctor-certified cannabis recommendations, while both adult-use and medical operations need to be able to track sales to individuals to ensure transaction limits aren’t exceeded.
Finding a Solution That’s Right for You—and Your Customers
Even though state laws mandate cannabis sales tracking and reporting, state agencies are not providing dispensary owners the tools needed to perform these functions in the most efficient manner.
Some statewide reporting solutions offer point-of-sale software that retailers can choose to use. But, as we’ve seen with the ongoing kerfuffle that some states are experiencing with their chosen systems, these technologies are not always the most reliable.
In these instances of statewide system failures and security breaches, what becomes of your customers’ personal information?
Cannabis retailers need a solution that can be tailored to their particular operation—be it medical, adult-use or both—and that is flexible enough to keep up with constantly-changing privacy and information collecting requirements.
Additionally, dispensary owners need to know that in the event the state’s system crashes or is breached, they can record sales using excel spreadsheets or continue ringing sales if their retail software permits all while maintaining their customers’ privacy.
Gary Cohen leads Cova’s charge into the legal cannabis space by guiding the vision, strategic development, ‘go to market’ plans and culture. A Denver native, he recently moved back to establish Cova’s HQ there. While he joined Cova only a year ago, he was a successful business partner to Cova’s parent company since 2011.
Before joining Cova, Gary was a principal in over a dozen tech start-ups in the mobile communications industry ranging from small VC funded companies to Fortune 100 firms, including Onavo, which was later acquired by Facebook. In those companies he lead Sales, Marketing, Business Analytics and Market Expansions. He has also held a multitude of leadership roles with Verizon and AT&T for the first 15 years of the wireless industry.
Gary holds a Degree in Finance with a Masters in Marketing from the University of Colorado.
Legal and Banking Committee: White Paper – Financial Institutions
By Dana Chaves, Ms. Mary Staffing/Hybrid Payroll
Vice Chair of NCIA’s Legal and Banking Committee
During our inaugural meeting in Oakland California in June of 2017, the Legal and Banking Committee discussed the impending issues impacting the cannabis industry. It was decided that the biggest issue that needed immediate attention was of course banking and the inability for businesses in the cannabis space to obtain and maintain a checking account in order to pay taxes, bills and more importantly payroll for employees.
As a group we decided that writing a white paper and subsequently a supporting PowerPoint slide deck to present to financial institutions, executives and board members in a lunch-and-learn environment would be the most effective way to educate not only financial institutions but also state regulatory agencies as well on how to work together on the best practices for mitigating risks surrounding the Bank Secrecy Act and resources needed for compliance.
It is the hope of the LBC Committee to assist financial Institutions in a nationwide effort to begin the process of protecting the communities where marijuana is legal and by legitimizing the industry by allowing banking and lending services to both business owners and their employees.
In 2008, Michigan voters voted to legalize marijuana for medicinal use. Since 2008, dispensaries have been regulated for operation on a city or township level, and the city of Detroit was more welcoming to the cannabis industry than any other city in Michigan. On the busy street of 8 Mile in Detroit it seems like the neon green cross is on every other building for miles. The dispensaries have not been allowed to apply for a business license and so were not paying state taxes. This put the dispensaries in a gray area with the state. Legal or not, the cannabis industry in Michigan and especially in Detroit has been very lucrative.
In September of 2016 a bill was passed to grant licenses to dispensaries, cultivators, labs, extractors and transporters. Due to this bill, the Licensing and Regulatory Affairs (LARA) is accepting applications on December 15, 2017 for business licenses. The state passing a bill to accept licenses is great news for both the dispensaries and the state. The dispensaries will no longer have to look over their shoulder in fear of being shut down due to operating without a license and the state will receive tax revenue from the industry. However, the honeymoon came to an end when LARA also required dispensaries to shut down their operations effective on that same date of December 15, 2017 or risk being denied a business license. Even still with this plan the licenses will not be granted until the first quarter of 2018. This leaves a potential 3 month gap where the dispensaries will not be generating any revenue and more importantly patients can’t get their medication.
A number of dispensaries have shut their doors already in an attempt to curry favor with the state. Most dispensaries are remaining open to try and make as much revenue as they can before being out of business for an undetermined amount of time. While being out of commission for a few months will temporarily hurt Michigan’s cannabis industry, it is very important that if you are looking to re-open or start a cannabis operation that you fully understand the regulations. Unfortunately many cannabis operations may not be granted licenses and for some dispensaries December 15th will be their last day in business.
On September 21, 2017 the state did answer a big question that many in Michigan’s cannabis industry has been asking since 2016 when the state passed the bill to grant licenses: can one location have multiple licenses?
LARA made the decision that a location is allowed to operate multiple licenses if it meets the following criteria;
The Department authorizes the licenses to operate at the same location
The facility must have separate working areas, entrances, exits, point of sale operations and record keeping systems in place for each license.
The co-location is in keeping with local ordinance or zoning regulations.
The licensees comply with all local and state regulations for building inspection, fire safety and public health standards.
This is great news for Michigan’s cannabis businesses. This means a business can buy just one building and as long as it fits the above requirements their whole operation with multiple licenses can be ran out of one location instead of multiple locations. This will reduce cost and increase profits making the industry more attractive to businesses and investors.
As the December 15th deadline approaches, it is slowly being revealed and realized how the future of Michigan’s cannabis industry will look. As chaotic and uncertain Michigan’s cannabis industry is presently, I am excited about the direction it is headed and the possibilities and opportunities it can provide to my home state.
Please be prepared and don’t wait until the last minute to enter into this exciting new chapter of Michigan’s cannabis industry!
If you are to apply to any of the five licenses, please make sure you review House Bill 4209.
Kefentse Mandisa is a broker at Mandisa Risk Advisors.MRA is an insurance agency and risk management consulting group that provides superior service and products to their clients.
As a specialized insurance agency they provide services to the cannabis industry. This includes dispensaries, cultivators, processors, landlords and physicians to name a few.
MRA being narrowly focused on the industries they have a strong expertise, allows them to better serve their clients.
Member Blog: 3 Typical Challenges Associated with Cannabis Marketing
Although the world is beginning to wake up to the benefits as well as the drawbacks of marijuana, stigma still remains. For that reason, then, businesses who are trying to market the nowgrowing and improving marijuana industry can find that it’s more of a challenge than they would have expected. While some people are happy to look beyond the stigma, many others area little less capable of doing so. This poses particularly unique problems in terms of strategy for the cannabis marketing industry.
What, then, should newbies trying to promote cannabis and marijuana appreciate about the challenges ahead?
The Regulation Challenge
The first problem stems from the challenges of regulation. Given that many government authorities have yet to legalize marijuana, it can still be a challenge to get spotted on search engines. Many marketing programs such as pay-per-click marketingtry to forbid such content, and thus it can be hard to make a push through traditional marketing means when it comes to marijuana.
Some areas are lax, but FDA regulation – amongst other government authorities-still say no. As such, the regulation issue makes it hard to use the most powerful channels to market the message properly.
Brand Identity
In such a specific topic and market, it has become increasingly challenging for people to build what would be a normal brand identity. This means that for most businesses in the cannabis industry, following the typical accepted wisdom of marketing is not quite as easy as it may have once seemed.
It’s hard to get a development and a design that is going to help make sure a cannabis business can grow people outside of those already looking for the topic. The main challenge isn’t so much being spotted, but being able to appeal to people who don’t already use the plant.
One way that is possible is by maintaining ahigh quality blog, where all types of questions are being answered. Another must is having a good “about us” page to show that you are a real company, just like other companies that people might be more familiar with. Lastly, you could always start a museum and work on reaching a bigger audience from there.
Lack of Traditional Opportunity
Another major issue is that the selling of cannabis is hardly a suitable connection to the likes of B2B marketing, direct mail programs, e-mail marketing, broadcast media and various other popular forms of marketing. For that reason, it has become a rather complex battle for businesses to try and overcome. At the moment, there is a major lack of traditional marketing opportunity for those who are looking to try and make their mark as time goes on.
Unsure how to make that stick? The challenges are going to exist for some time. It’s recommended that anyone looking at making themselves part of the thriving cannabis industry realizes that the typical modern forms of marketing have not yet caught smoke in this part of the industry.
It’s very hard to offer the kind of marketing arm that you would expect when it comes to promoting a product with such a splintered history and past. While possible, there is a huge amount of work, planning and preparation needed before those looking to make their first steps into the marijuana industry can ensure their message is both heard and taken seriously.
And, let’s keep in mind: If it’s hard, it means that not many people can make it work, so if you succeed, you’re one of the lucky few and you truly stand out.
Daniel Ramirez is the Chief Marketing Officer for Belladonna Growhouse, a fully licensed i502 producer/processor in Washington State. In addition to his work with Belladonna, Daniel owns and operates a marketing company specializing in online PR, social media marketing, branding and lead generation. Daniel is a graduate of San Diego State University with a bachelor’s degree in Business Management with a focus in Entrepreneurship. Daniel is passionate about normalizing the responsible use of legal cannabis and shedding the stigma associatedwith the plant.
In an increasingly hostile marijuana environment championed by Attorney General Jeff Sessions, tracking of marijuana from “seed to sale” is more critical than ever. All other threats aside, if you can’t document it, you’re in trouble.
And, that’s not just at a federal level. In an effort to document total compliance and control of this rapidly-growing industry, states have taken it upon themselves to require comprehensive due diligence from all cannabis purveyors.
Forbes magazine addresses this in a recent article entitled, “Tracking America’s Cannabis Industry Through Big Data.” Citing Colorado, the article states in part, “This harnessing of an information technology to track the cannabis market is key to Colorado’s forceful march towards creating a thriving legal marijuana industry. Crucially, the state’s ability to use tracking and Big Data could provide a reference point for other jurisdictions interested in the regulatory potential offered by tracking. This ‘closed loop’ ‘seed to sale’ inventory tracking system embodies a ‘full traceability’ mode…”
The article continues, “The use of tracking as a regulatory device is expanding, operating in Oregon, Maryland and Alaska. There are other cannabis tracking companies such as MJ Freeway operating in Nevada and BioTrackTHC in Washington, New Mexico, Illinois, New York, and Hawaii. After all, tracking is part of day to day life. We track parcels and Uber drivers with our phones while retailers track us through those pesky cookies on our computers. Whatever the context, whether it is a regulator or us doing the tracking or whether it is marijuana or us being tracked, the technology is an essential part of contemporary commercial and regulatory life.”
Cannabis Barcode labels to the rescue An established staple in retail and inventory environments, barcodes/QR codes facilitate trackability. Now that message is resonating in the cannabis industry. A primer in motherboard.vice.com points out, “Walk into any licensed cannabis grow op in Colorado and one of the first things you’ll notice are the barcodes.” They point out in another article, “There are a number of advantages of having a bar code for cannabis growers, producers and retailers. The most important is proper inventory control – which is mandated, in Washington, by the Washington State Liquor Control Board. Having bar codes on inventory items allows rapid identification of specific SKUs. The likelihood of inventory quantity irregularities is greatly reduced.”
They also emphasize, “The reasoning behind implementing these cannabis surveillance systems is pretty straight forward. Since cannabis is still illegal on a federal level, the burden is on the states that have legalized weed to prove that legalization has not aided black market activity.”
Systems spring up to support tracking Regardless of what type of cannabis tracking label is used, sophisticated systems are springing up to oversee the entire process. An article in the Cannabis Industry Journal entitled “The Importance of Traceability” cites insights of Cody Stiffler of BioTrackTHC, one such system, at a Cannabis Labs Conference in 2016: “The primary goals of a traceability system, according to Stiffler, are to prevent diversion and promote public safety. Our software helps get safe products to patients and consumers in a responsible manner. BioTrackTHC’s tracking software covers everything from seed to sale, involving regulatory bodies in oversight. In the beginning of cultivation, each plant is assigned a bar code or sixteen-digit identifier.”
While “location, location, location” is the driver in real estate, “tracking, tracking, tracking” is the name of the game in the cannabis industry.
Mark Lusky is a marketing specialist who has worked with Lightning Labels since 2008.Lightning Labels uses state-of-the-art printing technology to provide affordable, full-color custom labels and stickers of all shapes and sizes, along with barcode labels and consecutive numbering. From small orders for individuals, to the bulk needs of big businesses, Lightning Labels is equipped to handle and fulfill custom label and sticker projects of all types. Lightning Labels was established in 2002 and based in Denver, Colorado.
Granting credit has not yet become standard in the cannabis market, but as discussed in my article “Trade Credit in Cannabis,” published in the May issue of mg, I believe it will be in the future. Therefore, it is important that a company create a credit policy to define how it will manage its credit and collection processes and evaluate credit risk. Once that is accomplished, the next, and most important, step is to develop a credit application.
Why do you need a credit application?
A credit application provides basic information about a customer’s business and offers measures of protection that will increase the ultimate collectability of an account if the customer doesn’t pay. Companies in the cannabis market may aid their collection efforts by requiring all customers, even those that are on cash terms, fill out a credit application. I cannot emphasize enough how many times my firm, AG Adjustments (AGA), has been successful in recovering a client’s past-due monies because the clients took a proactive approach and obtained a well-drawn-up credit application.
The credit application is one of the primary tools available for protecting a company and controlling credit risk when extending trade credit to customers. Remember, taking a check from a customer is a form of credit. Even customers who are paying cash on delivery should fill out a credit application.
What is a credit application?
A credit application is a contract between seller and buyer. A good credit application will benefit the seller; a bad one, the buyer. Therefore, it is important to be certain the credit application, whether electronic or on paper, contains all the safeguards and guarantees available to reduce risk.
Securing a credit application does not guarantee payment, but it is one of the more significant documents to assist in making good credit decisions and ultimately collecting past-due accounts receivable and associated collection fees. The adage “the sale is not complete until the money is in the bank” is as true today as ever. A good credit application will assist in getting money into the bank.
What do companies selling into the cannabis market need to know to control credit risk?
A credit application is the first step in gathering information about potential customers. Even if customers pay in cash, the day will come when that system changes, and getting information about accounts at the start of business relationship is key. The more you know about its debtors, the better. In addition, collecting credit information will make it easier to determine exactly how much credit to extend a customer.
Never assume all information on the application is correct. Verify the information provided before granting credit. The sales department must make sure every customer fills out and signs a credit application prior to delivery of any goods or services, even if the customer is paying C.O.D.
A credit application serves two purposes: It is a data-gathering tool and a contract. As a contract, it specifies the rights and obligations of both the customer and the creditor. The application should be written in a way that provides the creditor an advantage if business relationship with the client falters. As the saying goes, “Credit is not a right but a privilege.”
Verifying the credit application
The first thing to do once an application is obtain a commercial credit report from a leading credit bureau such as Dun & Bradstreet or Experian. Many prospective customers may not have a lengthy credit history, but that will change as the cannabis industry moves forward. Contact at least three trade-credit references, as well as the applicant’s bank, to verify the existence of accounts. Be sure all references are legitimate, or at least exist if one or more are difficult to contact. Any false information on the credit application is a strong indicator the potential customer may not be reliable. If the buyer is looking for a substantial credit line, review their financials, especially a statement of cash flow. If the applicant is operating in a negative cash position, ensure they will have enough cash available to pay their debt. Limit their credit line or, at the very least, modify payment terms if it seems an applicant may have a cash flow problem.
After credit is extended
Periodic credit reviews are a necessity. Account defaults arise with existing long-term customers as well as new ones. Customer credit limits should be reviewed periodically—at minimum, once a year. Obtaining current credit bureau reports about the largest customers annually is a good idea. Stay on top of aging accounts receivable. If a customer is always sixty to ninety days past-due on part of their balance, they are only one period away from becoming a problem.
When trade credit becomes the norm in the cannabis industry, asking a new customer to fill out a credit application will become standard practice. Currently, this is not the case in the cannabis industry; nevertheless, AGA recommends companies operating in the market implement sound credit policies and processes now in order to prepare for the near future.
Sam Fensterstock is the SVP of Business Development at AG Adjustments, a leading provider of 3rd party commercial collection services and a member of the NCIA’s Finance & Insurance Committee. Sam has spent his entire business career as an entrepreneur and senior executive in the commercial credit & collection space. He has been a founder and played a key role in the dynamic growth of several leading niche commercial credit risk management companies and is considered an expert in the order to cash and credit and collection process. Prior to joining AG Adjustments, Sam was the Director of Business Development at PredictiveMetrics, a statistical based credit and collection scoring and modeling company that he helped grow and sell to SunGard (FIS) in 2011. Sam can be reached at samf@agaltd.com or 631-719-8096.
Photo Credit: Cafe Credit via Flickr, under the Creative Commons License
Member Blog: How To Choose a POS System For Your Cannabis Retail Operation
It’s fair to say that most businesses will have a higher rate of success when they utilize tools designed with their industry in mind. Running a retail operation in the cannabis industry is no different. In fact, the success rate is likely much higher due to the strict regulations put in place by states to address diversion, public safety and health concerns.
With that in mind, I think it’s safe to say that a cannabis point-of-sale system is one of the most important investments a retail operation will make when opening a dispensary. The right point-of-sale system will not only help operators maintain compliance, but it should also save time and money by providing inventory insight, maximizing sales per customer, and seamlessly integrating with other technology.
In addition to streamlining operations, dispensary owners should also feel confident that customer information is secure, and that fast transaction time is maintained even when traffic is heavier than usual. At the end of the day, your cannabis point-of-sale system should work for you.
Let’s be honest, today’s market is crowded. Dispensary owners now have more than 40 point-of-sale options that promote their ability to optimize operations, acquire new customers, and maintain that customer base. But there are only a few key players who do well in this space, and each of them has pros and cons.
As the industry grows, we want dispensary owners to know that not all cannabis point-of-sale systems are created equal. It’s critical that you take the time to examine each tool to determine what will work best for your operation, be it full vertical or one dispensary location.
That’s why my team and I created a guide as a primer on point-of-sale tech for both new and veteran dispensary owners. We’ve researched information from across the spectrum and organized it into categories to help you navigate this major piece of the dispensary ecosystem.
Gary Cohen, CEO of Cova, leads Cova’s charge into the legal cannabis space by guiding the vision, strategic development, ‘go to market’ plans and culture. A Denver native, he recently moved back to establish Cova’s HQ there. While he joined Cova only a year ago, he was a successful business partner to Cova’s parent company since 2011.
Before joining Cova, Gary was a principal in over a dozen tech start-ups in the mobile communications industry ranging from small VC funded companies to Fortune 100 firms, including Onavo, which was later acquired by Facebook. In those companies he lead Sales, Marketing, Business Analytics and Market Expansions. He has also held a multitude of leadership roles with Verizon and AT&T for the first 15 years of the wireless industry.
Gary holds a Degree in Finance with a Masters in Marketing from the University of Colorado. In his spare time Gary enjoys skiing, mountain biking, outdoor sports, travel and comfort food.
Member Blog: “Don’t hate me because I’m beautiful!” (part 2 of 2)
Celebrating excellence in branding, packaging and marketing within the cannabis industry
In part 1, we explored the development of the Canndescent brand and the steps they took to launch that gorgeous canna-business. Today, we turn our eyes to hmbldt, one of the most stunning brands to recently burst upon our burgeoning industry.
Last November, while walking through the MJ Business Expo in Vegas, one exhibit caught my eye. hmbldt. Actually, I couldn’t take my eyes off their logo. It was stunning in its simplicity. The one thing I can say about these guys is they don’t like vowels. Just kidding. They fricken’ nailed it!
I loved the contemporary clean lines, the white space and the naming-by-effect convention. The packaging itself was a very well executed combination of color-coded rigid boxes with inserts, and folding carton sleeves.
When I see great work, I get excited! I know, I know… I’m just a branding and packaging geek, I can’t help myself!
Recently, I got a chance to talk to Derek McCarty, CMO of hmbldt, regarding their brand development. He credits their creative partners, Anomoly (2017 Agency of the year – Ad Age) with not only their brand and packaging development, but also the product development. “They are true strategic partners in every sense of the word,” he said. In fact, the agency has a stake in the company, as well as its founding member sitting on hmbldt’s board.
The first employee hired by hmbldt was Derek McCarty, a seasoned brand strategist. Hmmm… with priorities like that, no wonder hmbldt launched at the top of the heap. And it didn’t hurt that Time Magazine named their innovative vaping device one of the Top 25 Inventions of 2017.
“We launched in September and received the award in November. Of course, the award added credibility to the product and propelled sales throughout the state quickly. While we were extremely pleased with the award, we were elated that mainstream media led with the health benefits of cannabis in this instance,” Derek told me.
When asked how long it took to develop the brand, McCarty replied, “Our brand is a living, breathing, dynamic thing… the development will never stop. The hmbldt brand is the sum of all parts.”
And those are very nice parts, indeed.
Discussing his favorite cannabis brands, Derek cited Lord Jones and DeFonce as his favorites for product positioning, and Jetty and Bloom Farms as his choice for best benefit positioning. Adrian from Canndescent also touted Bloom Farms for strong messaging and PAX for overall brand and product positioning.
When I look at amazing brands like these, I like to believe there is something we can learn from them. I asked Derek what advice he would give to a fellow canna-prenuer on building a great brand. “Be creative in how you find strategic partners,” he said. “Look for a mutually beneficial, great value exchange. As with any great partnership, it must be a win-win for both sides.”
Adrian offered this advice. “Hold yourself to a simple standard that begins with compliance. Build a solid platform and write a good business plan. With that in place, the money and great people will follow, allowing you to create your own unique brand that solves a problem,” he said.
A world-class brand doesn’t just happen… let alone two. I’ve learned from these brands that they have succeeded by paying close attention to the details and focusing on quality in everything they do, in everything they touch. They chose their partners carefully and began with a compliant platform.
I am grateful to each of them for creating beauty in a rather barren landscape. For giving us greatness to aspire to and for helping to elevate the image of our industry just by entering it.
Thank you!
Kary Radestock, CEO, launched Hippo Premium Packaging in March 2016 offering an array of services to the cannabis market, including: Marketing Strategy, Brand Development, Social Media, Public Relations, Graphic and Web Design, and of course, Printing and Packaging. Radestock brings over 20 years of award-winning print and packaging expertise, and leads a team of the nation’s top brand builders, marketers and print production experts. Hippo works with businesses looking for a brand refresh or an entire brand development, and specializes in helping canna-business get their products to market in the most beautiful and affordable way possible. Radestock’s Creative Collective of talent and experts, allows her to offer world-class solutions to support the unique needs of the Cannabis Industry.
Member Blog: Financing Options for Cannabis Businesses – How to Plan, Prepare and Present
Most business owners in the cannabis space will experience the need for capital to start or expand their business. While there are a variety of options when it comes to financing, there are a few important keys to being a smart borrower.
I speak frequently about the need to start the financing process off on the right foot. As a veteran of the commercial finance industry, I have helped dozens of cannabis businesses secure capital. The most common types of financing requests we see are for equipment, working capital, or real estate loans. I believe there are three P’s critical to getting financing to launch or grow your marijuana business: Plan, Prepare and Present to the right people.
Plan
During the planning phase, consider whether you’ll be seeking debt or equity. To understand which funding sources may be the best fit, start by asking yourself several questions. What will the money be used for? How much is required? What is the timeline to be able to repay the loan?
After answering a few important questions about your business and researching the types of financing sources available, decide whether a debt- or equity-based funding source is the best option.
Keep in mind, lenders look at things very differently than investors do. By nature, lenders are focused on the return on their investment with regular payments over a period of time at a set rate. This is different than an equity investor, who has a longer time horizon to be repaid and is seeking a significantly higher return on capital.
Prepare
Next, gather your financial documents, including your credit report, tax returns, personal financial statements, and any current company financials.
Consider having a CPA review or audit your financials before your meet with prospective lending sources, especially if you are considering debt-based options. Lenders are specifically interested in your balance sheet, income statement, and liabilities to confirm that you have the ability to repay your loan.
Once you have prepared your documents, it’s time to start formulating your business plan and executive summary for your presentations. An effective executive summary is a concise one- to two-page pitch describing your business, the funding you are seeking, and how the funding will be used. A 10-point guide to creating an effective executive summary is available here.
Present
Before you can present, you must have a solid grasp on your audience, which is why it’s important to determine early on the type of financing that may be suitable for the stage and trajectory of your business.
After identifying the appropriate financing source(s), it’s time to prepare for meetings. With your executive summary, business plan, and financials documents in order, you will be in a better position to make a good impression and obtain the funding you are seeking.
In my experience, answering questions directly and providing information quickly when requested are two keys to a successful meeting with a potential financing source. Lastly, ask thoughtful questions, such as “what are your funding criteria?” to help you learn more about what those funding sources consider important and to decide if you should continue to invest time and energy pursuing those relationships.
Scott Jordan is Director of Business Development for Dynamic Alternative Finance. He has arranged over $27 million in loans and equipment leases for cannabis business owners in the past two years. Scott is a commercial finance expert known throughout the marijuana industry. He has been interviewed by local TV and radio stations, authored articles and been a featured speaker at national conferences. Reach him at 303.754.2050 or s.Jordan@dynaltfinance.com.
Member Blog: The Little-Known – and Critical – Exception to Federal Paraphernalia Laws
Last month, the Boulder Daily Camerareported on the case of Stashlogix, a manufacturer of lockable storage containers whose shipment of products was seized by U.S. Customs and Border Protection (CBP). That seizure followed an earlier warning letter from CBP, which advised the company that the containers could not be imported.
The Washington Postprovided excerpts from the correspondence between CBP and Stashlogix after the seizure:
“This is to officially notify you that Customs and Border Protection seized the property described below at Los Angeles International Airport on April 28, 2017,” the letter read. The agency had seized 1,000 of Stone’s storage bags, valued at $12,000. CBP said the bags were subject to forfeiture because “it is unlawful for any person to import drug paraphernalia.”
In a separate letter explaining the ruling, CBP acknowledged that “standing alone, the Stashlogix storage case can be viewed as a multi-purpose storage case with no association with or to controlled substances.” However, it noted that the storage cases come with an odor-absorbing carbon insert that could be used to conceal the smell of marijuana.
A representative of CBP provided further insight into the thinking within the agency:
Jaime Ruiz, a public affairs agent with the CBP, said that because it remains illegal under federal law, importing any drug or associated products into the country is prohibited, even if it comes through a port in a state where pot is allowed.
When it comes to drugs and related products, he said, “we’re enforcing (Drug Enforcement Administration) guidance. So if it looks like drug paraphernalia, they’ll stop and inspect it and make the best determination.”
In asserting that this activity is unlawful, the CBP is basing that assertion on the federal paraphernalia statute (21 U.S.C. 863), which provides:
“It is unlawful for any person
(1) to sell or offer for sale drug paraphernalia;
(2) to use the mails or any other facility of interstate commerce to transport drug paraphernalia; or
(3) to import or export drug paraphernalia.” (21 U.S.C. 863(a))
Drug paraphernalia is defined as
“any equipment, product, or material of any kind which is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing, processing, preparing, injecting, ingesting, inhaling, or otherwise introducing into the human body a controlled substance, possession of which is unlawful under this subchapter.” (21 U.S.C. 863(d))
So it seems that in this case, CBP seized these lockable storage containers because they believe they were intended to “conceal” cannabis. This is quite a position for CBP to take, since the containers – whether they were for cannabis, tobacco, or prescription drugs – seem to have a primary purpose of keeping substances out of the hands of kids. If these products were not “concealed,” they might be accidentally ingested by small children.
But there is a more significant issue here that both CBP and the media did not address. What they ignored is a significant exception to the federal paraphernalia laws. At the end of the paraphernalia statute is this provision:
(f) Exemptions. This section shall not apply to—
(1) any person authorized by local, State, or Federal law to manufacture, possess, or distribute such items
As with any aspect of the law, there can be differences of opinion over how a statute should be interpreted. And the federal government may have its own interpretation of the exemption to the paraphernalia statute. The plain language, however, is pretty straightforward. If you are authorized to manufacture, possess, or distribute certain items, then you are exempt from the prohibitions in that section.
Note that the exemption states, “This section shall not apply…” It does not say, “Prohibitions on manufacturing, possession, or distributions shall not apply…” It says, “This section…” And what is included in the section? The prohibition on importing paraphernalia. The plain language of the statute, therefore, suggests that the prohibition on importing paraphernalia does not apply to an individual who is authorized to manufacture, possess, or distribute paraphernalia under state law.
The federal paraphernalia exemption is so significant that it was used as a model for a bill introduced by Rep. Dana Rohrabacher, which has 22 co-sponsors (11 Republicans and 11 Democrats) as of this writing. The Respect State Marijuana Laws Act of 2017 adds one sentence at the end of the Controlled Substance Act:
Part G of the Controlled Substances Act (21 U.S.C. 801 et seq.) is amended by adding at the end the following:
“SEC. 710. RULE REGARDING APPLICATION TO MARIHUANA.
“Notwithstanding any other provision of law, the provisions of this subchapter related to marihuana shall not apply to any person acting in compliance with State laws relating to the production, possession, distribution, dispensation, administration, or delivery of marihuana.”
The drafters of cannabis-related ballot initiatives have been aware of the paraphernalia exemption for quite some time and have intentionally addressed paraphernalia – often called “marijuana accessories” – in the measures so that the federal exemption would apply.
In 2012, Colorado’s Amendment 64 provided that the following acts would no longer be an offense under Colorado law for persons twenty-one years of age or older: “manufacture, possession, or purchase of marijuana accessories or the sale of marijuana accessories to a person who is twenty-one years of age or older.”
California’s Proposition 64 in 2016 took the additional step of expressly connecting state law and the federal paraphernalia exemption, by providing:
11362.1.
(a) Subject to Sections 11362.2, 11362.3, 11362.4, and 11362.45, but notwithstanding any other provision of law, it shall be lawful under state and local law, and shall not be a violation of state or local law, for persons 21 years of age or older to:
[…]
(5) Possess, transport, purchase, obtain, use, manufacture, or give away marijuana accessories to persons 21 years of age or older without any compensation whatsoever.
(b) Paragraph (5) of subdivision (a) is intended to meet the requirements of subdivision (f) of Section 863 of Title 21 of the United States Code (21 U.S.C. § 863(f)) by authorizing, under state law, any person in compliance with this section to manufacture, possess, or distribute marijuana accessories.
The cannabis industry faces a host of difficulties stemming from the disparity between state and federal laws. The challenges and risks associated with these differences have become an accepted cost of doing business. But where federal law provides a clear exemption for certain state-legal activity, the federal government should ensure that its activities are consistent with law. In this case, it seems far from clear that they are.
This blog post does not provide legal advice. It is intended for general informational purposes only. If you need legal advice, please contact an attorney directly.
Steve Fox, Esq., Director of VS Strategies, has, since 2002, been one of the leading figures in the movement to create a legal, regulated marijuana market in the United States. He is a co-founder of the National Cannabis Industry Association and currently serves as the director of NCIA’s Policy Council. In seven years at the Marijuana Policy Project, he lobbied Congress and guided numerous ballot initiative campaigns, including the 2012 Amendment 64 campaign in Colorado.
Member Blog: How to Build a Financial Backbone for Your Cannabis Company
As cannabis laws liberalize across the nation, entrepreneurs and emerging companies are racing to make their mark and stake their claim in the market. The road to legitimacy goes beyond votes, however—it requires companies wanting to play a significant role in this market to grow, attract investors, and constantly prove their credibility and worth.
A focus on the finance and accounting side of the business will make a difference in setting apart companies as the competition continues to heat up. Here are five key ways to elevate as a qualified, proficient operation.
View financial discipline as a necessity. Financial statements are the language of business. Accurate and timely financial reports don’t tell you how to run the business but show you how well it’s doing. Which product lines are turning a profit? What do the trends tell you? How does cash flow look over the next couple of months—and year? Are you properly accounting for all costs to accurately track margins?
The questions are many, and only with a solid accounting foundation to provide management with the answers you need—and reliable financial statements to tell the story—can you confidently move forward with decision-making.
Bolster your internal controls. Here’s a scary thought: 75% of companies experience fraud, and in most cases, the biggest fraud threat comes from within. In this industry, the threats are even higher as long as issues at the federal level keep companies mostly cash-based operations.
To ensure checks and balances exist, a working set of internal controls is critical. For instance, do you have adequate segregation of duties, or does one person have a hand in everything? Do you perform regular cycle counts in inventory? Your internal controls can ensure that you’re keeping tabs on critical items—a must for meeting the evolving tracking and tracing requirements set by the cities, counties, and states where you do business. The controls can be simple, designed for the size of your company, but be sure they can scale as you grow.
Be ready for investors. Even if you’re nowhere near a funding round or an exit seems a lifetime away, it’s always smart thinking to factor in what investors want. They’ll want to know your history and to see whether the business is well run. Reliable financial statements are one way to get their attention. You’ll also need to show them key performance metrics, specific to your business, that you’ve tracked over time.
They’ll be most interested in signs of financial discipline that you’ve ideally ingrained in the business. This discipline reflects favorably on management in any industry and drives home management’s capabilities to investors.
Be nimble. Successful companies look to today (day-to-day operations), tomorrow (what’s needed in the next 12-18 months) and the future (3-5 years). Their strategic planning efforts make room for pivoting for the unexpected. By making sure their financial plans are in sync with other operational plans, companies can pull off fast moves smoothly with full awareness of how one change impacts another part of the business and the company as a whole. Being nimble allows you to pivot, as necessary, when market forces out of your control (new regulation or a sudden surge in orders) require you to consider alternative moves.
Calibrate for rapid growth. Plot out the critical resources you’ll need as you progress through the phases of your business. This means striking the right balance with the people you hire and outsource, the processes you adopt, and systems you put in place.
It’s especially important to master this skill when the company is in rapid growth mode and looking to ramp up. It may be time for a big upgrade, for instance, if your current systems can’t track inventory. Dealing with an overstretched team? Expanding too quickly could alleviate the issue, but if revenue doesn’t pan out as expected, you could end up in a bind.
Get Ahead of the 8 Ball
As finance and accounting consultants who help businesses navigate the ever-changing environment in California, we know that both landmines and opportunities await businesses in the legal cannabis market. Cannabis companiesare preparing for the real possibility of hyper-growth and increased competition but need to tread carefully to avoid burning out before that day comes.
What’s going to set your company apart from every new competitor that muscles its way in? Financial discipline—companies need to step up their game to put themselves on the same playing field where others already are and to stay competitive as newcomers enter the market. If done correctly, your financial infrastructure will help to guide your decisions, tell your story to those who evaluate your growth capital needs, and scale with you. Prioritize it if you want a prominent spot on the playing field.
Maureen Ryan, vice president, heads up business development at finance and accounting consulting firm RoseRyan. From the early startup to the large enterprise, she has seen the emotional rollercoaster of finance challenges at cannabis businesses, tech companies and other fast-paced organizations. She can be reached at mryan@roseryan.com.
Chris Vane is a director at RoseRyan, where he leads the development of the firm’s cleantech and high tech practices. He helps fast-moving companies calm the chaos with precision finance at any stage. He can be reached at cvane@roseryan.com.
52% of American adults have tried cannabis at some point in their lives.
22% of Americans use cannabis. 63% of cannabis users are regular users.
About half of cannabis users are parents: 54% of cannabis users and 51% of those who use cannabis regularly (at least once a month).
56% of Americans think that cannabis use is socially acceptable.
Over half of Americans don’t think less of professionals or athletes for using cannabis in their free time.
79% of Americans would lose respect for parents who use cannabis in front of their children.
27% of those who don’t use cannabis say the main reason is its legal status under federal law.
Cannabis users are open about their use. 95% of them have told their significant other and close friends about their use. 72% told their parents about use. 60% told their kids.
CBS released a poll that surveyed voters about the legality and health effects of cannabis on April 20th, 2017, and below is a list of key findings:
71% would oppose a federal government crackdown on cannabis sales in states where cannabis is legal.
65% of voters believe cannabis is less dangerous than other drugs.
53% believe it is less dangerous than alcohol.
Quinnipiac University released a poll that surveyed American voters on April 20th, 2017, and here are the key findings on cannabis:
76% of people think that the drug classification of cannabis should be lowered.
An overwhelming majority of people, 94%, believe that doctors should be able to prescribe medical cannabis to patients.
60% of voters believe that cannabis should be legal in the U.S.
The findings from these polls show that there is an overwhelming amount of support for cannabis legalization despite its legal status and current drug scheduling. With this much support, having the drug rescheduled and national legalization are now realistic concepts.
Sarah DeMeo is a Public Affairs and Policy Intern at CannaCraft, Inc., the parent company of Care by Design. She has an interest in where both citizens and lawmakers stand on cannabis, and how their standings impact cannabis legislation. She is pursuing degrees in business and statistics. In her free time, she enjoys reading, writing, and hiking.
Member Blog: Don’t hate me because I’m beautiful! (Part 1 of 2)
Celebrating excellence in branding, packaging, and marketing within the cannabis industry
There is so much talk about the lack of sophisticated branding in the cannabis space. And while it is true that there are many look-alike logos and a plethora of cannabis leaves in way too many brands, there is some great work being produced that deserves to be recognized. This inaugural blog will highlight two brands that recently exploded on the scene that bring a sophistication that is often lacking in the cannabis sector. They are: hmbldt and Canndescent. We will look at Canndescent in Part 1 of this blog.
I was recently meeting with a client, Adam, a successful dispensary owner in San Diego, when in walks this beautifully branded, big glossy white, litho-wrapped, corrugated box with the word Canndescent on it.
I was awestruck. Adam opened it and said, “Wait until you look inside!” I was like a kid on Christmas morning as Adam unveiled a simple and tastefully branded 1 lb. flexible bag containing beautiful flowers.
“Wow… Just wow,” was about all I could say.
About a month later back in his office, Adam whipped out a pretty little orange box and asked, “Why aren’t we doing something like this?” I grabbed the package from him and exclaimed, “Holy cow! This is amazing!”
I like to remember my initial exposure to a company – it’s the moment I first fall in love with the brand.
Canndescent, co-founded by Adrian Sedlin and his brother-in-law, was officially launched in September 2016 when the team secured a $6.5MM investment deal and opened the first municipally permitted cultivation facility in the state of California. I was recently fortunate enough to visit that facility and talk to Adrian at length.
I found out that this wasn’t Adrian’s first rodeo. Armed with an MBA from Harvard and four other successful businesses ventures under his belt, he turned his eye to the cannabis industry. “My partner heads up our grow team, who have a combined 200 years of cannabis growing experience. Our goal was to build an iconic brand that changes the way the industry is perceived,” he said.
By the time the money came in, the management team had already reviewed over 500 logos from an online search process (and no, the Canndescent logo you see was not among them). In addition, they had already decided on Sterling Brands, an award-winning, international brand development agency, to assist in their brand development.
“Sterling did an incredible job helping to build the brand DNA – the effects-based architecture to simplify the cannabis experience and cut through the noise,” Adrian commented. “This is an archaic industry, and the thousands of cannabis strains are confusing to the general consumer,” he added. “Great brands are created to solve a problem. Canndescent makes a brand promise to help our customers curate their own cannabis-induced experience, while simplifying the process.”
With effect names like Calm, Cruise, Create, Connect and Charge, the consumer can easily choose the appropriate product based on how they wish to feel at any given time. It takes the guessing game out of the equation.
Adrian admitted that the logo was derived from all the “C’s.”
“When those C’s were placed together in the winning pattern, they created the look we were going for. We wanted an icon that could stand alone as well as work as a pattern, like Louis Vuitton and Gucci,” he said. “Plus, the logo even looks a bit like a flower, which is the product we are selling!”
The Canndescent marketing team took their cues from great fashion houses: the color system was inspired by Tory Burch and Hermes, while the numbering system by Chanel. “Plagiarism is stealing from one, creativity is stealing from all,” Adrian laughed.
Their cannabis kits (folding cartons with magnetic closures) are fully versioned by effect name and a corresponding color-coding system. The outer labels contain tasting notes to further describe the experience. For example, Calm 101 reads: “Sedates the mind and body allowing the world to melt blissfully away.” Nice, right?
I bought it… literally. There is extensive detail put into the packaging of the kits’ various pieces (flower jar, matches, rolling papers and hemp wick). On the rolling papers, you’ll find a quotation relevant to the category containing the effect name. It’s like a little surprise… that Ah Ha! moment that makes you smile and makes you fall in love with the brand just a little bit more.
“Your brand is a point of view that is reflected in every choice that a company makes: every touch, every time.” Adrian said. The word Can(n)descent means to project light. I asked him where he’d like to see the company in five years and he replied, ”I’d like to think that the logo would be a recognizable icon and become a beacon to society for living in love and gratitude.”
In looking at the Canndescent brand development process, we see what’s possible when you combine vision, expertise and execution – when extraordinary attention to detail and quality production is a top company focus. For all their hard work, we get to see excellence in branding and a big step forward towards elevating the image of the cannabis industry.
Thank you, Canndescent team! May your light forever shine brightly.
EDITOR’S NOTE: The author chose her subject as an example of best practices in branding and design. The subject is not a client of her firm.
Kary Radestock, CEO, launched Hippo Premium Packaging in March 2016 offering an array of services to the cannabis market, including: Marketing Strategy, Brand Development, Social Media, Public Relations, Graphic and Web Design, and of course, Printing and Packaging. Radestock brings over 20 years of award-winning print and packaging expertise, and leads a team of the nation’s top brand builders, marketers and print production experts. Hippo works with businesses looking for a brand refresh or an entire brand development, and specializes in helping canna-business get their products to market in the most beautiful and affordable way possible. Radestock’s Creative Collective of talent and experts, allows her to offer world-class solutions to support the unique needs of the Cannabis Industry.
Member Blog: How Cannabis Brands Can Leverage Digital Marketing
With each passing year, more states are eliminating marijuana prohibition and new businesses are emerging. From dispensaries to delivery services, numerous companies are in the making. With so many angles to enter the industry, it’s no wonder why people are flocking to the marijuana industry.
However, as an industry that isn’t even fully legalized, the challenges can be enormous – particularly when it comes to advertising. After all, cannabis businesses are heavily regulated. Whether it’s a billboard on the street or a Google AdWords campaign, branding for the cannabis industry isn’t exactly straightforward.
Because let’s face it, things are a little murky.
And while the future of cannabis is unknown, there are a few key things cannabis companies can do today to build their brand – especially when it comes to digital marketing.
Check out these top 4 digital strategies below.
1) Content marketing
Content marketing has generated a lot of attention lately, and for good reason. Considered to be one of the most important aspects of any online promotional strategy, content marketing is an effective tool for gaining traction and building a stronger brand. Capable of increasing traffic along with engagement on a website, relevant content can help cannabis brands gain trust and credibility. And as a strategy that nearly every business can employ, content marketing can be a wise move. Offering a high ROI, content marketing is a great investment for marijuana businesses looking to stand out – online and offline.
2) Pay-per-click marketing
Unlike content marketing, pay-per-click doesn’t offer cannabis brands a high ROI. Due to restrictions currently put in place by Google, marijuana companies are severely limited when it comes to developing andpromoting PPC campaigns. Ads that contain words such as marijuana, cannabis, pot, weed, hash, and ganja are likely to be denied by Google. So finding the right keywords for cannabis campaigns can be tricky. Although PPC offers some advantages for cannabis brands, until restrictions change, marijuana businesses are better off selecting other less restrictive advertising outlets.
3) Social media marketing
Head toTwitter,Facebook,Instagram or evenPinterest, and you’ll find no shortage of marijuana-inspired content. From bong beauties to glass art, there’s something for just about everyone on these platforms. However, the challenge for cannabis companies is not in posting content on these channels but rather in promoting content. In fact, almost every single major social media channel has been known todeny marijuana-related ads and take down entire pages – even in cases where nothing illegal has taken place. So, does that mean that cannabis brands should forget about social media marketing? Of course not! These platforms still offer the potential for organic reach. Take theWeed Seed Shop for example – a company in Amsterdam specializing incannabis seeds with nearly 50,000 Facebook fans. So? Stay savvy, cannabis brands.
4) Email Marketing
Call it old school but email marketing still remains one of the most effective solutions for brands looking to connect with their fans. According to the Direct Marketing Association, email marketing yields an estimated4,300% ROI. Talk about a great investment! And luckily, email marketing is one of the least restrictive advertising channels for cannabis brands. With the ability to make contact with consumers directly, marijuana companies can leverage email marketing to deliver value via inbox. Whether it’s a product promotion or an update from the team, email marketing is a fantastic marketing tool for cannabis brands, allwithout breaking the law.
Going forward, one of the most important things cannabis companies can do is to stay up to date with current regulations. In an emerging industry, changes are likely to occur quickly and possibly without notice. What may be the best strategy today may not be the case tomorrow.
However, by capitalizing on the current opportunities at hand, cannabis brands can successfully build a powerful platform for their business for years to come.
Daniel Ramirez is the Chief Marketing Officer for Belladonna Growhouse, a fully licensed i502 producer/processor in Washington State. In addition to his work with Belladonna, Daniel owns and operates a marketing company specializing in online PR, social media marketing, branding and lead generation. Daniel is a graduate of San Diego State University with a bachelor’s degree in Business Management with a focus in Entrepreneurship. Daniel is passionate about normalizing the responsible use of legal cannabis and shedding the stigma associated with the plant.
Member Blog: Four Innovative Tips for Funding Your Marijuana Dispensary
It can be tricky enough to find funding for a new business in any industry, but marijuana businesses are at that much more of a disadvantage. Strict regulations, less-than-favorable taxation laws, and straight-up illegality of federal funding stack up against those looking for their starting dollar in the industry.
Without having this backing, dispensary owners need to be creative and resourceful and draw upon the support of private investors to fund their dispensary goals.
Financial planning and sourcing of funds should be a large component of the business plan. Demonstrating an understanding of the scope of start-up costs for a dispensary includes:
Licensing/application costs
Working capital requirements
Cost of inventory (e.g. initial flower, edibles, accessories)
Technology costs (e.g. Point-of-sale system, server costs)
Real estate (e.g. mortgage payments or rent)
Staff training and compensation
Marketing and advertising
While budding cannabis entrepreneurs do have a limited number of funding options, there is still hope. You just have to know where to look.
Self-Funding
Many marijuana start-ups have invested a lot of their own savings into their businesses, recognizing their funding limitations. Speed in the industry is essential, but you may need to take a little extra time to raise your own capital before you turn the “Open” sign on.
Friends & Family
Crowdfunding is becoming increasingly popular for a variety of causes, and reaching out to like-minded individuals in the community who support your vision, and are willing to give you a boost in funds, is not at all unheard of. While there may be limitations in the ways you can publicly crowd-fund, you may be able to hold private events to raise money from your friends and family, as well as those in the community.
Partnerships
The “green rush” that marijuana legalization has caused makes finding potential partners, with similar goals and larger bank accounts, easier to find. There are so many facets to success in the industry, and valuable partnerships can take some of the strain off your own venture. After all, two heads are often better than one!
Cannabis-Specific Investment Groups
A great indicator of progress for the legal cannabis industry is the number of cannabis-specific investment groups that have cropped up across the country, giving entrepreneurs a helpful resource. In fact, last year, these groups provided 18% of marijuana funding.
Learn How to Fund Your Marijuana Business: While the situation for marijuana startup funding may seem grim, more and more investors are beginning to recognize the marijuana industry is thriving with opportunity.
Covasoft has put together a helpful resource to understand the various strategies in the marijuana business. Download our eBook today to learn about willing investors, ready to make a change in the legal marijuana market.
In a career that encompassed a dozen start-ups, Gary Cohen has held leadership roles with Verizon and AT&T, has managed technology-oriented research practices for Nielsen, Milestone Group and ITG/MScience, and led software/internet ventures Shoptok, Birdstep and Handmade Mobile. He has also been on the boards of several tech start-ups, including Onavo (acquired by Facebook), OpenSignal, Cenoplex and Adello. Gary has a Bachelor of Science in Finance and a Master of Science in Marketing.
Cova enhances the cannabis retail experience for both consumers and dispensaries through an integrated solutions platform (POS, ERP, CRM, eCommerce, Digital Signage and Dropship). Over 19,000 retailers with complex retail environments currently run Cova’s solutions in North America. Cova’s solution built for the legal marijuana industry focuses on compliance, UI, UX, reporting and a much better dispensary experience. Cova is headquartered in Denver, CO.
Member Blog: Trade Credit in the Cannabis Market – What You Need To Know To Create A Smart Trade Policy
*Editor’s note: This blog is an excerpt of a full article which appeared in MG Magazine.
We attended the MJBIZ show in Las Vegas last fall and were fortunate to speak withmany companies that operate in virtually every aspect of the emerging cannabis market. The one thing they all hoped for, and felt confident would happen, is that the banking system will become available to the industry sooner rather than later.When that happens, business in the cannabis market is going to change dramatically. Access to the banking system means access to trade credit. When trade credit becomes available to growers, manufacturers, wholesalers, distributors, and retailers serving the cannabis market, things are going to change. At every level, the industry is going to have to learn how to provide and deal with managing trade credit and its inherent risk.
What is trade credit?
Trade credit is the credit extended by one trader to another for the purchase of goods and services. Trade credit facilitates the purchase of supplies without immediate payment. The system commonly is used by business organizations as a source of short-term financing. It is granted to customers who have a reasonable amount of financial standing and goodwill.
Many of the growers and manufacturers we spoke to at the conference, specifically those operating in the Colorado market, already have bank accounts and are extending limited amounts of credit. They accept checks (a form of credit) from their customers, and in many instances, they give customers up to fifteen days to pay their bill. These companies and cannabis entrepreneurs all agree: as the cannabis market matures, the business is going to change. In fact, whether you recognize it or not, you already use some type of trade credit to operate. Your rent is due monthly, your utilities are due monthly, etc. You are extended credit on a limited basis to operate and grow your business.
More and more states are passing laws legalizing medical and recreational cannabis use, and companies entering the industry are going to want to access the credit markets and use this money to fuel their expansion. A true trade credit system, at every level of the industry, will need to come into existence. Mainstream corporate America operates in this environment and the cannabis industry will as well. It’s just a matter of time. The financial underpinning that guides the nascent cannabis market today must develop to meet the industry’s growth needs. The way cannabis companies transact business is going to change, for the positive, and trade credit will fuel its growth.
Federal regulations force most companies operating in the cannabis space today to deal primarily in cash. If you look back at emerging industries, operating only in cash doesn’t foster an environment for growth. Think of it this way: in a cash environment, a company with $1,000 in cash can buy only $1,000 worth of goods, but in a trade credit environment, a company with $1,000 in cash and $2,000 in trade credit can buy $3,000 worth of goods. Potential income from retail sales has tripled.
So, for the cannabis market to grow, it cannot be a cash-only business. Without a doubt, the banking industry is on the side of the cannabis industry. Banks do not make money from cash businesses. They want a part of the billion-dollar cannabis market, and they will exert formidable pressure on federal lawmakers to reclassify marijuana as a legal substance, at least under medical supervision. Currently, nearly 300 banks offer services to cannabis-based businesses, but eventually the entire banking industry—more than 5,000 commercial U.S. banks—will join them. The question is, what must businesses do to implement a trade-credit model that fosters sustainable growth? It is imperative that companies understand how to create and implement smart trade credit policies.
Companies that operate in the cannabis industry will migrate toward a trade credit environment in which a grower grants credit—with terms specifying three days to thirty or more days—to the manufacturer, wholesaler, or distributor, who then grants credit to the downstream entity that sells its products to dispensaries, who retail the products to consumers. Or, a grower might grant credit directly to a retailer. Growers, in turn, will be extended credit by their suppliers: lighting companies, soil providers, packaging providers, etc. Once a company extends credit, it will need to manage accounts receivable.
In conclusion
Once federal banking regulations change and companies serving the cannabis market gain the same financial resources available to the rest of corporate America, entrepreneurs will need to implement formal credit policies that allow them to manage and grow revenue in a trade credit environment. Establishing the controls necessary to operate when credit and accounts receivable are commonplace will set companies on the road to even greater profitability.
Sam Fensterstock is the SVP of Business Development at AG Adjustments, a leading provider of 3rd party commercial collection services. Sam has spent his entire business career as an entrepreneur and senior executive in the commercial credit & collection space. He has been a founder and played a key role in the dynamic growth of several leading niche commercial credit risk management companies and is considered an expert in the order to cash and credit and collection process. Prior to joining AG Adjustments, Sam was the Director of Business Development at PredictiveMetrics, a statistical based credit and collection scoring and modeling company that he helped grow and sell to SunGard (FIS) in 2011. Sam can be reached at samf@agaltd.com or 631-719-8096.
Member Blog: Cannabis Cons – Ten Signs of a Cannabis Scam
There are many wonderful things about the cannabis industry – creation of new jobs, legal access to medicine, and reduction of drug war harms, to name a few. Every rose has its thorn though, and the cannabis industry is no exception. Like any industry pushed into the shadows, in this case by a misguided prohibitionist policy, unsavory individuals have found an opportunity to prey upon those without full access to the legal system or to legitimate sources of capital. All cannabis entrepreneurs need to be on the watch out for the tell-tale signs the person or business they are talking to is a scam artist. Below are ten common signs that something might not be legitimate in your business transaction. Not all these signs indicate something is foul, but they should be a red flag that the business dealings bear further investigation.
Extremely Tight Timeframe:
You’re given twenty-four hours to make a key business decision and you may have only just received the legal documentation formalizing the proposed deal.
There are many legitimate reasons why business decisions must often be made on short notice. And providing an opposing party with legal documents at the last moment is a time-honored negotiating tactic. However, the less scrupulous will often tell business owners (often in dire straits) that they need to decide in twenty-four hours, or in an even shorter time frame. This frequently means there’s no time for proper due diligence or legal review – exactly what someone with something to hide (e.g., they are trying to run a scam) wants.
Vague Website:
A website contains a lot of bold claims about a service or financing source, but is short on physical addresses, names of principals, or legal company names.
A lot of websites are vague. But scam artists like to leave out key information – which means it will be hard for you to report them to the investigators or sue them. Most legitimate companies will list a real street address that is associated with a business, not a residence. Why would a scam artist want to hide their real address? Well, think about trying to sue someone. You need to serve documents on them – not an easy feat when you have no idea as to their real name or address.
Pump and Dump:
Someone tells you they have a hot (marijuana) stock tip – it’s guaranteed to go up.
There are many problems with this scenario. If someone does have material insider information about a publicly traded company, they cannot legally trade on that knowledge. Nor can they tell someone else the information and have them buy or sell stock. Both persons are in violation of securities laws and subject to civil and criminal penalties. A common way this plays out is through a “pump and dump” scheme. This scam involves convincing the marketplace that an OTC stock (also known as a penny stock – a public stock that does not trade on a major exchange like the NYSE or NASDAQ) is a surefire win. As people buy into the hype, the stock price of the company soars (the pump part of the scam). Once the price climbs high enough, insiders of the company sell all their shares, making a tidy profit (the dump part of the scam). Everyone who bought shares of the company is then left with worthless penny stock as the share price tumbles after the major sell-off. Even people who don’t buy the stock can become accomplices to the scheme. Just by repeating rumors regarding the potential success of the company, they can help create the atmosphere necessary for the artificial inflation of the stock price. When it comes to OTC stocks, if it sounds too good to be true, it probably is.
Wire Money First:
An investor or other potential business partner has a great opportunity for you. The only catch is that you must first wire them money as a down payment for the process to get started.
This scam is a favorite of “Nigerian royalty” and now is making its way to the cannabis industry. Legitimate lenders do not require a prepayment prior to underwriting a loan. They will charge you fees for the work they do, and the work their lawyers do, but this is typically taken directly from the loan amount when funding occurs (this is called funding net). Except in exceptional circumstances that have been vetted by counsel, you should not wire money to someone on the promise they will help you raise money.
As a side note, many law firms and other businesses, will require a deposit before starting work. The difference is that these deposits are legitimate, and are refundable if no work is performed (always ask about refundability). Scam artists, on the other hand, are highly unlikely to return a deposit, even if a deal falls apart.
Refusal to Interact with Attorneys:
You’ve got a great source of financing lined up. The financier is telling you what you want to hear and you’re ready to sign on the dotted line. The only catch is she won’t speak to your attorneys (which may not necessarily take the form of outright refusal – it could also be a deliberate refusal to return or schedule calls), only directly with you.
Scam artists are understandably loathe to subject themselves to questioning from a skeptical lawyer. Sunlight is the best disinfectant and most scams will not stand up to a thorough vetting. Legitimate business professionals, however, while not always happy about it, accept that dealing with lawyers is the price to be paid to get deals done.
Multiple Company Names:
Every time you interact with a potential business partner you discover a new business name or web portal.
This is one of the harder red flags to interpret and on its own it may not mean there is something nefarious occurring. Almost every company of any size contains multiple legal entities. These legal entities often legitimately serve to contain liabilities (e.g., holding different real estate properties in separate LLCs so that a slip and fall claim on one property doesn’t result in a lawsuit against an entire portfolio of real estate assets). What most legitimate companies are not doing, however, is playing a shell game – setting up and shutting down companies to stay one step ahead of the law and angry creditors and customers. If you think this might be occurring, you should discuss your concerns with counsel before proceeding.
Unsubstantiated Claims:
You’re being told buying into a certain grow method will triple your yields, guaranteed, or someone claims they underwrite a tremendous dollar value of loans annually, but can’t give you names of past deals.
Beware unconditional guarantees. Sure, everyone knows the “best” grower and no one wins business by saying they are the worst in their field. When it comes to bold claims, trust but verify. Ask for concrete examples of a product’s or advisor’s success. Ask to speak directly to existing or previous customers. If they are offering payment processing solutions, ask which banks they work with and which credit card companies. Fate is fickle and the future is uncertain. No one can predict it with absolute certainty, especially not when it comes to the cannabis industry.
Ignorance of Basic Cannabis Laws:
When asked about the impact of certain laws or policies like the Cole memo priorities, the FinCen memo, or 280E on proposed business plans, someone responds these are not significant issues or, worse yet, they do not appear to have a strong grasp on what these items are.
It’s one thing to state that these obstacles can be overcome. Business are succeeding despite them every day. To cavalierly suggest they are not issues, or to somehow remain ignorant of their existence, however, is a major red flag. It may not always be a sign of fraud – it could also be the sign of rank amateurism. Either way, you should be hesitant to go into business with someone who does not fully appreciate the federal legal risks inherent in the cannabis industry, especially considering the current political environment.
Deliberately Opaque Documentation:
The definitive documentation for a deal is extremely poorly drafted and it’s not clear what business deal is being documented or the business deal you thought you had struck is not clearly reflected.
Legal documentation is, admittedly, frequently long, dense, and filled with antiquated terms. And for a non-lawyer, legal agreements can be hard to understand. Some of this is a consequence of the fact that complicated concepts are being addressed, and part of this is because lawyers adhere religiously to previously drafted documents, which results in the survival of Latin terms, clumsy turns of phrase, and other habits that make agreements hard to read for the layperson. With a scam, however, an agreement may be drafted to be deliberately obscure. Even unreadable documents could have a legitimate provenance – the cannabis industry is full of poorly trained transactional lawyers (or criminal lawyers moonlighting as transactional lawyers) and principals that don’t understand basic business concepts. What you need to be concerned about is a document that someone doesn’t want you to understand because they intend to fleece you.
Unclear Background of Principals:
The principal of a business claims he or she has 20 years of business experience and deep industry ties. However, when pressed, he or she cannot name an actual business they have worked for and no one in the industry has heard of them or their organization.
The cannabis industry certainly contains many successful people with eclectic backgrounds, but beware the individual with an unclear past. They may elude to successful enterprises, but never give specific names. They claim to be involved in other businesses, but never give enough information for you to track these down. The cannabis industry is still small and many of the pioneers of the industry have known each other for years. If someone claims to have been deeply involved in the industry, but can’t point to any specific businesses or individuals who they know, it’s a red flag.
If they come from the traditional business world, but don’t have a clear history (e.g., before they worked in cannabis, they were at X company for five years), be extra vigilant. There are often legitimate reasons not to name current or former employers (e.g., perhaps their employer doesn’t approve of the cannabis industry and it could put someone’s employment status at risk), but there are also many illegitimate reasons to obscure your past.
Final Thoughts
If you think you’re being scammed, step back and reevaluate the situation before proceeding. Do not sign anything or wire any money. Ask for items in writing and save relevant emails. Consider reaching out to an attorney. Better to spend time and money evaluating a deal upfront than to experience the heartache and headache that comes with trying to mitigate the damage of a scam. Remember, in the cannabis industry, the old expression caveat emptor remains as true as ever.
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. In addition to his corporate work, Mr. Alovisetti has worked with clients on multiple competitive licensing applications, including in Maryland, Hawaii, Pennsylvania, and Texas. 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. He can be reached at charlie@vicentesederberg.com. Follow him on Twitter @CAlovisetti.
Jessica Scardina, Vicente Sederberg LLC
Jessica Scardina is an associate at Vicente Sederberg, LLC’s Denver office. Prior to joining Vicente Sederberg, Jessica worked at a small Denver law firm specializing in corporate law, business planning, and taxation. Jessica currently focuses her practice on corporate, licensing, and regulatory matters. Jessica is a graduate of the University of Denver Sturm College of Law, where she served as a staff editor for the University of Denver Law Review. Prior to moving to Denver in 2004, Jessica lived in Santa Cruz, California, where she received her Bachelor of Arts, cum laude, from the University of California at Santa Cruz.
Madeline Currie is a marketing professional working at Vicente Sederberg’s Denver office. Prior to joining the firm, she was a Senior Marketing Associate at Crystal & Company in their New York office. She has also worked with several other organizations to define and execute their brand strategy. Madeline has a Bachelor of Arts in Sociology & Policy Studies from Rice University.
Board Candidate – Sean McAllister, McAllister Garfield, P.C.
If you don’t know me yet, ask leaders in the cannabis industry about me. They will tell you:
I’m old school. I’ve been working for cannabis law reform for 21 years, beginning on a prison moratorium campaign, leading to my role as Chair of the Board of Directors of Sensible Colorado funded by MPP, and now evolving into a well-respected cannabis business lawyer.
I’m a fighter. I’m not afraid to speak truth to power. Cannabis law reform is not done and we need aggressive advocates for the industry who don’t apologize for wanting to be treated like any other industry.
I’m not an extremist. I have supported reasonable regulations on cannabis, similar to alcohol (but not identical). But I have opposed unreasonably high taxes and other efforts to over-regulate cannabis. I will resist efforts to regulate marijuana so strictly that all profitability is taken out of it.
I favor a free market approach whenever possible. I understand local reasons why limits on licenses might be needed or desired, but I generally favor open licensing processes that let the market sort out the best actors rather than the state.
My firm is growing. I now have 14 lawyers in four states, Colorado, California, Oregon, and Florida. I am one of the only major cannabis lawyers licensed in both Colorado and California. I have the national perspective needed to help the Board make good decisions.
I value inclusion and diversity in our industry. I will work to build our membership through my growing client base and ensure that all stakeholders have a voice in NCIA, including women and people of color.
I understand the problems with 280E. I have represented numerous companies in IRS audits and have seen how this issue is an existential threat to our industry.
I want to support and build the NCIA PAC. We must exert more political power to get laws changed.
I am a problem solver who believes in win-win situations.
I will be an articulate and professional voice for the industry as a Board member.
Sean McAllister Bio for NCIA Board Elections
21 years working on marijuana law reform, including founding Sensible Colorado in 2004 and serving as chair of its Board of Directors through adult use legalization in 2012.
McAllister Garfield has 14 lawyers, licensed in 5 states: Colorado, California, Oregon, Illinois and Florida.
Sean represents some of the largest infused products manufacturers in Colorado, which have been expanding to multiple states through licensing agreements and independent operations.
Sean’s firm has a Tribal Law Group that represents Native American tribes in multiple states seeking to do cannabis/hemp projects
Sean has litigated several groundbreaking cannabis cases, including defending the nation’s first cannabis products liability case, suing state regulators over enforcement actions, litigating pesticide standards, negotiating settlements for some of the most serious rules violations, litigating local bans on cannabis dispensaries; and assisting in authoring state and local ballot initiatives.
Sean handled the only federal prosecution of a licensed dispensary owner in Colorado, who was charged wrongly with federal money laundering and achieved a favorable outcome.
Sean is focused on being a top corporate counsel to dispensaries. His work involves all aspects of corporate formation, dissolution, governance, M&A, IP, promissory notes, civil litigation and land use matters.
Sean is a regular speaker at the nation’s largest cannabis conferences and is regularly quoted in the national press.
Sean has won several awards recognizing his advocacy for cannabis reform, including: Friend of Reform Award, Sensible Colorado, 2013 and 2015 MVP Award at the Cannabis Business Awards, and 2016 and 2017 named a Top Marijuana Lawyer by Denver’s 5280 Magazine.
Sean’s Firm is a sustaining member of NCIA. He also supports CCIA, NORML, DPA, MPP, Colorado Cannabis Chamber of Commerce, and National Cannabis Bar Association.
Folium Biosciences hemp farms are some of the largest in the USA. Location: La Junta, CO.
Hemp, more than any other plant on Earth, is unique in its ability to literally suck the heavy metals and toxic waste out of the environment. Hemp is even being used in phytoremediation at Chernobyl in Russia. What does this mean to consumers of hemp products? Knowing as much information as possible about your hemp is crucial to understanding its legality, limitations, and effectiveness.
Hemp from China, for example, contains some of the most dangerous heavy metals in the world. According to a 2011 study of Chinese hemp strains, the plant was able to absorb dangerously high levels of the heavy metal cadmium without detriment to the plant itself. Cadmium (Cd) is an extremely toxic industrial and environmental pollutant classified as a human carcinogen.
What is the heavy metals and residual solvent content of the hemp oil? Residual solvents and heavy metals can negatively influence the health benefits of the oil.
Besides CBD, what other cannabinoids and terpenoids are present in the extract? A full spectrum profile of synergistic compounds has been shown to be more effective than an extract with only cannabidiol.
Was the hemp grown using clones or seeds? Clones provide a much more consistent end product. With seeds, you never truly know what is going to grow.
Can your supplier provide you with a consistent and reliable product? What good is the product if you cannot get it the exact same way every time and when you need it?
Considering the fact that many people are relying on CBD for their health and wellness, ensuring that your hemp oil is the highest quality is vital to its effectiveness. Prior to purchasing bulk or wholesale CBD oil, make sure you know where your hemp was grown and processed. Ask yourself this question before purchasing imported Chinese or European hemp oil: Would you feed your child milk imported from cows located in China or Eastern Europe? Didn’t think so.
***EDITOR’S NOTE: Federal policy toward hemp-derived CBD products with respect to Section 7606 is currently subject to substantial debate. The USDA’s website states, “[S]ection 7606 did not alter the approval process for new drug applications or any other authorities of the FDA, nor does it alter the requirements of the Controlled Substances Act that apply to the manufacture, distribution, and dispensing of drug products containing controlled substances.”
Ryan Lewis is the VP and Head of Global Sales for Folium Biosciences of Colorado Springs, CO. Folium Biosciences is the largest vertically integrated producer, manufacturer, and distributor of hemp derived phytocannabinoids in the U.S. Folium, along with their exclusive distributor, Entourage Nutritional Distributors, supplies section 7606 US Farm bill compliant hemp derived phytocannabinoids to some of the leading brands and companies in the world. Ryan graduated with high honors from Brown University and attended Pepperdine University Law School and Business School.
Member Blog: 5 Critical Keys to Cannabiz Marketing Success
It’s such a thrilling time to be an up and coming cannabis company. And if you’re looking to build a brand, it’s also a critical time to ensure you’re making all the right moves to build a solid brand foundation that can ensure you capture market share. The cannabis “brandscape” holds a lot of opportunity, if you use the right approach.
Here are 5 of the most critical keys to achieving your brand objectives.
1) Establish a compelling, differentiated brand
Communicate your brand vision by stopping customers in their tracks with killer design, then close the deal with messages that motivate shoppers to become customers.
2) Be agile, move fast
Buckle up partner because this industry is in the middle of a gold rush, and that demands flexibility so you can quickly address market and regulatory changes.
3) Get certified, test every product
We all know the hot topics here but the real question is: which brands will step up and lead the way to creating and adhering to valid standards for safe cannabis cultivation and consumption?
4) Grow your channels
Retail, wholesale or anything in between requires a channel strategy, and more importantly, effective tactics that drive response. Focused B2B marketing is critical – even in the age of Snapchat.
5) Show your digital prowess
Sure, social media has it’s place in cannabis. But the brands that will win the land grab are the ones that integrate digital mojo so they stand out in the crowded online marketplace.
From foundation building to execution, the number one key to success is to define clear objectives, identify your best resources (internal and external consultants, vendors and partners), measure results and continually adapt.
A little bit of planning goes a long way. Don’t skip this critical step.
Lisa Hansen has more than 15 years of marketing experience, working across a wide range of industries, from technology to packaged goods. At Plaid Cannabiz and its parent company, McDill Associates, she leads business development as well as execution of client marketing programs. Lisa is known for her sound strategic thinking, and excellent writing and presentation skills. An information junkie, she is a voracious reader, making her a valuable information resource for our clients. She stays on top of the rapidly changing cannabiz trends to drive innovative marketing strategies and programs.
Member Blog: Cannabis Branding Faces Uncertain Future
When it comes to cannabis labels and cannabis packaging, and for that matter everything branding-related, the marijuana industry is a many-splendored riddle. On one hand, the industry’s avant-garde nature and offerings lend themselves to eclectic and eccentric designs. On the other hand, a demand-heavy marketplace, lack of branding sophistication, and fears about sinking too much branding money into federally illegal enterprises have stifled forward progress.
At the same time, states with the longest track record of legal use have evolved in many cases to higher levels of professionalism and panache on such important elements as marijuana labels and packaging.
An August 2016 article in HighTimes.com assesses the state of the struggle: “A lot of goofy business names, awkward brand identities, poor design execution and amateur packaging solutions have been the norm…for cannabis companies up until recently, when increasing sophistication among those investing and working in this nascent industry resulted in more slick presentations, upscale appeal and mass market sales. After all, research suggests that 33 percent of all sales are influenced by branding and packaging.”
An article published on Entrepreneur.com in January points to hiccups across the board, noting that, “Businesses traditionally developed strong brands in logos, typography, color and composition. The idea was to become as ubiquitous and familiar as Hershey, Band-Aids or Scotch Tape. Left to web designers, cannabis businesses have yet to produce that attention grabber.”
Federal illegality creates consternation, conservative strategies
All along, marijuana has remained illegal under federal law, creating lots of confusion as well as a conservative approach to spending money on such branded items as marijuana labels and marijuana packaging. Illegality has impacted a wide swath of practices in such sectors as taxation and banking.
Cannabis companies have been reticent to sink too much money into endeavors that can’t be federally trademarked or patented for fear of being copied. Notes the Sacramento Record-Bee in a January article, “Branded pot products gained footing in recent years as California sanctioned medical use of marijuana, and other states began permitting recreational use. Now that California voters have approved a ballot measure allowing all adults to use the drug, cannabis businesses want more authority to brand their products…But officially trademarking marijuana is a tricky legal task. The federal government still considers it an illegal drug, and won’t grant patents or trademarks for pot or anything made from it. Cannabis brands fear they are at risk of being copied. So marijuana businesses in California—eyeing what could become a $6.4 billion industry—have turned to the state government for help.”
Given the uncertain direction that federal enforcement will take under the new administration and anti-marijuana attorney general, it’s anyone’s guess about if, how, when, and where cannabis branding will move forward.
Following are tips for cannabis companies addressing or reviewing their branding currently:
Look at purveyors/competitors in “pioneering” states that have the longest track record–to see how they have evolved their branding. Typically, Colorado and Washington are at the top of states where both recreational and medicinal are legal; California is a strong state for medicinal. After seeing what’s out there, decide on a path for yourself;
Match the design sophistication to the appropriate graphics team. In most cases, this means finding a branding specialist—not a one-size-fits-all web developer whose shingle includes the word “design;”
Protect the intellectual property through state and other non-federal regulations/laws where possible.
Given the omnipresent threat of federal intrusion in the overall operation, figure out what you can stand to lose upfront, spend accordingly, and keep your fingers crossed.
Lightning Labels uses state-of-the-art printing technology to provide affordable, full-color custom labels and stickers of all shapes and sizes. From small orders for individuals, to the bulk needs of big businesses, Lightning Labels is equipped to handle and fulfill custom label and sticker projects of all types. Lightning Labels was established in 2002 and based in Denver, Colorado. Mark Lusky is a marketing specialist who has worked with Lightning Labels since 2008.
Member Blog: Cannabis and the Canadian Public Markets
While the American cannabis industry ponders the strange twist of fate that was the 2016 election, our cannabis neighbors to the north are experiencing unprecedented levels of capital markets activity. There are now over thirty publicly listed cannabis companies in Canada trading on three different exchanges. As a group, cannabis companies in Canada have a combined market cap of over four billion dollars; nine of these companies have market caps of over one hundred million Canadian and one, Canopy Growth, has recently become the first Canadian cannabis company with a market cap of over one billion Canadian dollars. Unlike in the United States, where most publicly traded cannabis companies are listed on the OTC markets with a few exceptions (mostly pharmaceutical companies that have limited exposure to cannabis), the publicly listed cannabis companies in Canada trade on exchanges with significant listing and reporting requirements.
If you’re a Canadian, or have experience dealing with the Canadian markets, this article likely won’t cover new ground. If you, however, like many Americans, have only a passing awareness of the Canadian economy, this article will provide the basics for understanding the current rash of fundraising in Canada. The securities law issues related to cross-border fundraising are complex and beyond the scope of this article.
2016 was a very active year for the cannabis capital markets in Canada, with the total amount raised by publicly traded cannabis companies exceeding $500 million Canadian (around $381 million U.S. at today’s exchange rate). Most of this activity took place after the April 20th statement by the Canadian government stating that legislation to legalize adult use of cannabis would be forthcoming in the spring of 2017. Unlike in the U.S., where investment banking services are generally not available to public cannabis companies, Canadian investment banks have been active in raising capital for Canadian Licensed Producers (LPs – described in further detail below). Also in contrast to the U.S. market, these firms have begun to publish research on the public companies.
There are several Canadian stock exchanges, the most significant of which is the Toronto Stock Exchange (TSX most commonly, but sometimes referred to as TSE), but almost all Canadian cannabis stocks trade on one of three exchanges: the TSX, the TSX Venture Exchange (TSXV), and the Canadian Securities Exchange (CSE). Below are the basics with respect to each exchange:
Toronto Stock Exchange (TSX): The TSX is Canada’s largest and most important stock exchange and the eighth largest in the world by market capitalization. An American-centric way to describe it would be as the Canadian version of the New York Stock Exchange. Reflecting the natural resource focus of the Canadian economy, the TSX is heavily populated by mining and energy companies, though financial services companies also make up a significant proportion of the exchange’s market capitalization. Many large Canadian companies have a dual listing on both the TSX and the NYSE. Currently only two cannabis stocks trade on the TSX: CanniMed Therapeutics and Canopy Growth Corp. (CGC), which is the holding company for Tweed Inc., Tweed Farms Inc., and Bedrocan Canada Inc.
Toronto Venture Exchange (TSXV): The TSXV is analogous to the NASDAQ Capital Market or the OTC markets. It serves as a public venture capital marketplace for emerging companies. Before 2001, this exchange was known as the Canadian Venture Exchange (abbreviated CDNX), but was renamed when the TSX Group purchased the exchange. Over sixteen hundred companies list on the TSXV, and the mining and energy sectors predominate.
Canadian Securities Exchange (CSE): Formerly known as the Canadian National Stock Exchange and dating back only to 2003, the CSE has lower listing and reporting requirements than the TSX and the TSXV. Over three hundred issuers list on the CSE. It is the most common exchange for Canadian cannabis companies.
Aequitas Neo (Neo Exchange): Canada’s newest exchange.The Neo Exchange was established with an aim for fairness, and has measures in place to eliminate what is perceived to be predatory high-frequency trading. As of the date of publication, the authors are not aware of any cannabis stocks that trade on this exchange.
George Bernard Shaw once said that “England and America are two countries divided by a common language.” Similarly, investors need to be careful not to confuse the Canadian and American public markets, which, while they have a great deal in common, also diverge in several key aspects. The full scope of these differences is beyond the scope of this article, but below are several important Canadian terms that highlight key differences:
Reverse Take-Over (RTO): This is the Canadian equivalent of a reverse merger. Like a reverse merger, it allows a company to gain access to the public markets without undergoing an IPO, but does not raise any additional funds.
Initial Public Offering (IPO): A Canadian IPO is quite similar to its U.S. equivalent, but is usually a less expensive and time-intensive process.
Amalgamation:An amalgamation is comparable to a U.S. merger, but lacks the concept of a surviving corporation. Instead, in an amalgamation, the amalgamated corporation takes on the identity (along with the rights and obligations) of each predecessor corporation.
Listing Requirements: Unlike in the U.S., listing requirements on a Canadian exchange can vary based on the industry of the issuer. For example, mining companies on the TSXV have their own listing requirements.
Ontario Securities Commission: Canada does not have a federal securities regulator like the SEC; instead, each province (there are ten provinces and three territories) has its own securities regulator. Ontario, as the home of the TSX, functions as the equivalent of the SEC.
Capital Pool Company (CPC): A CPC is a public shell company trading on the TSXV that has no commercial operations and no assets except for cash. A CPC uses its cash holdings to evaluate potential acquisitions, which it must complete within 24 months of listing – this is referred to as a “Qualifying Transaction.” Companies trading as a CPC have a “P” after their ticker symbol. Once the CPC completes a Qualifying Transaction, its shares continue to be traded on the TSXV.
LPs: Short for licensed producers, which hold a license issued by Health Canada under the Access to Cannabis for Medical Purposes Regulations (ACMPR). This license authorizes them to produce and sell to the public dried cannabis, fresh cannabis, cannabis oil, or starting materials to eligible persons. (The overall structure of the Canadian medical cannabis system will be addressed in a separate article.)
A publicly listed Canadian cannabis company (like any other publicly traded Canadian company) need not restrict its operations or its shareholders to Canada. Many have significant U.S. operations, which is only natural given the considerably larger size of the U.S. market. But U.S. expansion is not without its complications. It remains unclear how Canadian regulators, and the Ontario Securities Commission in particular, will treat publicly traded cannabis companies with U.S. operations if crackdowns occur under the Trump administration.
Compliance with securities law more broadly can also be an issue. To raise capital from U.S. investors, a Canadian public company will generally need to undergo a private offering for U.S.-based investors in addition to the public offering in Canada. The legal issues surrounding a cross-border fundraise are complex, but the payoff is the ability to tap investors in the U.S.
2017 promises to be another year of major fundraising, particularly with the anticipated introduction of legislation to fully legalize cannabis in Canada this spring, following which it would not be surprising to see further inflows of capital into the Canadian capital markets. It’s also not clear what effect Trump’s administration will have on the Canadian markets. While it is possible that investors will flee U.S. markets for the greater safety of Canadian markets, particularly if any crackdowns occur under a Department of Justice led by Attorney General Jeff Sessions, it is also possible that crackdowns could have significantly negative effects on the numerous Canadian public companies with substantial U.S. operations. However, the continued legalization of medical cannabis in other countries, such as Germany, will open additional opportunities for Canadian companies to trade with, and to offer their expertise to emerging cannabis markets. U.S. investors would be wise to continue paying close attention to developments north of the border.
As a reference, below is a list of the Canadian public cannabis companies and the exchanges on which they list as of February 23, 2017 (which does not include companies which are not currently actively trading). Many are LPs, but others are primarily engaged in a range of other cannabis-focused activities, including investing in U.S. operations, developing or researching cannabinoid therapies, developing infused cannabis products, and several other business lines. If any have been omitted, please let me know. I can be reached at charlie@vicentesederberg.com or on Twitter @CAlovisetti.
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.
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. He can be reached at charlie@vicentesederberg.com. Follow him on Twitter @CAlovisetti.
Brett Williams is a law clerk at Vicente Sederberg LLC as well as a third-year law student at the University of Denver Sturm College of Law. During his law school experience Mr. Williams worked at United States Attorney’s Office – District of Colorado in the Criminal and Civil Division. Mr. Williams also clerked at Vicente Sederberg LLC working in their Corporate and Policy Departments. At Sturm College of Law Mr. Williams serves as the President of the Honor Board and as Executive Director of Students for Sensible Drug Policy DU Law Chapter. Additionally, Mr. Williams holds a Bachelor of Science in Economics from Arizona State University. He can be reached at bwillia7@outlook.com.
Raising Money 101: Accredited Investors and Fundraising in the Cannabis Industry
*Updated to reflect new Rule 147A and Amendments to Rule 147
When raising capital from outside investors, companies are faced with several choices regarding terms, structure, filings to make or not make, and type of investor, among other decisions. One choice – whether or not to include unaccredited investors – should be easy to make. For the reasons outlined below, it is strongly advised that only accredited investors be allowed to participate in a fundraising process.
What is an accredited investor? An accredited investor can be an individual or an entity. An individual can be considered accredited if he or she meets one of the following criteria:
net worth of at least $1,000,000 dollars (excluding the value of his or her primary residence); or
income at least $200,000 each year for the last two years (or $300,000 combined income if married) and have the expectation to make the same amount this year.
For entities, different criteria can apply depending on the form of the entity, but generally speaking, an entity will be considered accredited if all of its equity holders are accredited or it has greater than $5,000,000 in assets. Persons or entities that do not meet the above standards are referred to as unaccredited or non-accredited investors. While this is not an insignificant amount of money, the threshold is not very high. Especially if the person in question is considering investing a substantial amount of money in an uncertain venture that, even in the best of circumstances, may not make any money for years to come.
To understand why this definition is important, you must understand how sales of securities are regulated in the United States. At a high level, federal securities law requires that any sale of securities must either be registered with the Securities Enforcement Commission (SEC) or issued pursuant to an exemption. A full description of each exemption available to companies is beyond the scope of this article. But most private offerings of securities make use of the safe harbor exemption from registration known as Regulation D (in the parlance of our times, Reg D). There are three exemptions under Reg D (note the descriptions below only address the accreditation and disclosure issues discussed in this article and ignore issues related to general solicitation and restricted securities):
Rule 504: Allows for an exemption for the offer and sale of up to $5,000,000 of securities in a single twelve-month period.* Unlike some other exemptions, this exemption allows for a private sale without any specific disclosure requirements (note that the anti-fraud provisions of the federal securities laws still apply). Sales can generally be made to an unlimited number of accredited or unaccredited investors.
*Prior to adoption of new rules on October 26, 2016, the aggregate amount of securities that could be sold pursuant to Rule 504 was $1,000,000. The new rules also eliminated Rule 505.
Rule 506(b) and (c): Has the same criteria and guidelines as Rule 505, with one additional requirement – in the case of a 506(b) offering, all non-accredited investors must be sophisticated (i.e., “must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment”). This is an amorphous standard and creates yet another potential issue for the company offering securities. While beyond the scope of this article, it is worth mentioning that a Rule 506(c) offering, which permits general solicitation and advertising (normally not allowed under a 506(b) offering), cannot include any non-accredited investors.
The most important takeaway from the descriptions of the exemptions above: if you wish to undergo an offering without limitations on the number of investors, size of amount raised, or without specific disclosure requirements, you must sell only to accredited investors. Any offering which includes unaccredited investors, whether done under 504 or 506, will impose at least one of these restrictions on the offering.
Beyond the above-mentioned restrictions, there are other reasons not to include unaccredited investors in an offering. For one, it is not unusual to give investors the right to invest in future financing rounds – often referred to as a preemptive right. This is fine, provided no investors are unaccredited, but would be an issue for a company that has existing unaccredited investors with the right to invest in future rounds. Suddenly, a future financing round may inadvertently involve unaccredited investors and this may require a company to spend time and money developing fulsome disclosure documents or risk violating securities law. Another concern, while not immediate, is that if the company wants to go public, the SEC may evaluate all prior issuances of stock by the company and require that it take remedial actions to cure any past violations of securities laws, which might delay or imperil the IPO.
While any emerging company would be wise to restrict its offering to accredited investors, cannabis companies should be especially vigilant. Securities regulators, both on a federal and on a state level, made it clear that they consider the cannabis industry to be an area of special concern. Not because of the ongoing federal illegality of cannabis, but because of the increased risk of fraud in such a new and dynamic industry. The last thing any cannabis company should want to do is take any action that could expose them to the ire of regulators.
What if your investors are Canadian? After all, almost $500,000,000 Canadian dollars were raised last year in the Canadian public markets, and many Canadian investors are eagerly eyeing U.S.-based assets. Setting aside any Canadian securities laws issues, which are beyond the scope of this article, a Canadian or Canadian entity can certainly qualify as an accredited investor and allow an issuer to rely on Reg D. But be sure to have any Canadian investors carefully review their accredited investor questionnaire (a document issuers should require investors to fill out certifying what criteria marks them as accredited) they provide in connection with the offering – while Canadians are familiar with their version of accreditation, the qualifications differ just enough from US qualifications to be a potential issue. Note that there can be additional complications involved with accepting foreign investment, both for the investors and the company raising capital beyond those related to securities law.
It is also worth mentioning that the underlying policy arguments for restricting offerings (in the absence of fulsome disclosures) to accredited investors become even stronger in the cannabis industry. The risk of failure, and the total loss of investment, is undoubtedly present in an industry and remains federally illegal and operates based on federal guidance that could be changed at any moment. And investing in a cannabis company requires an even higher level of sophistication than a typical deal because of the challenges involved. A company should not accept money from investors who cannot handle the risk of losing their entire investment – not only is this unfair to the prospective investor, but any burned investors who end up in a financially precarious situation increase the risk of damaging litigation. While it may be tempting to accept funds from non-accredited investors, all the above issues can be readily avoided if non-accredited investors are not permitted to participate in a company’s offering.
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.
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 advised clients across a range of industries prior to focusing on the cannabis space. 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 Interpener. He can be reached at charlie@vicentesederberg.com. Follow him on Twitter @CAlovisetti.
Michael Heyward is a law student at the University of Denver Sturm College of Law and a law clerk at Vicente Sederberg LLC. He holds a Bachelor of Arts in History and Political Science, and a Master’s Degree in History from Florida Agricultural and Mechanical University.
A Year of Cannabis Learning: The 2016 Member Post Round-Up
2016 has been another great year of connection, inspiration, and education within our growing industry.
Some of the most valuable wisdom, insight, and learning in the industry comes directly from our members, and you can find it right here on NCIA’s blog. Today we look back at the year in Member Posts. Did you miss any the first time around? Check them out here:
Are you interested in submitting a guest blog post for NCIA’s website? Please reach out to Bethany Moore by emailing bethany@thecannabisindustry.org to propose your topic.
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In recent days, and for the second time in 2018, the state-legal cannabis industry is abuzz over a new memo issued by Attorney General Sessions. Having revoked the Cole Memo in a January memo, the Attorney General’s latest memo addresses the use of capital punishment in drug cases. Notably, he urges federal prosecutors to consider the death penalty in drug cases—including in circumstances that facially could include the operation of large-scale state-legal marijuana businesses regardless of compliance with local rules. 
Second, even assuming a hypothetical prosecutor brought such a case and secured a conviction for the underlying offense, they would still have significant constitutional hurdles. As an initial matter, under the Sixth Amendment, those prosecutors would need to convince a jury in the state where the conduct occurred (and is licensed) that sufficient aggravating factors existed to impose the death penalty. Without getting too deeply into the legal weeds, the U.S. Supreme Court reiterated in 2016’s Hurst v. Florida that before a defendant can be sentenced to death, he has “right to have a jury find the facts behind his punishment.” Convincing a jury of the defendant’s peers in a state where the conduct is legal that the defendant’s conduct warrants the punishment of death would be a tall task for any prosecutor. 
Michael Cooper is the co-founder and managing member of MadisonJay Solutions LLC, the leading regulatory advisor to adult-use cannabis companies. A graduate of Harvard College and Harvard Law School, he previously served as General Counsel of MHW, Ltd., a leading provider of compliance services in the beverage alcohol industry, and in the litigation department of Cravath, Swaine & Moore LLP, known as one of the nation’s premier law firms for nearly two centuries. 
PR salaries can range anywhere from the mid $50,000s to well into the six figures for management. Agencies will structure pricing differently, often with an hourly retainer. PR folks can be stereotyped as offering big promises with few results. Especially in an emerging industry, deep industry experience is uncommon. Experience in the field is a huge advantage as the agency will have already formed relationships with journalists who cover cannabis and will not have as big a learning curve when taking on a new client.
These 24 winners are now responsible for growing the supply of medical marijuana Ohio’s patients will use, a population estimated to be in the hundreds of thousands. The medical marijuana market in Ohio is expected to be worth $300-400 million once it matures, making the limited number of licenses available immensely valuable.
As a cannabis retail owner, your number one priority is compliance. And when it comes to patient and customer privacy, you need to determine exactly what your state’s requirements are per your particular operation.
Kefentse Mandisa is a broker at 
An established staple in retail and inventory environments, barcodes/QR codes facilitate trackability. Now that message is resonating in the cannabis industry. A primer in motherboard.vice.com points out, “Walk into any licensed cannabis grow op in Colorado and one of the first things you’ll notice are the barcodes.” They point out in another article, “There are a number of advantages of having a bar code for cannabis growers, producers and retailers. The most important is proper inventory control – which is mandated, in Washington, by the Washington State Liquor Control Board. Having bar codes on inventory items allows rapid identification of specific SKUs. The likelihood of inventory quantity irregularities is greatly reduced.”
A credit application is the first step in gathering information about potential customers. Even if customers pay in cash, the day will come when that system changes, and getting information about accounts at the start of business relationship is key. The more you know about its debtors, the better. In addition, collecting credit information will make it easier to determine exactly how much credit to extend a customer.
Be ready for investors. Even if you’re nowhere near a funding round or an exit seems a lifetime away, it’s always smart thinking to factor in what investors want. They’ll want to know your history and to see whether the business is well run. Reliable financial statements are one way to get their attention. You’ll also need to show them key performance metrics, specific to your business, that you’ve tracked over time.
Maureen Ryan
Chris Vane
Sarah DeMeo is a Public Affairs and Policy Intern at CannaCraft, Inc., the parent company of 
“Wow… Just wow,” was about all I could say.
I bought it… literally. There is extensive detail put into the packaging of the kits’ various pieces (flower jar, matches, rolling papers and hemp wick). On the rolling papers, you’ll find a quotation relevant to the category containing the effect name. It’s like a little surprise… that Ah Ha! moment that makes you smile and makes you fall in love with the brand just a little bit more.
Federal regulations force most companies operating in the cannabis space today to deal primarily in cash. If you look back at emerging industries, operating only in cash doesn’t foster an environment for growth. Think of it this way: in a cash environment, a company with $1,000 in cash can buy only $1,000 worth of goods, but in a trade credit environment, a company with $1,000 in cash and $2,000 in trade credit can buy $3,000 worth of goods. Potential income from retail sales has tripled.
Scam artists are understandably loathe to subject themselves to questioning from a skeptical lawyer. Sunlight is the best disinfectant and most scams will not stand up to a thorough vetting. Legitimate business professionals, however, while not always happy about it, accept that dealing with lawyers is the price to be paid to get deals done.
will tell you:
Ryan Lewis is the VP and Head of Global Sales for Folium Biosciences of Colorado Springs, CO. Folium Biosciences is the largest vertically integrated producer, manufacturer, and distributor of hemp derived phytocannabinoids in the U.S. Folium, along with their exclusive distributor, 
It’s such a thrilling time to be an up and coming cannabis company. And if you’re looking to build a brand, it’s also a critical time to ensure you’re making all the right moves to build a solid brand foundation that can ensure you capture market share. The cannabis “brandscape” holds a lot of opportunity, if you use the right approach. 
Lisa Hansen has more than 15 years of marketing experience, working across a wide range of industries, from technology to packaged goods. At 
2016 was a very active year for the cannabis capital markets in Canada, with the total amount raised by publicly traded cannabis companies exceeding $500 million Canadian (around $381 million U.S. at today’s exchange rate). Most of this activity took place after the April 20th statement by the Canadian government stating that legislation to legalize adult use of cannabis would be forthcoming in the spring of 2017. Unlike in the U.S., where investment banking services are generally not available to public cannabis companies, Canadian investment banks have been active in raising capital for Canadian Licensed Producers (LPs – described in further detail below). Also in contrast to the U.S. market, these firms have begun to publish research on the public companies.