CannaBusiness Advisory

  • For Savvy Cannabis Entrepreneurs, Opportunity Is Rising in the EastJune 20, 2018

    The West Coast has pioneered the national cannabis industry, with California, Oregon, and Washington leading the way in decriminalization and legalization efforts, and that trailblazing reputation has contributed to the impression that market concentration may be skewed toward the Pacific Ocean. However, it’s companies that have been established in the more restrictive, under-the-radar medical cannabis markets of states like Massachusetts, New York, Pennsylvania, New Hampshire, and Ohio, that may have the best long-term positioning and highest valuations.

    The reason for this might be counter-intuitive: West Coast states have been much more liberal in issuing licenses to operate cannabis businesses, which has created a market saturated with retail, cultivation, and processing licenses, which, in turn, has created more competition for increasingly smaller market shares. States on the East Coast typically have stricter rules, and companies there must jump through a number of hoops before being granted a license to operate. So while markets in these states is, therefore, limited, given the relatively few licenses granted and high barriers to entry, there is also less competition than out west. The more highly competitive application process also creates an environment that has resulted in eastern companies being some of the best capitalized … Keep reading

  • Don’t Make a Federal Case Out of ItJune 06, 2018

    Crimson Galeria Limited Partnership et al (the Plaintiffs) vs. Healthy Pharms, Inc. et al (the Defendants), in Civil Action No. 1:17-cv-11696-ADB (the Complaint), which is currently pending in the United States District Court for the District of Massachusetts, is an interesting case to watch, as it could have far-reaching implications for the cannabis industry. In it, Plaintiffs allege that all Defendants are criminally conspiring to grow and sell cannabis and cannabis products, in violation of the Controlled Substances Act and the federal Racketeer Influenced and Corrupt Organizations (RICO) Act. This is a stretch, as one of the defendants, Century Bank and Trust Company, only provides banking services to Healthy Pharms, Inc., a Massachusetts-licensed registered marijuana dispensary located in Harvard Square. Not to put too fine a point on the dispute, but by invoking the RICO statute, Plaintiffs are attempting to make a federal case out of what amounts to a Harvard Square landlord dispute, because the landlord does not approve of Healthy Pharms, Inc.’s operation and is concerned about the potentially negative ramifications it may have on its own business and real estate value.

    On December 15, 2017, Century Bank filed a brief in support of its motion to … Keep reading

  • The Emergence of Cannabis BankingMay 30, 2018

    In the fast-growing legalized cannabis industry, one of the major obstacles for businesses has been—and continues to be—access to banking services. Because cannabis remains a Schedule I drug and unlawful at the federal level under the Controlled Substances Act, the majority of federally regulated commercial banks will not accept customers that derive funds from cannabis-related activities, whether medical or recreational. While some businesses may attempt to disguise the nature of their funds, risking the potential closure or freezing of their accounts if discovered, many choose to deal primarily in unbanked cash, leading to an entirely different set of potential risks.

    Cannabis banking advocates argue that forcing businesses to operate solely in cash can lead to undesirable consequences, including heightened risk in the community and stress on the business’s record-keeping and tax-reporting obligations. In an effort to further legitimize these businesses and reduce the potential risks associated with unbanked cash, some regional credit unions and state-chartered banks—particularly in states where cannabis has been legalized the longest (e.g., Colorado, Washington)—have quietly begun accepting cannabis-related clients, subject, of course, to increased diligence, disclosure, and compliance requirements.

    These credit unions and banks work closely with the cannabis-related companies to ensure that all local … Keep reading

  • Risk & Reward: A Primer on Plant-Touching Cannabis CompaniesMay 21, 2018

    Not all cannabis-related companies are created equal. In fact, in the eyes of state and federal regulators, they differ significantly, depending on whether they “touch” the cannabis plant—and they’re treated accordingly.

    The most common types of companies that do touch the plant are the “operators” that are cultivating, processing, or dispensing cannabis or cannabis products. “No-touch” companies generally provide a product or service pertaining to the industry, but avoid direct involvement with the plant itself. Examples include suppliers of cultivation-related products (e.g., fertilizer) and packaging, as well as providers of real estate, consulting, and legal services (like Burns).

    The complexity of the regulations that apply to “touch” companies, as well as the rigor with which those regulations are enforced, also serves as a point of differentiation. Each state that has legalized cannabis, whether medicinal or adult-use, has enacted an enormous set of rules that govern its cultivation, processing, and sale. While there is no federal standard, cannabis operators generally need to ensure compliance with stringent guidelines regarding security, waste removal, advertising and branding, and packaging, as examples.

    Generally, and unsurprisingly, “touch” companies are viewed by both observers of and players in the space as inherently riskier than their … Keep reading

  • Cannabis Branding Pitfall #1: Be Wary of Adopting Already Well-Known TrademarksMay 09, 2018

    While trademarks for cannabis products and many accessories are ineligible for federal trademark protection (because such goods are still unlawful at the federal level), the savvy cannabusiness operator should nevertheless approach their branding strategy thoughtfully and engage in some investigation into potential trademark conflicts before adopting a new brand or business name.

    Importantly, trademark conflicts are not restricted to simply using the identical mark of a competitor. Instead, they generally turn on whether use of the mark is “likely to cause confusion” in the marketplace. In other words, if it is likely that consumers will assume a relationship between you and the senior trademark owner.

    Earlier this year, for example, Woodstock Ventures LC filed suit against Woodstock Roots, LLC on the basis of trademark infringement. Since 1969, Woodstock Ventures has produced the annual WOODSTOCK®-branded music festival in New York. In the intervening years, the company has expanded its offering to include audio records, movies, clothing, and other promotional merchandise, all offered under the WOODSTOCK brand. It holds federal trademark registrations for these goods and services, all of which, on their face, have no obvious relationship to cannabis goods. However, and as Woodstock Ventures readily concedes and, in fact, boasts … Keep reading

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