2023 shopping tip: Check those packaging dates!

Nobody likes stale weed. Here's how to shop fresh.

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Distressed Cannabis Business Takeaways

On February 28th, I moderated our firm’s “Distressed Cannabis Businesses” webinar. In that webinar, Griffen, Ethan, Vince, and I discussed the current financial and economic pressure the entire cannabis industry is facing today. We covered reorganization, litigation, dissolution, M&A, receivership, secured interests, and liquidation. And we of course discussed how state-by-state cannabis regulations impacts all of the foregoing. If you missed distressed cannabis buinsses webinar, here are the highlights:

Bankruptcy

Because cannabis remains federally illegal, filing for bankruptcy in U.S. federal court isn’t really an option for a distressed or insolvent cannabis business. However, as Ethan explained in the webinar, the case is less clear when the debtor is just an ancillary cannabis business. This is a nuanced, fact-specific area of law, with courts coming to seemingly inconsistent conclusions across jurisdictions.

Bankruptcy is a distressed business tool for re-organization in order to survive. Without it, the cannabis industry is left with a few (often inadequate) alternatives to deal with financial fall out.

Receivership

Court-appointed receivers are neutral, third-parties that will take over a distressed cannabis business’s operations. A receiver’s sole purpose is to preserve and protect the business during a problematic period – and, if you take care to ensure that your receiver is well-versed in the cannabis industry, he, she or it can typically handle everything from sales to personnel to accounting (their powers can be very broad).

Keep in mind that the point of the receiver is not to run the business for the benefit of creditors or even to re-structure–it’s to run the business until the underlying legal proceedings are concluded. The appointment of receivers and their treatment by cannabis regulators is also going to change from state to state (see here for Oregon, for example) with things like disclosures, changes to the license, and continued reporting.

Assignment for the benefit of creditors

An assignment for the benefit of creditors (“ABC”) is controlled by state statutes. An ABC is a contract by which an economically troubled entity (“Assignor”) transfers legal and equitable title, as well as custody and control, of its assets and property to an independent third party (“Assignee”) in trust, who is required to apply the proceeds of sale of the property to the assignor’s creditors in accord with priorities established by law. ABCs really only make sense if there are significant assets to liquidate.

ABCs are most successful when the Assignor, Assignee and creditors cooperate but can be imposed even if the creditors are not supportive. Further, like a receivership action, ABCs do not result in a reorganization of a company. While ABCs may technically be available to the cannabis industry, they don’t make a ton of practical sense. This is mainly because of all of the regulatory reporting and regulatory prohibitions around the sale of licenses, inventory, and/or cannabis cash. Still, they’re on the table for distressed cannabis businesses.

The Uniform Commercial Code (UCC)

Many cannabis companies offered up security interests to lenders in order to score some cash. And now, in this financial climate, no loan is going out to a cannabis company without some kind of collateral. To have a valid security interest, you need to follow the UCC, and pay attention to any state variances under state UCC laws.

Article 9 of the UCC covers secured transactions. In a secured transaction, the parties are typically the debtor and the creditor. The creditor’s goal with a cannabis company security interest is to attach and then perfect its interest in the collateral so that the creditor can later take possession of that collateral in the event of a default (without having to go to court). The creditor then liquidates the collateral and takes from the proceeds the remainder of whatever it lent in order to make itself whole. The rest then goes to junior creditors, if any, and then back to the debtor (which seldom happens). For more on the structure of UCC-1s in cannabis, see here.

M&A

Lots of cannabis companies are looking to sell now before they lose everything they’ve put into the business. This presents a unique opportunity for certain buyers who may be looking at deeply discounted cannabis business purchases. For a distressed cannabis business, like any other business, buyers need to run serious M&A due diligence. Particularly though for distressed cannabis businesses, due diligence is crucial when it comes to things like litigation, contract breaches (non-performance, insolvency, and/or breaches of operating covenants), and encumbrances on various assets.

It’s not pretty out there right now in the cannabis economy, and we sincerely hope that this phase of distressed cannabis businesses can pass quickly without too much blood in the water.

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New York’s First Woman-Owned Dispensary Opens Tomorrow

Called “Good Grades,” the dispensary will also be the first legal cannabis store in the New York City borough of Queens. 

“With the opening of Good Grades in Queens, we’re continuing to build on our progress to create a safe, regulated cannabis industry in New York,” New York Gov. Kathy Hochul said in a press release on Monday. “New York is working to support entrepreneurs and ensure that consumers can purchase safe, legal products while supporting their communities.”

Hochul, the state’s first woman governor, has overseen the launch of the state’s regulated cannabis market. Her predecessor, former New York Gov. Andrew Cuomo, signed the bill legalizing recreational marijuana in 2021. 

The state formally launched the new marijuana market late last year with the opening of a dispensary in the East Village neighborhood of Manhattan. 

Good Grades will open this week as a “pop-up” store, according to the governor’s press release, and the business is supported by the New York State Social Equity Cannabis Investment Fund, which was a part of Hochul’s 2022-23 budget.

The fund “is a public-private limited partnership that will be formed to position social equity entrepreneurs to succeed in New York’s newly created adult use cannabis industry,” Hochul’s office says, and “will allow the state to invest in a private fund to finance the leasing and equipping of up to 150 conditional adult-use retail dispensaries in New York State to be operated by individuals who have been impacted by the inequitable enforcement of marijuana laws.”

The governor’s office said that, like other dispensaries backed by the fund, Good Grades opening as a pop-up presents “the opportunity to open on a short-term basis to fast-track sales, provide training opportunities for employees and start generating capital for their businesses.”

“After, they will close for final construction and then re-open on a long-term basis,” according to this week’s press release.

“I am thrilled to be opening the doors of Good Grades, the very first dispensary in Queens, New York,” said Good Grades owner Extasy James. 

“We are incredibly passionate about providing greater access to cannabis and breaking down the barriers that prevent so many people, especially those from marginalized communities, from experiencing the benefits of this amazing plant. We understand firsthand the stigma that has been attached to cannabis for far too long, and we are eager to join the thriving cannabis community to help change that. Our dispensary is a welcoming and inclusive space where anyone can come to learn, explore, and find the products that are best suited to their unique needs.”

New York City opened its third legal dispensary last month––not to be confused with the illicit cannabis retailers that have blanketed all five boroughs in the last two years. 

The first dispensary outside of NYC also opened to customers last month.

Earlier this month, the state announced that it would double the number of cannabis retailer licenses, and will now award 300 instead of the originally planned 150.

“With this expansion, more entrepreneurs will be able to participate in the first wave of this industry, allowing them to capitalize on the growing demand for cannabis products,” said Tremaine Wright, chair of the New York Cannabis Control Board. “As more businesses enter this market, the innovation and competition will increase, leading to better quality experiences for consumers. The expansion of New York’s cannabis market will benefit everyone involved in this exciting industry.” 

The post New York’s First Woman-Owned Dispensary Opens Tomorrow appeared first on High Times.

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New York Cannabis: The Timing Update Update

A few weeks back we provided an update on the timing of New York’s Office of Cannabis Management (OCM) and Cannabis Control Board (CCB) opening the general adult-use cannabis licensing portal, with an anticipated start of application review in the fall of 2023. We based our estimate on the OCM and CCB’s review of the public comments that were submitted with respect to the proposed adult-use cannabis rules and regulations. Well, on March 22, 2023, Green Market Report (via John Schroyer) released a comprehensive and wide-ranging interview with OCM’s Chief and Staff and Senior Policy Director Axel Bernabe, in which Bernabe confirmed that the OCM anticipates opening the portal in the fall of 2023.

Here’s the relevant question and answer:

“What’s the timeframe for when New York industry regulations will be finalized and done? 

The regulations that we filed for public comment, we’re really trying to get them done by our May 11 board meeting. If we get it done by then, we should be able to file final regs by the end of August. Then we can start opening the general application period within a couple months of that.

These are all tentative dates, but in the fall, after Labor Day, that’s when we can start to award more dispensaries.

But it’s not like we’re going be able to review a thousand (applicants) because we’re also having to review the growers and the distributors and all these other licenses (simultaneously). That’s the biggest obstacle, is just the time it takes to review everybody.

It allows for a phased rollout to a certain extent, so we don’t have a thousand people all looking for dispensaries at the same time. We have like 100, and then another 100, and then a couple months later, another 100. Then you don’t have 500 people descending on a county and all scrambling and fighting for space and bidding up the price.”

Schroyer and Bernabe cover a lot of important topics throughout the interview and we strongly encourage anyone interested in applying for an adult-use cannabis license in New York to read the whole thing. Even in this single answer, there’s a lot to unpack:

• We can (hopefully) expect to see the final adult-use rules and regulations by May 11, 2023, which gives a comfortable runway for compiling the comprehensive application materials.
• Application review will likely be rolling, which means that applications will be reviewed as they come in (something we already knew, but is now confirmed).
• Applications for different license types will likely be reviewed at the same time.

It is interesting to note that Schroyer’s interview of Bernabe was released just a week after the lawsuit demanding that the OCM and CCB immediately open the application portal. We’ll see if or how that litigation impacts the OCM and CCB’s plans, but at least we now have a likely outside date for New York’s adult-use cannabis license application portal to open. Stay tuned!

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Hawaii Cannabis Bill Fails, Ending Legalization Hopes for 2023

Hawaii will have to wait at least another year before marijuana legalization comes to the islands, after a legislative proposal stalled in the state House of Representatives. 

Earlier this month, the Hawaii state Senate voted overwhelmingly to pass the bill, which would legalize adult-use cannabis and establish the regulatory framework for a recreational marijuana market. 

But that bill “was not scheduled for a state House hearing before a key legislative deadline,” according to MJBizDaily, which means that the proposal is likely dead for 2023. 

It is a familiar outcome for marijuana advocates in Hawaii, where Democrats control both chambers of the legislature. The state’s governor, Josh Green, is also a Democrat.

MJBizDaily reported that senior leadership in the state House also “killed off three earlier legalization proposals introduced in that chamber in February when those bills were also not scheduled for hearings.”

Despite its smooth passage in the state Senate, the legalization bill was also bound to encounter obstacles in the state House.

One of the leaders in that chamber, House Speaker Scott Saiki, has “said that he thought it best for the state to wait on approving recreational marijuana use,” according to the outlet Civil Beat, and that he “would rather see a working group analyze the idea over the summer.”

The bill sailed out of a pair of state Senate committees earlier this month, with one of the legislative panels adding a host of amendments to the measure.

According to local news station KHON2, those amendments included: “1. Language was added to establish civil penalties for unlicensed cannabis growth and distribution activities; 2. Language was added that protects employers who seek to prohibit cannabis use amongst their employees; 3. Prohibition of advertising within 1,000 feet of any youth-centered area; 4. Proposed licensing of cultivation, manufacturing, testing and retail facilities that ensure a properly regulated industry while also preventing future consolidation and monopoly control of cannabis dispensaries.”

The bill was approved by the full state Senate by a vote of 22-3.

Green, who was elected as governor last year, has expressed his support for marijuana legalization.

“I think that people already have moved past that culturally as a concern,” Green said during a gubernatorial debate last year. “But here’s what I would do. First of all, if marijuana is legalized, it should be very carefully monitored, and only done like cigarettes, or I’ve been very careful to regulate tobacco over the years. We should take the $30 to $40 million of taxes we would get from that and invest in the development and recreation of our mental healthcare system for the good of all.”

As the bill made its way through the state Senate this month, an adviser for the governor made it clear that the measure would likely receive his signature.

“Governor Green supports legalized use of cannabis by adults, providing that any legislation that emerges protects public safety and consumers, and assures product safety with testing and tracking. The Governor also seeks to ensure the continued viability of our medical cannabis industry. Because these are complicated issues, he has encouraged his departments to state their concerns, and to make suggestions if there are ways to mitigate them. If a bill passes the legislature that accounts for his primary concerns, he has indicated he will likely sign it,” the adviser said at the time.

There is also public backing for legalization to couple with the political support. A poll released earlier this year found that 52% of Hawaiians are in favor of legalization adult-use marijuana, while only 31% are opposed. 

The post Hawaii Cannabis Bill Fails, Ending Legalization Hopes for 2023 appeared first on High Times.

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Winner of new cannabis contest ‘King of Z Hill’ will get $40,000

Read the first edition of Strain News Weekly. It’s like Politico Pro, but for cultivars.

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We try breathing easier with Cough Shield

Thanks to Cough Shield, a game-changing, honey-based herbal supplement, relief for coughing-prone smokers, vapers, and dabbers is finally at hand. All-natural Cough Shield promises to virtually eliminate the urge to cough when smoking cannabis, making your sessions more enjoyable and saving your lungs and throat the aggravation in the process.

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