A New Angle on Cannabis Banking Protections

Sometimes I’ll write about cannabis banking when I’m working on a project for a bank or credit union, but newsworthy developments on cannabis banking seldom seem to drop. Yesterday, however, we had a development worth covering: a Congressional Subcommittee added cannabis banking protections to a critical government spending bill. A GOP-chaired Subcommittee, no less.

Marijuana Moment ran a good story on the marked-up bill, which covers cannabis banking and other cannabis- and non-cannabis issues. You can view the bill and related items, here. The relevant language is at Section 134. It provides:

None of the funds made available by this Act may be used to penalize a financial institution solely because the institution provides financial services to an entity that is a manufacturer, a producer, or a person that participates in any business or organized activity that involves handling hemp, hemp-derived cannabinoid products, other hemp-derived cannabinoid products, marijuana, marijuana products, or marijuana proceeds, and engages in such activity pursuant to a law established by a State, political subdivision of a State, or Indian Tribe. In this section, the term ‘‘State’’ means each of the several States, the District of Columbia, and any territory or possession of the United States.

I have some fussy suggestions as to language choices here, but I like Section 134 overall. And I think it’s a good idea to wedge this into a spending bill, even if annual renewal would be required. Reasons include:

• the SAFE(R) Banking Act has stalled out seven years running, and can’t get over the hump;
• States and Tribes continue to launch, expand and refine cannabis programs;
• the economic output of regulated marijuana continues to grow nationwide;
• banking services (like actual, full-service offerings) are crucial on everything from bill-pay to physical safety;
• once Congress approves a spending bill rider—particularly one that restricts spending—they tend to stick; and
• as I’ve explained elsewhere, marijuana rescheduling won’t fundamentally change the status quo on cannabis banking.

Change is in the wind, though. Last month, I told American Banker that “[w]e saw a dramatic increase in banks moving into the space in the past 12 months…”. That was not just speculation. First Citizens Bank announced in January that it would expand its hemp banking platform into the cannabis/marijuana space (and FCB is the 15^th largest bank in the country, according to the Federal Reserve.) Federal data from last fall also shows a record number of banks active in the space. Anecdotally, we continue to spin up cannabis programs for credit unions here at the law firm, or help them expand offerings.

The question for today is whether more financial institutions would wade into the fray if this marked-up bill passes. I think they would, although this one lacks the springboard potential of SAFER as currently postured. SAFER wouldn’t be subject to annual renewal; but more importantly, it would also foreclose enforcement actions by the Justice Department. The Subcommittee’s marked-up bill does not and cannot do this, which would be duly noted by bank directors. This proposal would also be less impactful than an update to the old-as-dirt FinCEN guidance on BSA Expectations Regarding Marijuana-Related Businesses— assuming any update gave more latitude to financial institutions than the 2014 memorandum.

Anyway, yesterday’s rider is a new approach and worth a watch. We’ll opine further if it passes. In the meantime, check out our myriad of banking posts, but specifically the following:

• How Important is the Safe Banking Act, Anyway?
• Cannabis Banking Today

 

The post A New Angle on Cannabis Banking Protections appeared first on Harris Sliwoski LLP.

from Canna Law Blog™ https://ift.tt/0YvZTG9
via IFTTT

Leafly’s top 6 CBD gummies of 2024

Find the best CBD gummies of 2024. Leafly reviewed popular CBD gummies & chose what we think are the top picks for different needs & budget.

The post Leafly’s top 6 CBD gummies of 2024 appeared first on Leafly.

from Leafly https://ift.tt/DGHZ8fs
via IFTTT

ILGM+ Phylos Bioscience help you find your Biscotti Bliss—June 2024’s Leafly HighLight

A double dose of Biscotti is just what your next sunny afternoon ordered.

The post ILGM+ Phylos Bioscience help you find your Biscotti Bliss—June 2024’s Leafly HighLight appeared first on Leafly.

from Leafly https://ift.tt/u5IkgFb
via IFTTT

Study finds weed users get more active than abstainers

Pot correlates with increased light activities, not sloth

The post Study finds weed users get more active than abstainers appeared first on Leafly.

from Leafly https://ift.tt/Qgi41Vu
via IFTTT

Cannabis M&A: Protecting Against Undisclosed Liabilities

When someone buys a cannabis business, and not just that business’s assets, they essentially inherit all of its liabilities. And there are usually a lot.

If the business is in the midst of a lawsuit, owes back taxes, is behind on rent, etc., the buyer will need to deal with those problems on its own–unless the purchase agreement requires some form of assistance from the seller.

Smart cannabis business buyers spend a lot of time doing “diligence” on the target business either before signing a purchase agreement or before closing, in large part to flag potential liabilities. But in some cases, buyers fail to ask the right questions or sellers (whether intentionally or not) fail to disclose material information about the business.

We call these “undisclosed liabilities,” and if they are not properly addressed in the purchase agreement, they can lead to serious problems for the buyer. Below, I’ll identify a few common ways that buyers protect themselves from undisclosed liabilities.

Conducting thorough due diligence

You probably wouldn’t buy a car without test driving it, making sure title was clear, and maybe even having a mechanic check it out. So would you buy a business without making sure you weren’t walking into a minefield first? You’d probably be surprised at the amount of folks who would.

The first and best way to avoid undisclosed liabilities is to thoroughly diligence the target business. The diligence process usually involves lawyers sending written questionnaires to the seller’s counsel, seeking a host of information about the business.

A good diligence questionnaire will include information about its finances, debt, real estate, employment matters, litigation, corporate structuring and governance, intellectual property, owned and leased assets, licensing and regulatory matters, and so on. Increasingly they will include things like privacy law compliance and other “newer” legal concerns.

This is really only the start — the buyer’s counsel and tax/financial advisors will review many of the documents and flag concerns for the buyer. Buyers may also do things like physical inspections of the business premises or assets.

Concerns raised in the diligence process will drive negotiations with the seller and in some cases necessitate changes to the deal structure. In more extreme cases, a buyer may walk altogether.

In the next few parts of this post, I’ll address tools sophisticated buyers use to proactively mitigate liabilities that were not disclosed in the due diligence process.

Indemnification

One of the most common risk-mitigation strategies in business purchases is requiring the seller to indemnify the buyer in the event that the buyer suffers harm as a result of certain identified acts or omissions of the seller. These usually include inaccuracies in representations by the seller or breach of the purchase agreement by the seller.

For example, a purchase agreement may state that the seller must indemnify the buyer and company (as well as their affiliates) against harm they may suffer as the result of seller’s breach of a representation. Say there was a representation by the seller that the company owed no back taxes, when in fact it did and the tax collector came knocking, the buyer could require the seller to pay the back taxes and defend it in any tax proceeding.

Indemnification provisions can be incredibly complicated and heavily negotiated. For example, sellers will often push for a cap on their indemnification obligation, since after all, a seller wouldn’t want to end up responsible for paying more than they were paid in the deal to cover the buyer’s expenses. Buyers on the other hand may push for carveouts to seller caps in cases of fraud or concealment of material undisclosed liabilities.

Additionally, indemnification provisions only really work to the extent that the seller has money to actually indemnify the buyer. A good rule is to assume that once the seller is paid, it (and its money) will vanish from the face of the earth, leaving the buyer left holding the bag regardless of how well it negotiated an indemnification provision. Still, buyers have a few options to protect against this.

Offsets and holdbacks

One easy way (in theory at least) to protect against a disappearing seller is to ensure that money will be tied up post-closing. There are two main ways this typically happens.

First, buyers may establish a holdback of part of the purchase price to be held in a neutral escrow account for some period following the closing. For example, if the purchase price is $5mm, the buyer may insist that $750,000 is held for a year in an escrow account post-closing, and that any liability that arises during this time may be satisfied out of the escrow fund.

Second, where any part of the purchase price or consideration will be paid or granted post-closing, the buyer may include an offset provision similar to the escrow holdback. Rather than having a pot of money held in escrow, the buyer could simply deduct future payment. Where part of the purchase price is paid via a seller note or post-closing installments, offset provisions are common. But they can also be used against things like post-closing options, warrants, or earnout provisions.

Conclusion

Undisclosed liabilities are the bane of any sophisticated buyer’s existence. Thinking proactively about mitigation strategies early on can save buyers headache and financial misery down the road. Cannabis M&A is no easy task and buyers who address undisclosed liabilities head on will be in a lot better position down the road.

For more on cannabis M&A, check out some of our other posts below:

• Cannabis M&A: Will California Allow License Transfers?
• Cannabis M&A: Common Closing Conditions
• Cannabis M&A: Purchase Price Adjustments
• Five Common Problems in California Cannabis M&A Transactions
• Cannabis M&A: Get to Know Your New Landlord
• Top Five Things to Know if You’re Building Your Cannabis Empire Through M&A
• Cannabis M&A: The Purchase Price and How It’s Paid
• Washington Cannabis: Buckle Up for a Brisk 2021 in M&A Activity
• Cannabis Mergers and Acquisitions: Preparing for Success
• Cannabis M&A and Real Estate Transactions: What is a Closing?
• Cannabis Transactions and Letters of Intent
• Cannabis Due Diligence Mechanics and Red Flags
• Top Five Red Flags for California Cannabis M & A
• What You Need to Know When Buying a Cannabis Business

The post Cannabis M&A: Protecting Against Undisclosed Liabilities appeared first on Harris Sliwoski LLP.

from Canna Law Blog™ https://ift.tt/56gjKtd
via IFTTT

How Rapid Relief Cooling Gel with CBG, CBD & THC nails the recipe for relief

Rapid Relief Cooling Gel from Rare Cannabinoid Company combines CBG, CBD & THC in a new formula to tackle muscle & joint discomfort.

The post How Rapid Relief Cooling Gel with CBG, CBD & THC nails the recipe for relief appeared first on Leafly.

from Leafly https://ift.tt/RryvFwb
via IFTTT

California’s Cannabis Lounges and Assembly Bill 374: Food, Fun, Weed

As California continues to pioneer in the cannabis industry, a new trend is taking the scene by storm: cannabis consumption lounges. These lounges are becoming the ultimate hangout spots, and the latest buzz is about adding food and non-alcoholic drinks to the menu. Let’s dive into what’s happening with consumption lounges in California and how they’re looking to integrate food and beverages for an even better experience, through proposed legislation known as Assembly Bill 374 (“AB-374”).

What’s a cannabis consumption lounge?

Think of a cannabis consumption lounge as the cool new spot where adults can legally enjoy cannabis products in a social setting. These lounges, unlike retail dispensaries, let you kick back and consume cannabis on-site, much like a bar does with alcohol. Whether you’re in West Hollywood or San Francisco, some cities are all in on this idea, while others are still warming up to it.

Cannabis-friendly cafés: already a thing in California

Yes, cannabis-friendly cafés are already a reality in California! West Hollywood started the trend in 2018 with its cannabis lounge program. Imagine enjoying tacos, burgers, or wings while choosing from a menu of pre-rolls, edibles, infused beverages, or concentrates. These cafés are unique because they operate with special permissions: they’re part dispensary and part consumption lounge, thanks to both state and city authorizations.

New bill to expand food sales for dispensaries

Exciting news: a new bill just passed in California’s lower house that could change the game for cannabis dispensaries. That bill is AB-374 and you can view it here. If AB-374 becomes law, these spots will be able to sell food and non-alcoholic drinks alongside their cannabis products. This will not only create new opportunities in the cannabis space but will go along way towards normalizing its use and enjoyment. Picture a cozy café where you can enjoy a coffee or a sandwich while indulging in your favorite cannabis goodies, just like the famous cafés in Amsterdam.

Assemblymember Matt Haney is the force behind this bill. He pointed out the missed opportunities under the current rules, which prohibit dispensaries from selling anything other than cannabis. His new bill includes strict regulations ensuring that cannabis and food areas are kept separate to prevent any contamination. Proposed regulations include prohibiting customers or employees from smoking or vaping cannabis products in food preparation, food storage or washing areas, and requiring non-cannabis food and beverages be kept separate in order to prevent contamination. The added language remedies prior concerns by California’s Governor, who vetoed an earlier version of the bill.

Come for the wine, stay for the cannabis

California’s push to expand food sales in consumption lounges marks a big step towards normalizing cannabis. By blending cannabis with food culture, the state aims to boost local economies and create a unique draw for tourists, much like its famous wine industry. Haney captures this vision perfectly: “People come to California for our wine industry; they can come for our cannabis as well.”

California’s consumption lounges are poised to become the next big thing in social cannabis use. So, whether you’re a local or a tourist, get ready to enjoy a more vibrant and social cannabis experience in the Golden State!

We will continue to track developments with cannabis consumption lounges and AB-374. In the meantime, feel free to reach out to our California cannabis attorneys with any questions.

The post California’s Cannabis Lounges and Assembly Bill 374: Food, Fun, Weed appeared first on Harris Sliwoski LLP.

from Canna Law Blog™ https://ift.tt/RScZJWB
via IFTTT