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For Cannabis Companies, Success Means Tackling Legal Complexity

There are few industries today that have visibility on the massive growth potential of the global cannabis industry, yet exploiting that potential means navigating a wide variety of legal landmines including, to name a few, corporate law, intellectual property and multi-state licensing rules.

Fast-growing cannabis companies engaged in capital raising should be particularly mindful of demonstrating knowledge of the maze of regulatory rules and reporting requirements in all the jurisdictions where the business could operate.

Law firms are capitalizing on the need for cannabis guidance by building practice areas with a focus on the emerging industry. According to David Feldman, Partner at Duane Morris LLP, a multi-practice law firm with more than 20 offices around the world, “The train is out of the station and I think it’s inevitable that every state is going to do some form of [cannabis] legalization.” The firm’s cannabis practice group supports a wide range of cannabis businesses from startups to publicly-traded entities.

Overall, the cannabis industry is now worth U.S. $7.2 billion and is projected to grow at a compound annual growth rate (CAGR) of 17%, according to New Frontier, a data-analysis group focusing on the cannabis industry. The industry will be worth $24 billion and will create more than 300,000 jobs by 2020, asserts New Frontier. Greenwave Advisors estimates the market could be as large as $87 billion should the entire U.S. move to legalize cannabis.

Intellectual property (IP) is one area of law where companies should seek outside counsel. This week’s investment by Constellation Brands ($191 million for a 9.9% stake) in Canopy Growth Corp., a licensed Canadian cannabis company, highlights how major brand companies perceive the cannabis opportunity. Canopy’s focus on developing brands shows that trademarks can be vital for smaller companies capitalizing on early stage consumer trends like cannabis. (Note: Cannabis-related trademarks are U.S. federally prohibited but allowed by some states.)

Patent protection is another area of IP that is important to the industry. For example, GW Pharmaceuticals (NASDAQ: GWPH) recently reported positive results from three pivotal Phase 3 trials of pharmaceutical-grade cannabis-based compounds. GW is among a handful of publicly-traded pharmaceutical plays in the cannabis industry.

Securities laws are complex and country-specific. Adding cannabis rules introduces yet another layer of complexity.  Last month the Canadian Securities Administrators (CSA) issued guidance for new disclosure rules for issuers with activities related to the cultivation, distribution or possession of marijuana in the U.S. The new rules effect listings on the Toronto Stock Exchange (TSX), the TSX Venture Exchange (TSXV along with the TSX, the TMX Group). At issue is the possibility that listed companies could be in violation of exchanges rules for doing business in the U.S. cannabis industry. In the U.S., cannabis remains federally illegal (in the same class as heroin and LSD), yet it is legal in 29 states and the District of Columbia. Canadian rules adhere to U.S. federal law, not state law.

Mr. Feldman tells High.co, “Once federal restrictions go away, it’s going to be a bonanza of companies uplisting from OTC and listing in general.”

For smaller companies, the legal aspects may not be as complex but could mean the difference between success and failure. This includes such things as corporate governance, financial reporting, zoning and tax that may have state-specific rules that require special compliance attention.


David N. Feldman concentrates his practice on corporate and securities law and mergers and acquisitions, as well as general representation of public and private companies, entrepreneurs, investors, and private equity and venture capital firms. Mr. Feldman also advises emerging growth companies with regard to alternatives to traditional financing through initial public offerings. He is also considered an authority on public offerings through the recently implemented SEC Regulation A+. Mr. Feldman also represents investors, social media sites, public and private issuers and applicants for grow and dispensary licenses in the emerging cannabis industry. Mr. Feldman has authored three books on finance and entrepreneurship, and contributed to three other books. His popular blog at http://www.davidfeldmanblog.com/, focusing on entrepreneurship and the regulatory environment, has been recognized by LexisNexis as a Top 25 corporate law blog, and his videos appear on his YouTube channel, The Entrepreneur’s Advocate. He also writes a column for SmartCEO magazine called “The Uncut Entrepreneur.” Mr. Feldman is a graduate of the University of Pennsylvania Law School, and of the Wharton School of the University of Pennsylvania. He has served as chair of the board of Wharton’s global alumni association.

 

For Cannabis Companies, Success Means Tackling Legal Complexity was last modified: November 2nd, 2017 by