Trying to get a cannabis industry does now now not occur in a topic of days, and transactions topple aside for a range of reasons, as we discussed in Phase 1 of this blog series centered on the make a selection-facet of a cannabis M&A transaction. On this Phase 2, we middle of attention on the regulatory environment, discussing concepts that first-time investors and their attorneys should take into accout of.

Navigating Thru Federal Illegality

Marijuana remains a Schedule I controlled substance below the U.S. Federal Controlled Substances Act. Many states occupy enacted legislation and created regulatory frameworks that let the cultivation, processing, manufacturing, and retail sale of marijuana inside of their borders.

Alternatively, the acquisition agreements, starting up with the term sheet (or letter of intent) and the attorney agency’s engagement letter should clearly acknowledge the illegality of marijuana in accordance with federal law. They should moreover comprise provisions referring to future definite or negative adjustments in relevant criminal guidelines and regulations (and their uneven enforcement) that can frustrate the total plan of the transaction.

Are You Dealing with Marijuana or Hemp?

The 2018 Agricultural Improvement Act (the “2018 Farm Bill”) eliminated “hemp” from the definition of “marijuana,” and now hemp can generally be judicious a commodity very equivalent to any other agricultural cleave. Alternatively, as a consequence of hemp’s affinity with marijuana, the 2018 Farm Bill moreover directed the USDA to effect a nationwide hemp regulatory structure, with every instruct and tribe being given the leeway to effect its occupy hemp cultivation realizing for approval by the USDA.

Since the term cannabis can discuss about with both marijuana and hemp, it is critical to perceive whether or now now not the acquisition plan deals with marijuana, hemp, or both. In general, a plan firm will specialize in one or the other.

Even supposing a hemp acquisition is seriously less problematic than a marijuana acquisition, lots of the concerns in this blog series should moreover be judicious in a hemp acquisition to develop certain that the plan firm’s lines of industry are clearly delineated and adhered to. We are able to deal extra with this in our posts on the due diligence duration and within the representations and warranties sections within the transaction documents.

Can You Genuinely Clutch That Company?

Next, the purchaser desires to desire what form of cannabis licensure is being acquired. Some states enable vertical integration at some level of the industry – from plant genetics by to retail sales – whereas other states, like Washington, prohibit some or all vertical integration.

Diversified states may possibly perhaps well moreover merely, for the capabilities of promoting social equity or avoiding market dominance by a single firm or a minute community of corporations (antitrust concerns), occupy limits on the series of licenses that can moreover be owned. These states may possibly perhaps well moreover merely moreover restrict the forms of contracts that can moreover be entered into among licensed corporations to examine out to promote a extra free and plump market environment among licensed corporations.

Seemingly acquirors from a obvious jurisdiction should changed into aware about the regulatory barriers within the plan instruct. Relate criminal guidelines and regulatory regimes fluctuate seriously at some level of instruct lines, and you can not reasonably desire the contours of a instruct’s marijuana marketplace factual by the instruct’s political environment.

The put Attain We Gallop From Right here?

In the next put up we can bear a deep dive into these parts of a cannabis acquisition:

  1. Making ready to Symbolize a Cannabis Consumer for the First Time
  2. The Letter of Intent and Transaction Structuring
  3. Conducting Due Diligence
  4. The Transaction Paperwork
  5. Initial Closing and the Closing Closing

The put up What You Wish to Know When Trying to get a Cannabis Trade, Phase 2: The Regulatory Ambiance regarded first on Harris Bricken.