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Hot Topics 2020 - Making Cash With Cannabis

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Hot Topics 2020 - Making Cash With Cannabis

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How to make cash with cannabis? How to do well with weed? Let us presume our world is all Canadian, where marijuana has been legalized. Then the chief questions are what products (recreational? Medical? pharmaceutical?) might be produced, sold domestically, imported, or exported and what can we discern about the value of market opportunities, apparent or latent, thus far. If we add to our world the US -- where 10 states (or so – the numbers are dynamic) have legalized recreational usage of pot and 33 states (same qualification) have legalized medical use of pot, and many states and the national government continue to impose criminal penalties on the use and trafficking of pot – the picture muddies. How handle payments receipts for a pot business if banks will not accept deposits or provide checking services? How finance production if banks will not lend? How can lenders who, ignoring other risks, want to lend, properly price the credit when federal bankruptcy courts may be closed to borrower entities? And what legislative changes are likely on the federal and state levels? Sure BlackRock is investing in cannabis businesses, but should accredited investors? Is bitcoin a more predictable play?

To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/making-cash-with-cannabis-2020/

How to make cash with cannabis? How to do well with weed? Let us presume our world is all Canadian, where marijuana has been legalized. Then the chief questions are what products (recreational? Medical? pharmaceutical?) might be produced, sold domestically, imported, or exported and what can we discern about the value of market opportunities, apparent or latent, thus far. If we add to our world the US -- where 10 states (or so – the numbers are dynamic) have legalized recreational usage of pot and 33 states (same qualification) have legalized medical use of pot, and many states and the national government continue to impose criminal penalties on the use and trafficking of pot – the picture muddies. How handle payments receipts for a pot business if banks will not accept deposits or provide checking services? How finance production if banks will not lend? How can lenders who, ignoring other risks, want to lend, properly price the credit when federal bankruptcy courts may be closed to borrower entities? And what legislative changes are likely on the federal and state levels? Sure BlackRock is investing in cannabis businesses, but should accredited investors? Is bitcoin a more predictable play?

To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/making-cash-with-cannabis-2020/

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Hot Topics 2020 - Making Cash With Cannabis

  1. 1. 1
  2. 2. 2 Practical and entertaining education for attorneys, accountants, business owners and executives, and investors.
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  5. 5. Disclaimer The material in this webinar is for informational purposes only. It should not be considered legal, financial or other professional advice. You should consult with an attorney or other appropriate professional to determine what may be best for your individual needs. While Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate, Financial Poise™ makes no guaranty in this regard. 5
  6. 6. Meet the Faculty MODERATOR: Chris Cahill - L&G Law Group LLP PANELISTS: Jonathan Loiterman - Green Star Growing, Inc. Logan Leichtman - Lotus Law Group Joshua Bauchner - Ansell Grimm & Aaron, P.C. Jesse Bontecou - Oregon Retailers of Cannabis Association 6
  7. 7. About This Webinar – Making Cash With Cannabis How to make cash with cannabis? Let us presume our world is all Canadian, where marijuana has been legalized. Then the chief questions are what products (recreational? Medical? pharmaceutical?) might be produced, sold domestically, imported, or exported and what can we discern about the value of market opportunities, apparent or latent, thus far. If we add to our world the US -- where 15 states (or so – the numbers are dynamic) have legalized recreational usage of pot and 35 states (same qualification) have legalized medical use of pot, and many states and the national government continue to impose criminal penalties on the use and trafficking of pot – the picture muddies. How handle payments receipts for a pot business if banks will not accept deposits or provide checking services? How finance production if banks will not lend? How can lenders who, ignoring other risks, want to lend, properly price the credit when federal bankruptcy courts may be closed to borrower entities? And what legislative changes are likely on the federal and state levels? Sure BlackRock is investing in cannabis businesses, but should accredited investors? Is bitcoin a more predictable play? 7
  8. 8. About This Series – Hot Topics 2020 You know that weed has gone mainstream when bright-faced MBAs and JDs euphemize ganja with its scientific name of “cannabis.” Mary Jane will likely become legal throughout the US before consumers fully adopt blockchain-based cryptocurrencies as a means of obscuring their purchases of bud. By then, digital assets that go way beyond cryptocurrencies, such as “coins” and “tokens” (which also reside on blockchain), and which represent unregistered or even registered securities in, say, Thai stick, may diversify a standard G-man’s investment portfolio. Is this the dawning of the Age of Aquarius? Maybe. This webinar series introduces blockchain, cannabis, and digital assets as new realities and opportunities. Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and executives without much background in these areas, yet is of primary value to attorneys, accountants, and other seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that participants will enhance their knowledge of this area whether they attend one, some, or all episodes. 8
  9. 9. Episodes in this Series #1: Blockchain Basics Premiere date: 10/8/20 #2: Making Cash With Cannabis Premiere date: 11/5/20 #3: Digital Assets Premiere date: 12/3/20 9
  10. 10. Episode #2 Making Cash With Cannabis 10
  11. 11. State Legalization of Marijuana • Legal for medicinal purposes in 35 states and Washington D.C., plus 4 of the 5 U.S. territories • 15 of those states (AL, AZ, CA, CO, IL, ME, MS, MI, MT, NJ, NV, OR, SD, VT, & WA) and Washington D.C., the Northern Marianas, and Guam permit marijuana for recreational purposes • See “Legality of Cannabis by U.S. Jurisdiction,” Wikipedia at https://en.wikipedia.org/wiki/Legality_of_cannabis_by_U.S._jurisdiction (visited Nov. 4, 2020) 11
  12. 12. Federal Legalization of Hemp In 2018, Congress passed and the President signed the Agricultural Imrpovement Act of 2018, which removed "hemp" -- defined as cannabis products with less than 3% THC on a dry weight basis -- from the definition of marijuana under the Controlled Substances Act 12
  13. 13. Federal Criminal Law • Under the Controlled Substances At, 21 U.S.C. §§ 801-971, it is, with respect to marijuana, a crime to:  Grow it  Process it  Sell it  Knowingly rent, manage, or use property for the purpose of manufacturing, distributing or using it  Sell or offer to sell drug paraphernalia [including any equipment, product, or material of any kind which is primarily intended or designed for use in manufacturing it]  Derive profits or proceeds from violating the CSA 13
  14. 14. The Supremacy Clause • Constitution of the United States, Article 6, Clause 2:  This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding. 14
  15. 15. Federal Non-Enforcement of CSA by Statue • The Rohrabacher–Farr amendment became law in 2014 and prohibiting the Justice Department from spending funds to interfere with the implementation of state medical cannabis laws. It does not change the legal status of cannabis and must be renewed each fiscal year in order to remain in effect. Currently effective through Dec. 11, 2020. 15
  16. 16. Federal Non-Enforcement of CSA by Policy • The Cole Memorandum was issued by the United States Attorney General in 2013 to US Attorneys stated that the Justice Department would not enforce federal marijuana prohibition in states that "legalized marijuana in some form and ... implemented strong and effective regulatory and enforcement systems to control the cultivation, distribution, sale, and possession of marijuana," with certain exceptions. • The Cole Memorandum was rescinded by Attorney General Jeff Sessions in 2018 16
  17. 17. Cannabis: An Episode of Federalism • U.S. federalism divides power between the national government and the States, with the U.S. government being supreme in many areas • Marijuana legalization has been led by state laws • Some say that federalism is bad because it frustrates the application of uniform national law • Some say that federalism is good because it frustrates the application of uniform national law • Ron Swanson of Parks and Recreation and thoughtful libertarian constitutionalists may well argue that State legalization of marijuana in the face of a federal ban represents the finest traditions of federalism 17
  18. 18. Cannabis Law Changes Brewing in the U.S. Congress • The STATES Act (“Strengthening the Tenth Amendment Through Entrusting States”) would prevent the application of the Controlled Substances Act to persons complying with state law re manufacture, production, possession, distribution, dispensation, administration, or delivery of cannabis; and would exempt funds from legal cannabis businesses from the definition of “specified proceeds of illegal activity” under money laundering laws • The MORE Act (“Marijuana Opportunity, Reinvestment & Expungement”) is to be voted on by the HOR perhaps in late 2020, would remove marijuana from the list of controlled substances 18
  19. 19. Cannabis as a Business: What to do with Empty Shopping Malls? • Fulfillment centers (i.e., distribution centers) • Paintball ranges • Indoor golf • Wiffle Ball stadia • Grow cannabis !!!! 19
  20. 20. Cannabis, Inc.: Hitting the Big Time • Curaleaf Holdings Inc., which runs dispensaries in most states with legal weed, had a $2.3 billion market cap in 2019, now $5.36 billion • US multi-state operator Green Thumb Industries had a $2.7 billion market cap in 2019, (now $3.49 billion) and has vertically-integrated operations across many states, including retail dispensaries and cultivation and processing facilities for medical and recreational markets 20
  21. 21. Cannabis, Inc.: Hitting the Big Time (Big Name Executive Talent) • Parallel (fka Sunterra Wellness) sells medical and wellness products containing marijuana: Its finance head is Fareed Khan, former Kellogg Co. CFO  Its CEO is William Wrigley, Jr., formerly chairman and CEO of the famous gum and confectionary  Ed Brown, former CEO of Patron Spirits Co. is another senior executive See www.liveParallel.com 21
  22. 22. Cannabis, Inc.: Burgeoning *Retail sales of Marijuana in the US: $0.4bn in 2014, $1.5bn in 2016, $4.4bn in 2018, $6.35bn in 2019 *Federal and state tax revenue from legal cannabis in the US: $0.75 in 2017, $2.27bn in 2020 (est.) Dwight K. Blake, Marijuana Statistics 2020, Usage, Trends and Data, viewed at https://americanmarijuana.org/marijuana-statistics/ (visited Nov. 4, 2020) 22
  23. 23. Cannabis Business Travails: Banks and Taxes (A Conundrum) • All businesses must pay applicable state and local taxes, including federal income taxes • Very few state or federally charted banks of credit unions will take deposits from marijuana-related businesses • State and local taxes can be paid in person, in cash; but the IRS does not accept cash payments – must be check or wire transfer • NEVERTHELESS, in 2018 the IRS collected $2.8 billion in taxes from regulated cannabis businesses 23
  24. 24. Cannabis Business Travails: Secured Lending • Even assuming that lenders are not worried about losing their charters because they are handing lucre from crime (and they are):  Difficult for lender to understand nature and risks of underlying collateral and security interests; including what assets can be used to secure the loan, and the value of such assets in post-default liquidation  Lender could take a lien (mortgage, deed of trust) on real property  But liens on goods, accounts, inventory, permits and licenses, and intellectual property?  Permits and licenses to grow, manufacture, or sell marijuana and related products may be non-transferable (so how foreclose upon and then sell?), or if transferable, may require cooperation for debtor to transfer them 24
  25. 25. Cannabis Business Travails: Secured Lending • What is the value of the marijuana inventory in foreclosing lender’s hands, if possessing and selling it requires a license the lender does not or cannot hold? • And even if lender could get it sold, it would have to be sold within the state – no national market, no crossing state lines (federal law in that regard may well be enforced) or international borders (will be enforced). • And even with regard to possessing and selling marijuana in the state, a lender cannot expect that collateral to be protected by crop insurance: nearly impossible to obtain 25
  26. 26. Cannabis Business Travails: Secured Lending • Accounts: how lender get control by control agreement when receipts are not kept in banks? • IP: trademarks and patents are protected at the national level by federal law, and marijuana is illegal under federal law, the USPTO has rejected overwhelming majority of marijuana-related trademark and patent applications it has received. • Perennial risk of seizure of the collateral, should federal policy shift See Frank A. Segall, Scott Moskol, and Joshua Robinson, “Is the Time Ripe for Lending to Marijuana-Related Businesses?”, Journal of Corporate Renewal (May, 2019) pp. 20-14. 26
  27. 27. Cannabis Business Travails: Trade Credit • Trade credit largely unavailable for cannabinoid and hemp transactions, let alone marijuana transactions • Supply chain is on a cash basis – consider that for a moment: how can that work? 27
  28. 28. Cannabis Business Travails: Business Finance (Bankruptcy) • Lenders need collection risk predictability in default situations, including bankruptcy • In Garvin v. Cook Invs. (In re Cook Invs., et al) 922 F.3d 1031 (9th Cir. 2019), the Court affirmed a bankruptcy court’s order confirming a commercial landlord’s chapter 11 plan that received at least indirect support from a tenant in the marijuana business • Section 1129(a)(3) of the Bankruptcy Code forbids confirmation of a plan that is proposed “by any means forbidden by law” • The plan provided that secured creditors would be paid by funds from non-marijuana- related tenants, though the debtor would receive rent payments from a marijuana-related tenant 28
  29. 29. Cannabis Business Travails: Business Finance (Bankruptcy), Cont'd In In re Way to Grow, Inc., 610 B.R. 338 (D. Col. 2019), the debtors -- sellers of hydroponic agricultural equipment -- appealed the bankruptcy court’s dismissal of their bankruptcy petition because the overwhelming majority of the products sold were to cannabis cultivators The appeal: but the Agriculture Improvement Act of 2018 legalized hemp and most of the products were sold to hemp producers! That is, can a company with some income from cannabis be allowed to file for chapter 11 bankruptcy protection if it can fund its reorganization without cannabis- derived income? 29
  30. 30. Cannabis Business Travails: Business Finance (Bankruptcy) • In Garvin, the United States Trustee (USTR, a watchdog in bankruptcy cases) had objected to the plan • It is USTR policy to so object, based on two principles:  The bankruptcy system may not be used as an instrument in the ongoing commission of a crime and reorganization plans that permit or require continued illegal activity may not be confirmed  Bankruptcy trustees and other estate fiduciaries should not be required to administer assets if doing so would cause them to violate federal law • Clifford J. White III and John Sheahan, “Why Marijuana Assets May Not be Administered in Bankruptcy,” American Bankruptcy Institute Journal (Dec. 2017), p. 34-35. 30
  31. 31. About the Faculty 31
  32. 32. About The Faculty Chris Cahill - ccahill@lgcounsel.com Christopher Cahill is Head of the Bankruptcy and Restructuring Practice Group at Lowis & Gellen LLP, in Chicago. He advises businesses on relationships with vendors, customers, and lenders, to maximize market share, return, and liquidity. He also litigates on behalf of secured creditors, trade creditors, and in chapter 11 cases and advised more generally on corporate restructuring, including workouts, loan forbearance, assignments for the benefit of creditors, UCC Article 9 foreclosure sales, and avoidance litigation. Mr. Cahill also publishes and speaks frequently on commercial insolvency and commercial transaction issues. He is an Executive Editor of Commercial Bankruptcy Litigation, 2d Edition (Jonathan P. Friedland, Elizabeth Vandesteeg & Christopher M. Cahill eds., 2020), a comprehensive treatise that is updated annually and published by Thomson Reuters. In addition, Mr. Cahill is the host of Financial Poise Radio, a weekly interview and commentary podcast for investors and other market participants, with 100 episodes and counting. 32
  33. 33. About The Faculty Jonathan Loiterman - jonathan.loiterman@gmail.com Jonathan Loiterman is the Chairman & CEO of Green Star Growing, Inc., a licensed cannabis grower, processor, and wholesaler in Oregon. Mr. Loiterman is licensed as an attorney in Illinois and Oregon and has served as a past Chairman of the Illinois State Bar Association’s Health Section Council as well as a member of the Oregon Liquor Control Commission’s Cannabis Advisory Board. 33
  34. 34. About The Faculty Logan Leichtman - logan@lotuslawgroup.com Logan Leichtman focuses his practice on real estate, land use and regulatory compliance for the cannabis industry. During law school, Logan interned for state representative Ken Helm. The two published a paper in the Willamette Law Review about the implementation of recreational cannabis legislation in Oregon. Logan served as editor-in-chief of Willamette Law Online and also as an editor of Willamette Law Review. Logan previously practiced at Emerge Law Group in Portland. Prior to law school, Logan worked as a video editor and post- production coordinator with credits including content that has aired on HBO, CNN, BBC and MTV. He originally cut his teeth in entertainment as a concert producer, having put on hundreds of shows in venues throughout the state of Virginia. 34
  35. 35. About The Faculty Joshua Bauchner - jb@ansellgrimm.com Joshua S. Bauchner is a partner with the Firm and Co-Chair of the Litigation Department, head of the Cannabis Law Practice Group, and a member of the Community Association Law and Bankruptcy practice groups. His areas of concentration include complex commercial, class action, bankruptcy-related, and securities litigation, including: enforcing commercial lease agreements, guaranties, purchase and sale contracts, and commission agreements; litigating partnership disputes; defending against class-actions arising from alleged violations of consumer protection and related statutes; litigating claims arising from bad faith denial of insurance coverage; and defending against commercial foreclosure actions. To read more, go to: https://www.financialpoise.com/webinar-faculty/joshua-bauchner/ 35
  36. 36. About The Faculty Jesse Bontecou - jesse@oregoncannabisretailers.com Jesse Bontecou has been heavily involved in managing electoral and issue campaigns in Oregon for the past 13 years. He has worked with over 100 campaigns and has been responsible for creating and running some of the most successful voter contact and volunteer programs in the country. His long list of personal relationships with elected officials and staffers is a great asset to ORCA. A proud Reed College alumni, he specializes in messaging, compliance, operational planning. 36
  37. 37. Questions or Comments? If you have any questions about this webinar that you did not get to ask during the live premiere, or if you are watching this webinar On Demand, please do not hesitate to email us at info@financialpoise.com with any questions or comments you may have. Please include the name of the webinar in your email and we will do our best to provide a timely response. IMPORTANT NOTE: The material in this presentation is for general educational purposes only. It has been prepared primarily for attorneys and accountants for use in the pursuit of their continuing legal education and continuing professional education. 37
  38. 38. About Financial Poise 38 Financial Poise™ has one mission: to provide reliable plain English business, financial, and legal education to individual investors, entrepreneurs, business owners and executives. Visit us at www.financialpoise.com Our free weekly newsletter, Financial Poise Weekly, updates you on new articles published on our website and Upcoming Webinars you may be interested in. To join our email list, please visit: https://www.financialpoise.com/subscribe/

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