The following interview seems in the November–December 2018 challenge of the Corporate Counsel Enterprise Journal.
Corporate Counsel Enterprise Journal: Burns & Levinson has had a cannabis law practice due to the fact 2013 and has currently handled hundreds of millions of dollars in corporate transactions in this emerging sector. How has your cannabis practice evolved and changed due to the fact you 1st began?
Frank A. Segall: Our purpose in getting into the cannabis space was to bring our sophisticated corporate knowledge to this sector. Although we undoubtedly began and stay committed to representing operators searching for licensure, we are heavily focused on functioning with entities raising capital by way of the public and private markets, forming venture capital funds and acquiring and promoting operations on a nationwide basis. We have also been retained to help groups in cannabis-associated workouts and restructures. In addition, we are hugely focused on addressing the banking difficulties confronting this sector, and we are structuring options by functioning with banks and credit unions that are prepared to enter this space.
Understanding the depth of the sector, we endeavored from day 1 to predict the legal requirements of the lots of cannabis-associated organizations that are critical to this sector. We are fortunate to now be recognized as the go-to business enterprise law firm in this space.
Scott H. Moskol: Our 1st client was a group in Rhode Island that was applying for a health-related marijuana license. We helped them structure all of their corporate governance and documentation as aspect of a $three.two million capital raise. 1 of our most current customers is a group of capital providers searching to lead an investment of quite a few million dollars in a Rhode Island license holder. So you could say our practice has come complete circle, but the circle has gotten a lot larger. From the starting, customers have sought out not only our corporate knowledge, but also our broad underlying know-how of the sector.
CCBJ: 1 of the main difficulties confronting cannabis businesses is the lack of devoted sources of institutional capital. What are you carrying out to assistance your customers overcome these hurdles? Can you give some particular examples?
Frank A. Segall: We continue to help our customers in raising capital from private sources. For us, raising capital is not about drafting a private placement memorandum or subscription agreement. We have considerable expertise raising capital – not just in the cannabis sector – and we bring our business enterprise acumen along with our contacts to our customers. We introduce our clients’ offers to our contacts and other customers who are interested in investing in these kinds of offers. We are also functioning with several groups to type devoted cannabis capital funds that would give private funding to the sector.
Scott H. Moskol: 1 of our existing customers is building the 1st cannabis industrial lending system, such as each regulated and nonregulated economic institutions. The lending applications may possibly, at 1st, be restricted to loans that are secured by collateral that has other optionality such as true estate or gear. As the sector normalizes in the years ahead, we anticipate to see other types of business enterprise lending emerge. Suitable now, our client is on track to introduce this 1st lending system from a regulated economic institution in 2019.
CCBJ: The lack of banks giving bank accounts for cannabis organizations is a large challenge in the sector, but you each are on the forefront of some game-altering options. Inform us about your thrilling operate in this location.
Frank A. Segall: Massachusetts has constantly been fortunate in this regard as Century Bank has been giving deposit accounts to regional cannabis businesses for years and we have a terrific connection with them. But Massachusetts and other states will need much more economic institutions to enter the space, and Scott and I have established a suite of particular compliance solutions we provide customers, lenders and operators to help them in qualifying for such bank accounts and to accept such deposits.
Scott H. Moskol: Given that the starting of 2017, we have been representing Protected Harbor Private Banking, which is a subsidiary of Companion Colorado Credit Union. These groups are bringing their cannabis banking system to other economic institutions across the nation. In September 2018, it was announced that our client GFA Federal Credit Union would companion with Protected Harbor to turn out to be the 1st bank in Massachusetts to accept recreational marijuana customers beginning on October 1, 2018. Despite the fact that our cannabis customers are spread across the nation, it is in particular thrilling for us to be aspect of bringing Protected Harbor’s system to New England exactly where we are primarily based. Protected Harbor has created it doable for us to assistance customers acquire bank accounts in California, Nevada, Southern Colorado, Michigan, Florida, Massachusetts, New Hampshire and Louisiana, with much more states coming just about every month.
CCBJ: How is the legal and regulatory framework surrounding cannabis investing and financing altering and what do you see on the horizon?
Frank A. Segall: We have a quantity of customers who want to be listed on the American public exchanges, not just OTC, and we are functioning on their behalf to attempt to facilitate such a listing. For the previous year or much more, there has been a stampede to list on the Canadian Stock Exchange (CSE). We, along with lots of other folks in the sector, think that valuations and market place caps are overly inflated on the CSE and there will be a correction quickly. The great news is we are seeing the American markets gradually opening up to cannabis operators and cannabis-associated organizations, and we anticipate to help our customers in accessing these markets.
Scott H. Moskol: Much more economic institutions are taking the time to realize the legal framework by which they may well be much more active in the cannabis markets, regardless of whether by taking deposits, lending or promoting other bank merchandise and solutions. Although this has been slow, we anticipate that more than the subsequent two years, these sources of financing will also open up.
CCBJ: You operate with a quantity of ancillary organizations to the cannabis sector – businesses that do not touch or sell the plant or flower. Are you seeing considerable funding going to these businesses and, if so, why?
Frank A. Segall: Yes, lots of investors perceive these ancillary business enterprise offers as safer. They are in a position to invest in the sector and take benefit of the possibilities that cannabis presents with out investing in a business that is basically promoting the plant or flower to buyers. Even so, even accessing such capital remains challenging for the reason that if the business enterprise is heavily concentrated in cannabis, most lenders nevertheless view that as a credit threat.
CCBJ: Although a quantity of states have legalized marijuana for recreational use, they nevertheless look to be struggling with implementing these laws. How does this difficult atmosphere effect income flow and the viability of cannabis organizations that are attempting to get up and operating?
Frank A. Segall: Cannabis businesses confront special challenges and struggles that other industries do not face. It is 1 of the causes that these enterprises should have much more than just regulatory or licensing counsel. These businesses will need robust, knowledgeable corporate and finance counsel with deep sector expertise who can assistance them navigate these prospective pitfalls. The adult-use or recreational cannabis laws do not add that a lot much more in the way of complexity, but basically much more in the way of possibilities to the sector that operators and investors alike will need to think about. That is exactly where Burns & Levinson is in a position to give forward-pondering techniques.
Scott H. Moskol: There are nevertheless some investors and funds that, for what ever cause, only want to invest in or lend income to medicinal marijuana businesses. Even so, we have noticed the tide start to transform more than the previous 12 months or so. There are much more groups prepared to invest in the increasing adult-use segment of the cannabis markets, producing it less complicated for recreational only entities – and businesses that participate each in the medicinal and recreational markets – to attract new sources of capital. For instance, in Massachusetts the adult-use market place is lastly beginning to roll out, and investors are encouraged by this and by the projected quantity of sales to be derived from the recreational sector nationwide.
CCBJ: Are there nevertheless possibilities for institutional investors to get in on the “ground floor” of the cannabis sector and what suggestions would you give them on how to get began?
Scott H. Moskol: Yes, absolutely. This sector is just starting. Even when the laws are changed on the federal level, there will be possibilities.
Frank A. Segall: Completely, there are nevertheless lots of possibilities. In all sincerity, the ideal suggestions is to make positive you have sophisticated corporate counsel with years of comprehensive cannabis sector expertise. There are land mines in any sector, but in an ever-evolving sector like cannabis you do not want to employ the Johnny-come-lately law firm. Burns & Levinson was 1 of the 1st law firms that, on a national basis, established a devoted cannabis corporate practice more than 5 years ago. We have been ready to take dangers and place our reputations on the line for our customers then and will continue to do so as this sector continues to transform and develop. Burns & Levinson, with Scott and I major the charge, is 1 of the law firms trailblazing a path for our customers to stick to