The U.S. cannabis industry’s predicted growth trajectory is extraordinary. New Frontier Data predicts that annual legal sales across the U.S. medical and recreational markets will increase to nearly $43 billion by just 2025 — an extraordinary leap from the projected almost $25 million in 2021. As you’d expect, this projected growth has piqued the interest of investors, both locally and internationally. However, as with anything related to cannabis, legal compliance issues are significant when it comes to buying a cannabis business.
Anyone looking into purchasing a cannabis business needs to be well versed with the financial and compliance issues that the industry faces. The federal illegality, difficulties relating to access to traditional financing and potential immigration issues for international cannabis investors have all received significant attention. However, as the legal market slowly matures, further due diligence requirements are emerging.
Purchasers should analyze whether the cannabis business has any existing tax liabilities before agreeing on a purchase price.
We’ve seen examples of cannabis business purchases where existing tax liabilities have been overlooked during the due diligence process. The tax landscape for cannabis businesses is complex, with federal, state and local tax obligations. And the reality is that the businesses being sold often have poor management and a poor track record of compliance, including tax compliance.
Purchasers should look closely at the tax records for any business they are considering purchasing. Where tax compliance has been poor or where outstanding tax liabilities can be identified, purchasers can (and should) use this to negotiate a lower purchase price.
Any due diligence on a potential cannabis business purchase should explicitly include licensing and operational compliance.
The web of local and state laws relating to opening and operating a cannabis business is incredibly complex. It is within your interest as a purchaser to ensure that the business is currently operating in line with the legal requirements to limit the potential for future enforcement action, or even license revocation.
First, assess whether the business holds permanent licenses at all levels required by law. In California, this means the business must hold local and state licenses, though these requirements may vary by state.
Again, using California as an example, the business may be operating on a provisional license. If this is the case, the risks associated with a purchase are significantly higher. It is possible that regulators may not agree to issue a permanent license, especially if there have been issues with compliance in the past. There will also be significant post-purchase costs associated with the permanent license applications. This process is painstaking and may involve the purchaser needing to jump through further hoops, like the California Environmental Quality Act (CEQA) permitting requirements, which mandate that cannabis permit applicants in California must undertake environmental impact assessments. The purchase price for a cannabis business operating on a provisional license should be lower to account for the time, money and uncertainty of applying for and receiving a permanent license.
You must also take steps to ensure that the paperwork submitted by the license holders accurately reflects how the business is currently operating; everything is overseen by the regulators — from what is being sold to the physical layout of the store to how the products are being stored. If the standard operating processes submitted don’t reflect what the business is doing, you risk future enforcement action. So look closely at what the current licensee says the business is doing and request that they make appropriate changes, or adjust the purchase price before you go ahead with the transaction.
Finally, check whether there are any current or past enforcement actions or warnings from the regulator relating to the cannabis business you’re considering purchasing. Request details of any official enforcement correspondence with the regulator and/or inspections (and the findings) to cover all bases.
Purchasers need to be aware of the legal and practical issues caused by the non-transferability of cannabis licenses.
In California and in many other states, cannabis business licenses are technically not transferable. This means that a seller cannot simply transfer the business outright. Instead, you must go through a staged purchase where the current license holders add the potential purchasers to the license.
In the California context, the potential purchaser must undergo significant disclosure to the regulators, including a criminal background check. As such, regulator approval of the purchaser being added to the license should be a condition of the sale in any state where licenses aren’t immediately transferable.
Another issue that purchasers must be alert to is that licenses are tied to the specific physical location. If you wish to move to another location, you will need to go through the licensing process again for that location. In practical terms, this means that, unless you own the business premises, your business is at the relative mercy of the landlord. Since the landlord will be aware of this, you should be aware that your position as a tenant is more precarious than it may be in other circumstances. In some instances, we see landlords asking for above market rent rates, while in others, landlords may push back about tenant improvements required by licensing regulators.
While these issues can typically be resolved through negotiations, it is yet another area where cannabis operations tend to be more expensive than what you’d see in other industries.
Purchasing a cannabis business is more expensive and more complex than traditional business sale-purchase agreements.
The costs of purchasing a cannabis business are going to be significantly higher than those you’d expect to see across many other industries. You still need to consult transactional attorneys with experience in business purchases. However, it is critical that you involve regulatory counsel with specialized knowledge of the cannabis industry in that state, too. Your accountancy costs may also be higher since they will deeply analyze tax compliance.
All that said, the cannabis industry is undergoing significant growth. With proper management and strong compliance, there is plenty of room for cannabis businesses to operate profitably. And, further down the line, we would expect potential profitability to increase — especially when it is legalized at the federal level.
Original Source: www.marijuanaventure.com
Mars Wrigley Wins Trademark Case Against Companies Selling Cannabinoids Under the Name “Skittles”
Mars Canada Inc., a leading manufacturer of candy like M&M’S®, SNICKERS®, ORBIT®, EXTRA®, and Skittles®, and Mars Wrigley recently settled a dispute over the use of the Skittles trademark on illicit cannabis products. Federal Judge Patrick Gleeson ordered three online marijuana merchants to “deliver up and destroy all infringing items and packaging” on August 12 in addition to paying different fines for violating Mars’ trademark.
In the motion, Gleeson stated, “I also find that using appropriated trademarks that are obviously and obviously attractive to children in order to advertise and offer for sale a potentially dangerous product represents a marked departure from ordinary standards of decent behavior that deserves to be denounced and deterred.”
“I have given serious consideration to the potential injury to consumers who would mistakenly drink the Defendants’ Infringing Product thinking it to be a genuine SKITTLES product as well as to the Plaintiff. It is even more important to condemn the Defendants’ actions because SKITTLES are a sweet treat that youngsters find appealing, Gleeson continued.
Mars initially filed the case in May 2021, alleging trademark infringement by the unlawful merchants. The business issued a press release saying, “Mars Wrigley strongly condemns the exploitation of popular candy brands in the marketing and sale of THC products, which is profoundly deceptive and irresponsible.” “The usage of Mars Wrigley’s brands in this way is illegal, improper, and it must end, especially to prevent children from accidentally eating these illegal THC products,” the statement reads.
The business particularly highlighted items being sold illegally on e-commerce sites in Canada and the United States under the names “Medicated Skittles,” “Starburst Gummies,” and “Life Savers Medicated Gummies.” These items “represent a substantial hazard to the public since anyone, children and adults alike, might readily mistake the infringing cannabis-infused products for Wrigley’s iconic and beloved candies and mistakenly swallow,” according to a complaint submitted in Riverside, California, at the time.
The National Post claims that Mars employed private investigators to buy imitation goods that violated the company’s trademarks.
Due to the frequent use of “Gorilla Glue” in strain names, the Ohio-based glue manufacturer that makes Gorilla Glue sued GG Strains in August 2017. By October, a settlement had been reached, stipulating that GG1, GG4, GG5, and other adhesives would take the place of Gorilla Glue #1, #4, and #5. Among other conditions, the cultivator’s website domain would be transferred to the Gorilla Glue firm ownership by January 2020.
Ross Johnson, co-founder of GG Strains and Gorilla Glue, was optimistic despite the fact that it was a significant setback. Johnson proclaimed, “We’re going to survive and triumph over it.” “Was there a setback? It is most obviously a setback. However, everything is now behind us, which enables us to advance. Sadly, according to the Cannabis Business Times, Johnson passed away in 2019 and his co-founder Don Peabody (also known as Joesy Whales) in 2020.
Similar legal actions have also been taken in relation to other well-known trademarked brands. The business sued marijuana businesses infringing on the items bearing the Hershey’s Chocolate brand in February 2018. UPS (United Parcel Service) filed a lawsuit in February 2019 against a set of delivery companies known as United Pot Smokers, UPS420, and THCPlant for using deceptive brand identification. Later in July 2019, the creator of the confectionery Sour Patch Kids took legal action against “Stoney Patch,” an illegal cannabis consumable.
Cannabis Events Just Might Save Atlantic City
Atlantic City, New Jersey could return to its original glory as a tourist destination with the boom of the Green Rush and the cannabis business events that follow. A city once dominated by the gambling industry is now facing its unknown future, and local experts think cannabis business-to-business events could solve that problem.
The familiar “glitter and sleaze” of Atlantic City’s boardwalk is known to locals, but the city has been on the decline for decades. Donald Trump’s Taj Mahal casino and hotel closed for good on October 10, 2016, and things haven’t gotten any easier for the gambling industry since then. Revel Casino Hotel followed, closing doors and being sold as well.
Things seemed to get worse in 2019, and despite an upturn in casino industry revenue in 2021, mostly due to a tax break, the city is still miles away from where it used to be. In addition, Atlantic City Tropicana’s workers are picketing for better pay and to unionize as the casino’s future remains uncertain.
However, the economic effects of the rollout of the cannabis market could be the answer to the city’s long-term financial woes. During the first month of adult-use cannabis sales in New Jersey, the state brought home $24 million in tax revenue.
Skift Meetings, focused on event professionals, released a recent report about the true potential Atlantic City offers for the Green Rush—putting more than a bandaid on the city’s economic fallout.
The most obvious comparison is the boom of business events in Las Vegas, such as MJBizCon or CHAMPS Trade Show, drawing tens of thousands of tourists looking for networking opportunities and more. Atlantic City is home to 17,029 hotel rooms—a high ratio of rooms compared to other cities of its size as it is designed for tourism. Atlantic City could house large-scale events of the same nature.
Stu Zakim, president of Bridge Strategic Communications and a member of the Marijuana Business Association said “[Atlantic City] can be a wildly successful destination to host cannabis conventions,” Zakim told Skift Meetings.
Several others agreed that the new cannabis market in New Jersey is especially ideal for a city like Atlantic City. That’s especially true for cannabis conventions that need large facilities.
“The legalization of cannabis in the State of New Jersey opened a new vertical market for meetings and conventions in Atlantic City. We see cannabis as a growing industry, and it will have a significant increase on the overall economic impact of the destination,” said Meet AC’s President and CEO, Larry Sieg. Meet AC focuses on convention development in Atlantic City.
And the idea is nothing new. Then-Democratic Assemblyman Reed Gusciora—who is now Mayor of Trenton—called for Atlantic City’s enormous potential for the cannabis boom in 2016.
Atlantic City reached its peak long ago in the 1930s as a “wet city,” and since then, has succumbed to rapid decline, and casinos are failing. Its population nosedived to half the size when the city was booming.
The 3rd Annual New Jersey Cannabis Convention (NECANN) is being held September 9-10 at the Atlantic City Convention Center.
The potential has been building up for over a year. On February 22, 2021 New Jersey became the fourteenth state to legalize adult-use cannabis.
“The cannabis market in Atlantic City specifically is huge, untapped, and brimming with potential,” NECANN writes. “With only one major cannabis dispensary in the city. We are beyond excited to see the potential of Atlantic City’s cannabis community become a reality. NECANN prides itself on bringing personalized cannabis expos to fit the local communities and their needs.”
Check local listings for more events which are sure to follow.
KZN Start-Up Tri-Medi Canna Clinches UK Partner to Set Up Cannabis Export Facility in SA
Apollon: SA on shopping list after Jamaica
Listed UK pharmaceutical company Apollon Formularies has taken a 49% stake in a joint venture with KwaZulu-Natal cannabis start-up, Tri-Medi Canna (TMC). TMC CEO Bandile says the new company would cultivate, process and distribute cannabis-based medicines through a licensing agreement with Apollon, which provides primary and secondary markets for equity and debt products
Apollan, which listed on the UK’s Aquis Stock Exchange last year, has a licence in Jamaica to cultivate, research, process and sell medical cannabis therapeutic cannabis products for various illnesses including prostate and breast cancer. Apollon will earn royalties for patent formulations and any new drug discovery will be under the joint partnership.
According to Businesscann release on 2 March 2022, the deal highlights are:
• “Apollon will receive a gross royalty on sales for all Apollon products sold within South Africa before extending its commercial reach to the wider SADC region under a renewable, mutually exclusive license agreement, the initial term of which is 12 months”;
• “Tri-Medi Canna will become a shareholder in Apollon via share subscription totalling £300,000 over two tranches, the first of which will be for £150,000 at 2.5p per share”.
Mkhize said that the new company would build an EU Good Manufacturing Processes (EU-GMP) facility and would work with emerging farmers and provide training for communities in KZN.
Focus will be on medical cannabis
He said Tri-Medi Canna was established to focus on medical cannabis, a booming industry that the company said is forecast to be worth up to $7.1bn (R113.7bn) in Africa by next year, with SA potentially accounting for 70% of that.
Stene Jacobs, COO of Apollon Formularies for Europe and Africa, said Apollon had been seeking opportunities to expand its operations internationally so it can make its proprietary medical cannabis formulations for various cancer conditions available to a wider patient base.
He said SA was the first large foreign jurisdiction after Jamaica where Apollon was expanding and it envisaged the local market as a springboard for entry into the rest of southern Africa.
“There is an appetite for what we do. We are already in discussions in Angola,” he said.
Jacobs said the joint venture would include skills transfer and would partner with the University of KwaZulu-Natal and University of Johannesburg to help develop new products.
BusinessDay Live quoted Jacobs on 19 June 2022 as saying the new JV would double the number of patented cannabis formulations owned by Apollon.
Deal will double Apollon’s patented formulations
“We spent the last nine years creating formulations. We have four international patents, and will have four more in the next few months,” he said.
In Jamaica it has its own dispensary and treatment centre, which also caters for patients from the UK and US, said Jacobs. He sees SA providing a similar opportunity for medical tourism in the future.
Jacobs said SA should be an epicentre of growing cannabis, given the favourable climate. “South Africa has the opportunity to build on its reputation as the regional best-in-class operator and to showcase its already successful cultivation and plant genetics abilities”.
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