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Sean HockingSean HockingAugust 30, 2019


By Teri Buhl

A wholesale CBD oil company, called Folium Biosciences, is being accused of siphoning off cash to its founder Kashif Shan and another top executive in a lawsuit filed this week in Colorado state court.

Kashif Shan

The accusation comes while Shan is courting potential outside buyers for the company.

The Colorado Springs-based company, whose legal corporate name is Whole Hemp Company LLC,  is being sued by its former Vice President of business development and marketing, Dale Takio, after Shan allegedly tried to cut him out of his promised equity in the privately held company. The lawsuit accuses the company, Kashif Shan and Quan Nguyen of breach of contract, breach of fiduciary duty, and demands an accounting of the company books and records.

Quan Nguyen

Folium made news this January when it received a $3 million investment from U.S. based Australis Capital, which is a financing spin-off of Canadian cannabis powerhouse Aurora. Australis is traded publicly on the OTC pink sheets under ($AUSAF) and is run by Scott Dowty.

Shan said in a podcast with Green Rush that the investment was a secondary offering and the funds were used to pay off some of its early investors but looks forward to a long partnership with Australis. Shan also bragged that the company funds its expansion through its own revenues and doesn’t need outside capital, which according to people familiar with the company are in the single digit millions.

Folium Biosciences says it is the largest vertically-integrated producer, manufacturer, and global distributor of hemp-derived phytocannabinoids. It is a business-to-business, bulk and wholesale supplier of hemp-derived CBD 0.0% THC oil, CBD water-soluble technology, CBD 0.0% THC edibles, cosmeceuticals and CBD for animal health. The company ships to over 20 countries internationally, according to Shan.

Henry Baskerville: Fortis Law Partners

The state court lawsuit, filed by corporate litigator Henry Baskerville of Colorado-based Fortis Law Partners, says Takio was originally offered a .5% equity as part of his compensation package and it was negotiated down to .25%. Emails of the equity negotiation between Takio and Shan were included in the lawsuit but there is no official signed contract attached to the legal filings. Folium has countered the suit by filing an action in Colorado federal court asking for a judge to make a declaratory judgement that there is no equity contract with Takio. Because of diversity of residence issues the federal court motion has a chance of being thrown out giving way to the State court case leading the court battle. The federal court action was filed after Takio’s lawyer had sent a demand letter notifying the company of the coming lawsuit.

Takio accuses the company of secretly recording employees who are located in a one-party state, which means each party has to agree to be recorded otherwise the recordings are illegal. But the juiciest part of the lawsuit takes a look Shan’s self-dealing and negligence, according to first hand knowledge by Takio.

The lawsuit states :

“For example, on January 8, 2019, Shan and Nguyen caused $585,070.55 to be transferred from Folium’s bank account to Nguyen. That same day, Shan and Nguyen caused $1,999,921.84 to be transferred to Shan’s wife. On January 18, 2019, Shan and Nguyen caused $464,745.69 to be transferred to Nguyen. Also on January 18, 2019, Shan and Nguyen caused $1,664,672.54 to be transferred to Shan’s wife.

In other words, in January 2019 alone, Shan and Nguyen caused $3,664,594.38 to be transferred to Shan’s wife and $1,049,816.24 to be transferred to Nguyen. Other Folium members, such as Takio did not receive similar distributions.”

Shan has made statements to the press that the company does pay dividends to its seed investors. The company refused to answer questions from Cannabis Law Report regarding if Shan’s wife has any official job at Folium that would justify the payments or if she is an investor in the company. According to a person who has worked with the company Shan has allegedly made comments to staff that ‘his wife is good for hiding money’. His Linkedin bio doesn’t list  any work experience before starting Folium but he said on a podcast he previously worked in the tech business in San Francisco. Shan is a Colorado resident.

A minority percentage of equity ownership, which according to an email from Shan, is given out to senior staff to lure talent to the company. While Shan publicly tells the press he is not interested in taking the company through a public stock offering he privately tells staff that he is seeking a buyer. That courted buyer is Aurora Cannabis ($ACB), according to people who are familiar with the company. Shan has said he received an initial $800 million offer but thinks he can get $2 billion for the company. A number that could be an industry record and outweighs a comparable value of another CBD seller Charlotte’s Web.   Charlotte’s Web is currently trading around ten times its sales in revenue. The hemp/cannabis industry is currently using revenue to value companies. Assuming Folium is making similar revenue numbers a $2 billion offer would be 20 times sales revenue valuation. Given how fast the market is seeing sales of CBD jump and a hype of the product because the Farm Bill made CBD without THC legal who knows where valuations will go. Or if Shan’s 2 billion buyout is a pipe dream.

Takio’s lawsuit last line of allegations says….

“On information and belief, Shan and Nguyen have engaged in numerous other acts of misconduct that have caused significant harm to Folium and its members, including Takio”.

Basically making a broad warning that other dubious allegations could come out in an amended complaint.

Folium has definitely been through some recent employee turnover with their general counsel also recently leaving the company.

Justin Baily: Sanders Law Firm

Folium is represented by Justin Baily of Colordao Springs-based Sanders Law Firm. Attorney Baily did not respond to a request for comment. Takio would not comment on the lawsuit only referring us to his attorney who when reached for comment said he thinks the lawsuit speaks for itself.



Law 360 Whole Hemp Company, LLC v. Takio



Plaintiff: Dale Takio; an Individual, in his own capacity and derivatively as a member on behalf of Whole Hemp Company LLC d/b/a Folium Biosciences


Defendants: Whole Hemp Company LLC d/b/a Folium Biosciences, a Colorado limited liability company; Kashif Shan, an Individual; and Quan Nguyen, an Individual.

Folium state court employment lawsuit Aug 28 2019




v. Civil Action No. DALE TAKIO,


Folium federal court lawsuit 8.20.19


I’m a professional financial investigative journalist who has written for the Greenwich Time, Hearst CT Newspapers, Forbes Magazine,, The, New York Magazine, New York Post, Trader Monthly, Housingwire, ML-Implode, The Business Insider, Long Island Business News, Dealbreaker, New York Observer, Bitcoin Magazine, DealFlow Media, and more. For the last five years I have been a contributing reporter for Market Nexus Media who publishes a financial trade publication called Growth Capital Investor.

I earned my breaking/investigative news chops reporting during the financial crisis in 2008 for the Sunday edition of the New York Post. I was one of the first to report on the missteps at IndyMac that lead to government investigations and lawsuits against the banks founders. Caught hedge funds like Carrington Capital abusing investors without disclosing conflicts of interest with senior RMBS bond holders; they were sued by Wilbur Ross for Civil RICO. I exposed Bear Stearns misleading their own investors and monoline insurers on the quality of the loans in their mortgage-backed securities, which led to a fraud lawsuit against JP Morgan/Bear Stearns and the $13 billion settlement with the DOJ in 2013. Since 2010 multiple Wall Street firms, that my reporting warned about first, have been [JP Morgan, SpongeTech, Security Savings Bank, SAC Capital, Palm Beach Capital Management, New Stream Capital, NIR Group/Cory Ribotsky, Bear Stearns RMBS Traders, Mike Perry IndyMac CEO, Steven Muehler and the Nanocap MarketPlace, Barry Honig and The Frost Group] investigated or charged for financial violations by the FBI/SEC/State AG or shut down by bank regulators.

The Huffington Post named me the number three most dangerous financial journalist for being willing to challenge the establishment and inform readers best. I’m working on trade-marking “Smashmouth Journalism”

Read More About Teri’s Work At:

Sean HockingSean HockingAugust 29, 2019


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It has been just over a month since the public comment period closed in the wake of the public hearing held by the FDA, “Scientific Data and Information about Products Containing Cannabis or Cannabis-Derived Compounds”. Over 4,000 comments were docketed, ranging from controlled scientific data submissions to tales of miracle cures to horror stories. It will be interesting to see what the agency gleans from the docket.

Nevertheless, the FDA currently stands as a pillar of uncertainty in the cannabis industry, at least when it comes to products derived from “hemp”, now defined essentially as Cannabis sativa L. and its derivatives containing no more than 0.3% THC by dry weight following the enactment of the 2018 Farm Bill. While the USDA has issued a confirmation that hemp is no longer a controlled substance, uncertainty remains about what FDA-regulated products may and may not be shipped across state lines.

The FDA approved a purified CBD product for the treatment of certain types of seizures in 2018 under its new drug application process. This would lead one to believe that CDB is now considered a “drug” as a matter of law and has to be approved by the FDA to be sold or marketed interstate. The FDA has also issued several warning letters to makers of CBD-containing products labeled with certain health or therapeutic claims, suggesting that that is, in fact, the current view of the agency. But what about CBD that is derived from hemp in view of its removal from the controlled substance list? Not only that but what about foods and dietary supplements containing CBD derived from hemp?

Under the Food, Drug & Cosmetic Act, once a product is approved as a drug, it cannot be a constituent of a food or dietary supplement product legally sold or marketed in interstate commerce, unless it was present in these products prior to FDA approval of the ingredient in question as a drug, or prior to the publication of clinical trial data associated with drug approval (I’m paraphrasing, but that’s the general idea). The FDA has already stated that this exception does not apply for CBD.

The uncertainty is even greater for the host of CBD-containing products that are likely cosmetics under the Food, Drug & Cosmetic Act. The FDA guidance on these products is basically that while there is not a literal prohibition on the books, a substance in a cosmetic that affects the structure or function of the body or has some therapeutic effect may be a drug, and the FDA is likely to issue warning letters in cases where CBD-containing products such as oils and lotions bear labels touting therapeutic claims.

Hemp may be a safer bet where CBD is present in trace amounts. The FDA has responded to at least three hemp-related GRAS notifications (submissions asserting substances are Generally Regarded As Safe and should be allowed in certain FDA-regulated products) positively, but with the caveat that there is no guarantee that, for example, the products can be legally introduced into the food.

It will be interesting to see where the FDA falls once the agency digests the public comments in the wake of the public hearing on cannabis products.

Scott Lloyd                                           
Attorneys At Law

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Sean HockingSean HockingAugust 29, 2019

If you wish to re-publish this story please do so with the following accreditation
AUTHOR:   aBIZinaBOX Inc. and Jordan S. Zoot, CPA

Bringing Back The War – A bit of background on illegal storefront dispensaries tells us And the enforcement in California will come from both state and local authorities. The City of Los Angeles recently launched a massive crackdown on unlicensed, illegal cannabis businesses, filing misdemeanor charges against more than 500 people and shutting down 105 illegal cannabis businesses, including cultivation operations, extraction labs, and delivery companies across the city. In Los Angeles, a charge of unlicensed commercial cannabis activity within the city carries a potential sentence of six months in jail and $1,000 in fines.

Los Angeles’ City Attorney Mike Feuer, who has a track record of going after illegal cannabis businesses within the city, summed up the city’s reasoning behind its recent enforcement actions succinctly:


“If they’re going to go through this process, it just cannot be the case that others that flout the rules are allowed to function. It’s bad for those who buy from them, it’s bad for the communities in which they’re located and, again, it threatens to undermine the viability of a system that’s predicated on lawful licensing.”


Although there are currently around 165 approved cannabis storefronts and delivery businesses in Los Angeles, there are many more operating without the necessary approvals, a problem that has plagued the city for years and will likely be an ongoing issue.

“Commercial Cannabis Activity” includes the cultivation, possession, manufacture, distribution, processing, storing, laboratory testing, packaging, labeling, transportation, delivery or sale of cannabis and cannabis products.

A current listing of the penalties of cannabis offenses in California can be found here. The relevant provisions of California law are found in Health & Safety Code [”HSC”] Sec. 11357[1] and Penal Code [“PEN”] Sec. 1170(h)[2]We happened to locate a fascinating document – Drug Offenses: Maximum Fines and Terms of Imprisonment for Violation of the Federal Controlled Substances Act and Related Laws. A quick check of the Federal rules found the following:


“Marihuana CSA Penalties

  • 1000 kilograms or more or 1000 or more plants  $10/50 million 10 years to life
  • 100 to 999 kilograms or 100 to 999 plants $5/25 million 5 to 40 years 
  • 50 to 99 kilograms or 50 to 99 plants $1/5 million Up to 20 years
  • Under 50 kilograms, 10 kilograms of hashish, 1 kilogram of hashish oil, or 1 to 49 plants $250,000/$1 million Up to 5 years”


We truly have no desire to revive the “War on Drugs” however, we can imagine a scenario where Penal Code Sec. 1170(h) is amended to adopt the Federal penalties for second and subsequent offense convictions for Illegal Commercial Cannabis Activity. We would be willing to be that while “padlock” procedure might have a small impact, the possibility of up to forty years of incarceration just might be sufficient to get a substantial number of the recalcitrant black market to come out from underground into the light.


It would certainly provide law enforcement with the tools they need to either stamp out a large portion of the black market or scare some of them straight. The authorities have telegraphed a willingness to charge felonies for environmental damage. It is truly unfortunate, but it might be just what is needed to destroy the black market.


It a reincarnation of the carrot and stick approach – you shove the carrot up their ass and beat them with the stick. As we think this through, it might be possible to implement something like this without requiring legislation. The state and local authorities could selectively turn offenders over to federal law enforcement for prosecution. A very similar approach was deployed in Virginia a number of years ago to deal with illegal firearms and it was incredibly successful [3]


[1] ARTICLE 2. Cannabis [11357 – 11362.9]

  ( Heading of Article 2 amended by Stats. 2017, Ch. 27, Sec. 121. )


Every person who possesses for sale any cannabis, except as otherwise provided by law, shall be punished as follows:

(a) Every person under the age of 18 who possesses cannabis for sale shall be punished in the same manner provided in paragraph (1) of subdivision (b) of Section 11357.

(b) Every person 18 years of age or over who possesses cannabis for sale shall be punished by imprisonment in a county jail for a period of not more than six months or by a fine of not more than five hundred dollars ($500), or by both such fine and imprisonment.

(c) Notwithstanding subdivision (b), a person 18 years of age or over who possesses cannabis for sale may be punished by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code if:

(1) The person has one or more prior convictions for an offense specified in clause (iv) of subparagraph (C) of paragraph (2) of subdivision (e) of Section 667 of the Penal Code or for an offense requiring registration pursuant to subdivision (c) of Section 290 of the Penal Code;

(2) The person has two or more prior convictions under subdivision (b); or

(3) The offense occurred in connection with the knowing sale or attempted sale of cannabis to a person under the age of 18 years.

(d) Notwithstanding subdivision (b), a person 21 years of age or over who possesses cannabis for sale may be punished by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code if the offense involves knowingly hiring, employing, or using a person 20 years of age or younger in unlawfully cultivating, transporting, carrying, selling, offering to sell, giving away, preparing for sale, or peddling any cannabis.

(Amended by Stats. 2017, Ch. 27, Sec. 124. (SB 94) Effective June 27, 2017. Note: This section was amended on Nov. 8, 2016, by initiative Prop. 64.)”

[2] (h) (1) Except as provided in paragraph (3), a felony punishable pursuant to this subdivision where the term is not specified in the underlying offense shall be punishable by a term of imprisonment in a county jail for 16 months, or two or three years.

(2) Except as provided in paragraph (3), a felony punishable pursuant to this subdivision shall be punishable by imprisonment in a county jail for the term described in the underlying offense.

(3) Notwithstanding paragraphs (1) and (2), where the defendant (A) has a prior or current felony conviction for a serious felony described in subdivision (c) of Section 1192.7 or a prior or current conviction for a violent felony described in subdivision (c) of Section 667.5, (B) has a prior felony conviction in another jurisdiction for an offense that has all the elements of a serious felony described in subdivision (c) of Section 1192.7 or a violent felony described in subdivision (c) of Section 667.5, (C) is required to register as a sex offender pursuant to Chapter 5.5 (commencing with Section 290) of Title 9 of Part 1, or (D) is convicted of a crime and as part of the sentence an enhancement pursuant to Section 186.11 is imposed, an executed sentence for a felony punishable pursuant to this subdivision shall be served in the state prison.

(4) Nothing in this subdivision shall be construed to prevent other dispositions authorized by law, including pretrial diversion, deferred entry of judgment, or an order granting probation pursuant to Section 1203.1.

(5) (A) Unless the court finds that, in the interests of justice, it is not appropriate in a particular case, the court, when imposing a sentence pursuant to paragraph (1) or (2), shall suspend execution of a concluding portion of the term for a period selected at the court’s discretion.

(B) The portion of a defendant’s sentenced term that is suspended pursuant to this paragraph shall be known as mandatory supervision, and, unless otherwise ordered by the court, shall commence upon release from physical custody or an alternative custody program, whichever is later. During the period of mandatory supervision, the defendant shall be supervised by the county probation officer in accordance with the terms, conditions, and procedures generally applicable to persons placed on probation, for the remaining unserved portion of the sentence imposed by the court. The period of supervision shall be mandatory, and may not be earlier terminated except by court order. Any proceeding to revoke or modify mandatory supervision under this subparagraph shall be conducted pursuant to either subdivisions (a) and (b) of Section 1203.2 or Section 1203.3. During the period when the defendant is under that supervision, unless in actual custody related to the sentence imposed by the court, the defendant shall be entitled to only actual time credit against the term of imprisonment imposed by the court. Any time period which is suspended because a person has absconded shall not be credited toward the period of supervision.

(6) When the court is imposing a judgment pursuant to this subdivision concurrent or consecutive to a judgment or judgments previously imposed pursuant to this subdivision in another county or counties, the court rendering the second or other subsequent judgment shall determine the county or counties of incarceration and supervision of the defendant.

(7) The sentencing changes made by the act that added this subdivision shall be applied prospectively to any person sentenced on or after October 1, 2011.

(8) The sentencing changes made to paragraph (5) by the act that added this paragraph shall become effective and operative on January 1, 2015, and shall be applied prospectively to any person sentenced on or after January 1, 2015

[3] A crime reduction strategy in Richmond, Virginia implemented to deter former and would-be offenders from carrying and using firearms, with an overall goal of reducing firearm-related homicides.


Program Goals
Project Exile was a crime reduction strategy launched in 1997 in Virginia, by the U.S. Attorney’s Office, as a result of the spike in violent crime rates in the late 1980s and early 1990s. During these years, Richmond, Virginia consistently ranked among the top 10 U.S. cities in homicides per capita. Specifically, in 1994, Richmond was ranked 2nd for homicides per capita, with a homicide rate of 80 per 100,000 residents. Overall, the goal of the project was to deter felons from carrying firearms and decrease firearm-related homicides through both sentence enhancements for firearm-related offenses and incapacitating violent felons (Rosenfeld, Fornango, and Baumer 2005).
Program Activities
Essentially functioning as a sentence enhancement program, Project Exile targeted felons who were caught carrying firearms (i.e., felon-in-possession-of-a-firearm [FIP]) and prosecuted them in federal courts where they received harsher sentences, no option of bail, and no potential for early release. Prior to Project Exile, FIP cases could be processed in state courts. Through increasing the expected penalty for firearm-related offenses, Project Exile sought to deter both firearm carrying and criminal use. Additionally, through sentencing more violent offenders to longer prison sentences, the program sought to reduce crime through incapacitating violent felons (Rosenfeld, Fornango, and Baumer 2005; Arends 2013).

In addition to incapacitating offenders, the program sought to deter would-be offenders. To make the public aware of the sentence enhancements surrounding firearms, a broad “outreach” campaign was implemented using media outlets. The public campaign was implemented to increase community involvement and to send a message of zero-tolerance for firearm offenses. The goal of the message was to indicate a “swift and certain” federal penalty for firearm offenses. Advertised in both electronic and print media outlets, the campaign was featured on city buses and business cards displaying a specific message: “an illegal gun will get you five years in federal prison” (Rosenfeld, Fornango, and Baumer 2005).

The program consisted of a number of distinct elements:

  • A felon in possession [“FIP”]  of a firearm would be remanded and denied bail until trial.
  • A conviction would result in a MINIMUM sentence of five years in federal prison.
  • The convicted felon would be denied commissary, library and mail privileges for the duration of their sentence
  • The incarceration would be in a facility AT least a thousand miles from the felon’s home

We think that a similar program would put some black market operators in a “world of hurt”

Sean HockingSean HockingAugust 27, 2019


If you wish to re-publish this story please do so with the following accreditation
AUTHOR:   aBIZinaBOX Inc. and Jordan S. Zoot, CPA

On August 19, 2019, the Supreme Court of California issued a unanimous opinion in Union of Medical Marijuana Patients, Inc. (“UMMP”) v. City of San Diego. Except for the parties and the limited number of individuals who follow litigation involving environmental law, this case has moved through the California court system with little notice.

The real party in interest in the case is the California Coastal Commission. The City of San Diego was not particularly interested in the case even though its zoning actions relating to cannabis were the genesis for the lawsuit. The issue in this case involves the reconciliation of language in two sections of the California Environmental Quality Act (California Public Resources Code (“PRC”) §§21000 et seq. (“CEQA”)).

We decided to write a note on this case because the legal landscape relating to the interplay between CEQA and cannabis law in California has changed dramatically while this case was pending. It seemed to us an opinion by the California Supreme Court reversing a determination by San Diego relating to the impact of CEQA on the licensing of medical cannabis dispensaries must be significant for California’s cannabis industry. We were correct! The premise for writing this article was accurate. We find, however, we have far more questions than answers.

The California Supreme Court summarized the UMMP case as follows:

“In 2014, the City of San Diego (City) adopted an ordinance authorizing the establishment of medical marijuana dispensaries and regulating their location and operation. The central provisions of this ordinance amended various City zoning regulations to specify where the newly established dispensaries may be located. Because the City found that adoption of the ordinance did not constitute a project for purposes of CEQA, it did not conduct any environmental review. Petitioner Union of Medical Marijuana Patients (UMMP) challenged the City’s failure to conduct CEQA review in a petition for writ of mandate, which was denied by the trial court.”

The key word in the California Supreme Court’s explanation of the case before the Court is “project.” CEQA broadly defines “project[1]” and then relieves those who are responsible for developing a “project” from the necessity of the preparation of an Environmental Impact Report through a Negative Declaration. CEQA is an issue for California’s cannabis industry, and the significance of this case extends far beyond California’s cannabis industry, because “project” has a far broader meaning for the purposes of CEQA than the common meaning of the word.

All our readers will agree that building a coliseum or a shopping center is a project. The rehabilitation of a building may or may not be a project in the minds of most of our readers. Most of our readers would agree that whether or not the rehabilitation of a building is a project depends on the size of the building and the extent of the work required for rehabilitation. The word “project” has a far broader meaning for the purposes of CEQA than the meaning of the word in common usage, but questions relating to size, scope and impact discussed at the beginning of this paragraph remain relevant.

The adoption of ordinances and regulations by governmental agencies may fall within the definition of a “project” for the purposes of CEQA. In fact, this was the issue that caused San Diego’s adoption of changes to its zoning ordinances in 2014 to allow a limited number of medical marijuana dispensaries in certain locations to end up before the California Supreme Court. San Diego did not conduct an environmental review in connection with these zoning changes. San Diego erroneously determined that CEQA did not apply to the zoning ordinance changes that it adopted to allow for medical cannabis dispensaries.

UMMP challenged San Diego’s failure to conduct a CEQA review in connection with adoption of the zoning changes. The trial court upheld San Diego’s determination a CEQA review was not required. UMMP appealed to the Court of Appeal The Court of Appeal affirmed the decision of the trial court. UMMP appealed to the California Supreme Court. The California Supreme Court reversed the decision of the Court of Appeal, and remanded the case back to the trial court. The trial court was instructed to conduct further proceedings relating to whether an environmental review was required in connection with San Diego’s changes to its zoning ordinance based on the Court’s refinement of the meaning of “project” for the purposes of CEQA.

We need to address a tangential issue before discussing the application of this case to cannabis. The opinion in the UMMP case involves the definition of “project” for the purposes of CEQA. That the ordinances in issue related to cannabis are incidental. The question before the Court in the UMMP case was whether San Diego had erroneously concluded a CEQA review was not required in connection with changes to its zoning ordinances. Many cities in California are considering amending zoning ordinances in connection with the licensing and regulation of electric scooters. Medical cannabis dispensaries and electric scooters are equivalent for the purposes of the UMMP case.

We are writing about this case in connection with California’s cannabis industry because so much has happened in California’s cannabis industry while this case was pending. It is our understanding San Diego has amended its ordinances relating to cannabis on multiple occasions while the UMMP case was pending. Did San Diego act properly under CEQA in adopting its post-2014 zoning ordinances changes relating to cannabis? We suspect solely the attorneys for San Diego can answer that question. We doubt they have as yet even considered this question. We will boldly suggest that our comments in the balance of this article may be of some modest assistance in answering such a question.

Do the changes in the law relating to cannabis that has occurred while this case was pending render the California Supreme Court’s opinion in the UMMP case irrelevant to California’s cannabis industry? We can readily answer this question. CEQA has not changed significantly over the past five years. California’s cannabis laws have changed significantly. As a consequence, the California Supreme Court’s opinion in the UMMP case cannot be irrelevant to California’s cannabis industry. Any determinations regarding the application of the opinion in the UMMP case to California’s cannabis industry have been made far more difficult as a consequence of the changes in California’s laws relating to cannabis during the past five years.

At least three significant complications to the application of the opinion in the UMMP case as a consequence of the changes that have occurred during the past five years in California law relating to cannabis come immediately to mind.

San Diego changed its zoning ordinances to provide for the licensing of medical marijuana dispensaries. Proposition 64 legalized adult-use cannabis. Proposition 64 also preserved the rights granted to California residents under Proposition 215. The Medical and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”) adopted a combined regulatory scheme for medical and adult-use cannabis based on Proposition 64.

Is medical cannabis identical to adult-use cannabis for the purposes of CEQA? Before you attempt to answer this question, consider that medical cannabis and adult-use cannabis are the same in the hands of a cultivator for the purposes of CEQA, but the delivery of medical cannabis through a legal collective may be different from the sale of adult-use cannabis through a dispensary for the same purpose.

As is obvious from the UMMP case, CEQA applies in some instances to the actions of local governmental agencies in their adoption of ordinances and regulations. CEQA also applies to the adoption of regulations by agencies of California. The Bureau of Cannabis Control (“BCC”) avoided the preparation of an Environmental Impact Report through the adoption of a Negative Declaration.

In a very simple sense, the Negative Declaration was justified by the premise that BCC and the other cannabis regulatory agencies would quickly license California’s cannabis industry and the environmental issues would all be properly addressed at a local level. Some of the premises for BCC’s Negative Declaration have proved inaccurate. Of what value is a Negative Declaration if the legislature and the agency regularly adjust the premises?

Many of the actions of local agencies in the last five years relating to cannabis were taken in reliance on an exemption from CEQA that Proposition 64 added in Business and Professions Code (“B&P”) §26055(h). The Legislature extended this provision to July 1, 2021. This provision was originally set to expire July 1, 2019.

The first sentence of B&P §26055(h) states,

“Without limiting any other statutory exemption or categorical exemption, . . . [CEQA] does not apply to the adoption of an ordinance, rule, or regulation by a local jurisdiction that requires discretionary review and approval of permits, licenses, or other authorizations to engage in commercial cannabis activity.”  

By its express terms, B&P §26055(h) is limited to local agency actions.

This exemption is likely far narrower than many have supposed as a consequence of its second sentence. The second sentence of B&P §26055(h) states,


“To qualify for this exemption, the discretionary review in any such law, ordinance, rule, or regulation shall include any applicable environmental review pursuant to . . . [CEQA].” [2]

This language appears to describe the error that San Diego made. The California Supreme Court has concluded San Diego made an erroneous decision regarding the “applicable environmental review” required in connection with the amendment of its zoning ordinances.

The UMMP case significantly expanded the opportunities for filing meritorious lawsuits. A number of California cities and counties have amended their zoning ordinances during the past five years in response to pressures from the cannabis industry. Some – perhaps many – of these actions are likely to be open to question-based on the opinion in the UMMP case.

We believe one definite conclusion can be drawn from the opinion in the UMMP case. We believe it is a certainty some members of The State Bar of California will view this opinion as a financial stimulus package. We have a myriad of additional questions. We are confident California lawyers will soon begin asking and answering many of our questions.

[Note – while this isn’t directly relevant to this article, we located a significant number of CEQA related reports and documents that are going list and link merely to provide a location to find them quickly in the future.

CEQA Exemption Petition, Form BCC-LIC-026

CEQA Project-Specific Information, Form BCC-LIC-025

CEQA Overview Presentation – Bureau of Cannabis Control

Finding of facts

[1] Sec. 21065


Sean HockingSean HockingAugust 27, 2019


Here’s his  announcement in full.

Texas Cannabis Report Ceases Publication

Dear Texas Cannabis Report Readers,

In June 2013 Texas Cannabis Report launched as a premier news agency dedicated to covering the issue of cannabis activism and policy. Texans did not have a reliable source of news in this area, prompting our formation. Six years later there has been much progress made in ensuring this under-served community has access to quality and reliable information.

Many volunteer hours have gone into this project, numerous Texans have benefited from the information we have cultivated and shared. Our efforts have been a success.

It is now time to bring to an end our efforts in this pursuit. Effective immediately, Texas Cannabis Report will cease publication. Texas Cannabis Report will be kept intact for historical purposes. Future generations will look back upon this time and wonder how Texas could have had such policy regarding cannabis, and why it required such a monumental effort to change our laws for the better. We are proud to be a historical record on this matter.

We are deeply grateful for our readers, supporters, contributors, and experiences.

Thank you for your involvement. Progress is made on the shoulders of those who come before us.

Stephen Carter
Editor in Chief


Sean HockingSean HockingAugust 26, 2019

If you wish to re-publish this story please do so with following accreditation
AUTHOR:   aBIZinaBOX Inc. and Jordan S. Zoot, CPA

LARIBA – Sharia Finance – we hope that some of our readers enjoyed our initial attempt at explaining the basic principles of Sharia as applied to both Medical Cannabis and basic rules of finance. At the end of our article, we appealed for assistance in sourcing information about more advanced aspects of Sharia Finance. Well, one of Sean Hocking’s followers provided the next piece in the puzzle.

We went ahead and purchased The Art of RF (Riba-Free) Islamic Banking and Finance: Tools and Techniques for Community-Based Banking (Wiley Finance) from We had no idea what to expect when the book arrived. Well, I sat down close to a week ago in the evening and started reading. A week later, we finished reading the 483-page book, and we are absolutely impressed by the skills of the author, Dr. Yahia Abdull-Rahman, and the concepts of RIBA-Free finance. We have always believed that an inquisitive mind and the ability to read provided the tools to learn anything. We are certainly not expert with Sharia Finance but have certainly learned quite a bit. Our intention is to share bits of what we have learned in between everything else we are doing.

LARIBA – Sharia Finance

Riba-Free (RF) banking-comes the expanded edition of the definitive resource that offers an understanding of applying Islamic banking and financial practices. No matter what your faith or religious beliefs, the book shows how to take a modern American approach to incorporate Islamic financial principles into banking and investment techniques.

The Art of RF (Riba-Free) Islamic Banking and Finance describes the emergence of a culture of Islamic banking and finance today, which is based on the real Judeo-Christian-Islamic spirit and has proven very effective when compared to 20th-century models that use financial engineering and structural techniques to circumvent the Shari’a Law. The author also reveals information about how fiat money is created, the role of the Federal Reserve, and the US banking system. Abdul-Rahman includes a wealth of real-life examples and offers an analysis of how this new brand of banking and financing yields superior results.

Offers the fundamentals of Riba-Free (RF) banking

Shows how to apply RF to everything from joint ventures and portfolio management to home mortgages and personal finance

Reveals what it takes to incorporate Shariah Law into US financial systems

Includes information on why RF banking is a socially responsible way to invest

There is a website that is coordinated with the book at

LARIBA – Sharia Finance

that contains a wealth of resources and information, two of which deserve special mention for anyone with a desire to learn about the pragmatic aspects of Sharia Finance.

The Frequently Asked Questions [“FAQ’s] contain an amazing wealth of information.

The LARIBA Fatwa discussion is absolutely riveting and has a strong resemblance to the procedures that the Orthodox Union does in certifying that food products are properly Kosher under the rules of the Jewish faith.

They have included an Independent Sharia Auditors report which just about blew my mind…a firm of Sharia auditors based in North Carolina of all things.

LARIBA – Sharia Finance

We don’t typically like to “lift large sections of text, however, Dr. Yahia Abdul-Rahman’s explanation of the home finance model encapsulates a substantial number of critical concepts in a framework that is rather easy to understand.

Our home financing model is based on the concept of “Declining Participation in Usufruct” (DPU) (Declining Musharaka in rent). This is done as the basis for calculating the monthly payment and marking the value of the property to the market using actual market rental values of similar properties in the same neighborhood. The uniqueness of the LARIBA model is that we DO NOT RENT MONEY. Instead, we approach each transaction as an investment. The market rental value of the property financed determines attractiveness as an investment. If the house is overpriced, the model will flag this fact to the homebuyer in order to go back to renegotiate a lower price or to wait until an existing market “bubble” is burst.

It is important to note that each property like a car, a home, a commercial building has two rights of ownership. The first is the ownership of title to the property called “Milkul Raqabah” (the ownership of the neck). The other right is the right to use the property (Haqul Manfa’aa – the usufruct). For example, one can own a car or a house but he or she can rent out the right to use the car or the house by leasing it.

LARIBA conceptually purchases the property jointly with the client. LARIBA would authorize the client to act as its agent (wakeel) to select, negotiate the price of, and purchase the Property.

LARIBA authorizes the client to undertake the purchase of the property from the vendor and record the title (register it) directly into his or her name. The client becomes the owner of title to the house or owner of Milkul Raqabah. LARIBA retains its share of the usufruct – Haqul Manfa’aa.

Out of their own free will, the client offers to buy and LARIBA accepts to sell its share/units immediately at the same price. The value of the sale is paid in monthly installments over a period of time up to 30 years without adding any interest. The monthly payment is called REPAYMENT OF CAPITAL (“RofC” – pronounced rofsee).

LARIBA and Client agree to perfect a lien [1] (implied co-ownership) on the property in favor of LARIBA. LARIBA agrees with the client to share in the income realized from the use of the house based on the actual rental value as measured in the market. With this lien, the client and LARIBA share the income from the lease of the property proportionately between them. This income is called Return on Capital “RonC” -pronounced “ronsee”. As the client pays back his or her “Riba Free Loan – dayn”, this progressively reduces LARIBA’s share in the usufruct (Haqul Manfa’aa) as well as increases the client’s share gradually to reach 100% at the end of the Financing Period.

LARIBA – Sharia Finance

In order to make sure that money is not rented at the interest rate of the day which is RIBA, we research the actual market fair rental value of the property in its geographic location. The client and LARIBA officer – each – research the market to find how much a similar property leases for in the same market of the property to be financed and present three documented estimates each (a total of six estimates). Sources of rental value estimates include leasing agents, real estate brokers, Newspaper advertisements and online resources. The goal is to obtain the rental value, per square foot based on similar properties. The client and LARIBA compare their findings and agree on a rental value to be used in our proprietary model.

The monthly payment paid by the client over the financing period of up to 30 years consists of a portion of the unpaid Riba Free loan (dayn) – RofC and an amount equal to LARIBA’s proportional share of the agreed-upon rental value – RonC. Our proprietary model does the arithmetic using the proprietary Riba Free algorithm.

The LARIBA Computer Model inputs are: the property value, amount to be financed, the number of years to pay back and the monthly rental value obtained from the market. The unknown here is the Rate of Return on Investment – ROI. This contrasts with riba-based banks where they use an interest (riba)-based amortization computer program. They input: the amount to be financed, the number of years to pay back and the rent of money (interest) and the unknown is the monthly payment.

LARIBA – Sharia Finance

The LARIBA Model analyzes the Rate of Return on Investment in the property. There are three possible outcomes from this analysis of the level of the ROI. These are:

If the ROI is higher than the return expected by our investors. LARIBA decides to finance and reduces the rent in order to make the monthly payment compete with Riba-based banks.

If the ROI is much lower than what our investors are expecting (say 2% while the competing investments yield 6%), LARIBA declines the investment and the financing is denied. This has been the main reason for LARIBA to raise the red flag for many of our customers in Arizona, Florida, Massachusetts, Nevada, Washington DC and parts of California. We have saved many of our applicants from participating in the 2008 real estate bubble.

If the ROI is marginally lower than the expected return by our investors (say 5% and our investors expect 6%), LARIBA advises the client to renegotiate the price lower. We have done that a few times.

Upon full Repayment of Capital, LARIBA will release its lien back to the Client thus signaling the end of the transaction.

In order to protect our clients in case of adverse situations against the possibility of excessive legal fees, unusual language in the contracts that make them irregular and difficult to pursue legally, and the putting of name of company on title with client, LARIBA uses standard industry and regulatory sanctioned contracts and uses a rider called the LARIBA Agreement which describes the process followed above and the rental value used as the basis for the payment calculations.

Their offfices are located in Whittier, California, and you can bet we are going to pay them a visit sooner than later. It strikes us that 1,500 words on this topic is more than sufficient…there will be additional articles. We have certainly gained both knowledge of and respect for Islamic Banking principles.

A final thought, I have been in professional practice for almost 39 years. For me to be able to pick up a book and learn the principles of a completely different set of rules…reinforces what the difference between a professional education that comes with the expectation of a lifetime of learning vs. becoming a mechanic.

LARIBA – Sharia Finance


Anne-Marie FischerAnne-Marie FischerAugust 9, 2019


“Don’t fail before you start,” says Wick & Mortar CEO and Founder Jared Mirsky when Green Market Report caught up on him regarding the latest shakeup in the cannabis industry regarding the Woodstock brand and name. 

The promise of a 50th-anniversary concert in honor of Woodstock 1969 came and went, yet stir around the Woodstock name over the last couple of years in the cannabis industry cast a big cloud over the “peace and love” vibe that the event tries to promote, and it wasn’t cannabis smoke. 

It started in February 2018, when Woodstock Ventures, the founders of the original 1969 festival and the established brand tied to the festival, sued Woodstock Roots, a Pennsylvania holding company that sells hemp rolling papers, vaporizers and other extracts under the consumer brand Woodstock American Products. Woodstock Roots countersued, filing a preliminary injunction against Woodstock Ventures, stating that Woodstock Roots had already filed for a trademark in 2013 to use the Woodstock name at the festival. The injunction sought to prevent the original brand from entering into licensing agreements to sell products at the 50th-anniversary concert that was to take place this summer.

Woodstock Ventures had been working with MedMen (MMNFF) to create cannabis products under the Woodstock brand, stepping on the toes of Woodstock Roots, who thought they had the monopoly on selling Woodstock-branded cannabis, even donning the tagline “since 1969”.

The case got stuck in court, leaving the two companies in a standstill as to who would be able to sell products under the Woodstock name, and no matter what these companies could do to push the case forward in court, everything seemed to be against them. 

The original ruling judge died, making the case take a few steps back until late-July, just days before the concert was canceled, when a new judge denied Woodstock Roots’ request for a preliminary injunction, ruling that Woodstock Ventures would be the only company permitted to carry on cannabis product sales using the Woodstock name.

Now, with the 5oth anniversary concert of Woodstock officially canceled, the case itself may be moot for selling cannabis at Woodstock festivals, but it certainly brings up a large issue for the cannabis industry in terms of branding and naming cannabis companies.

“There seems to be a big misunderstanding in terms of what you can and can’t do in terms of naming,” says Wick & Mortar’s Jared Mirsky. Wick & Mortar is the first branding and marketing firm in the world that provides services exclusively to the cannabis industry. It has been in operation for over ten years under Mirsky’s leadership. 

“Trying to take licenses of a company so tied to a culture I feel is an infringement,” says Mirsky, “The execution of a product so closely tied to a brand like Woodstock, could be detrimental to the established Woodstock brand.”

Mirsky says that the naming process is a large part of the services that Wick & Mortar take clients through when branding and marketing their products. “If a client has chosen a name that we have advised against, we ask them to sign a waiver acknowledging this,” says Mirsky, who has seen too many instances of brands getting themselves in hot water by infringing on other brands or established brand cultures.

According to Mirsky, choosing a name that is too closely aligned with another brand, or choosing a name that will fail to translate into global markets, is one of the biggest “faux pas” that cannabis brands can undertake. “This happens all the time,” says Mirsky, “Companies fail to do their due diligence, or even worse, they don’t care and take names anyway, figuring that they’ll remain unseen in the dilution of brands, and when it comes to it, they’ll eventually have the wealth to battle any brand infringements in court.”

Mirsky says originality is key when choosing a name. “When you have a brand name that is far more original, you increase your brand equity valuation,” explains Mirsky, “Wick & Mortar helps brands establish brand valuation by focusing on brand equity.” An example of brand equity is the ability to transfer a name to different SKUs and products, or the ability to bring brands to the global front, and have the name translate culturally.

“If a company is doing CBD pre-rolls, and now wants to move into providing topicals, or capsules, or any other cannabis product, there already could be another established brand offering those products under the same name,” explains Mirsky. When a brand fails to be able to translate across different products or SKUs purely due to the name already being taken, their brand equity valuation decreases. 

Brands who don’t take cultural translation into account may also have trouble expanding globally. Take for instance the cannabis company Puff Cannabis Co. Standing for “People United For Flower”, Puff seeks to celebrate the 1970s and flower power movement through its developing brand. “While this word certainly resonates within the North American cannabis industry,” says Mirsky, “The word ‘puff’ means something else in other cultural contexts,” he goes on, referring to the word being a slang British term to refer to homosexuals. “This brand would have difficulty going global.”

What can companies do to avoid mishaps in their name and branding? “Be original!” says Mirsky, “Choose a name unlike anything else, a name that allows you to do whatever you want with it.” Mirsky also suggests that creating names from made-up words, or synonyms of words relating to the industry can help build originality and avoid any naming infringement mishaps.

As far as naming a company “Canna” anything, that is far overdone, according to Mirsky. Even the word “canna” in your name could fail to translate to global markets, even if you’re offering legalized products derived from cannabis, like hemp-CBD. “The market is saturated with canna this, and canna that,” says Mirsky, “Don’t fail before you start. Start with a strong brand name, because in the end, you’ll be worth more because you’re different.”


William SumnerWilliam SumnerJuly 30, 2019


On July 29, 2019, New York Gov. Andrew Cuomo signed into law a measure that reduces the penalties for cannabis possession.

“While the failure to pass a comprehensive legalization bill is an unfortunate loss to the taxpayers of New York, the decriminalization of small amounts of cannabis is significant progress for social justice initiatives, an underreported aspect of the legalization movement,” said Evan Eneman, CEO of MGO|ELLO Alliance, a cannabis finance and banking firm.

Although New York decriminalized the possession of 23 grams or less of cannabis in 1977, tens of thousands of New Yorkers have still found themselves arrested and charged with possessing small amounts of cannabis. Between 2008 and 2017, approximately 360,000 people have been arrested for cannabis possession, the majority of which have been persons of color.

“Communities of color have been disproportionately impacted by laws governing marijuana for far too long, and today we are ending this injustice once and for all,” Cuomo said in a statement. “By providing individuals who have suffered the consequences of an unfair marijuana conviction with a path to have their records expunged and by reducing draconian penalties, we are taking a critical step forward in addressing a broken and discriminatory criminal justice process.”

Though the majority of New York residents support cannabis legalization, the state legislature failed this year to pass a full-legalization bill. The primary reason for the bill’s failure was to due to disagreements over diversity requirements for licensees. To many, the recently passed decriminalization bill is seen as a stop-gap measure while the legislature works out the details of full legalization.

The new law reduces cannabis possession to a violation punishable by a fine and removes criminal penalties for cannabis possession under two ounces. The measure also creates a process for individuals charged with cannabis possession to have their records expunged, both retroactively and for future convictions.

Individuals caught possessing cannabis will be fined $50 for the first offense and fined $200 for a second offense within three years of the first violation. Those caught for a third time within three years will be subject to a $250 fine and/or 15 days in jail. The new law will go into effect on August 29, 2019.

Medical Marijuana Inc.’s (OTC: MJNA) Dr. Stuart Titus said, “New York has a history of leading the way in many legislative policies for the U.S. and we hope that this new decriminalization measure in New York will set an example for other states, and the federal government to follow.”

The illegal nature of cannabis hasn’t frightened the investors away. Eneman added, “The cannabis industry isn’t waiting for regulators to catch up, as demonstrated by the record-setting pace of venture capital investing, as detailed in the MGO | ELLO Cannabis Private Investment Review. The report shows investment exceeding $1.3 billion already through the first half of this year as compared to $1B in total in 2018. Investors have a strong appetite for cannabis and they aren’t letting roadblocks like legalization stand in their way.”

StaffStaffJuly 8, 2019


Born and raised just outside of Philadelphia, Jeffrey D. Welsh began his career on the performance side of the entertainment industry. Following undergraduate studies at The Hartt School of Music in West Hartford, Connecticut, Mr. Welsh moved to Los Angeles to pursue his first love as a professional saxophonist while earning a Masters of Music degree from the University of Southern California. After several years of recording for television and film, as well as touring internationally, Mr. Welsh decided his skill set would be best served on the business side of the entertainment industry, and headed to Pepperdine Law School in Malibu, California in 2010. 

It was at Pepperdine where Mr. Welsh met Luke Stanton and began his foray into the legal cannabis community, entrenching himself into California corporate formation and criminal defense in both Los Angeles and Ventura Counties during law school and into his first year of professional practice. 

In June of 2014, Jeffrey accepted a position in Corporate Business Affairs at the largest talent agency in the world, William Morris Endeavor, now WME | IMG, while simultaneously continuing to work in the legal cannabis industry part time. In this unique position, Mr. Welsh’s goal was to develop an understanding of the nuanced entertainment industry while concurrently connecting entertainer-advocates with projects and groups actively working in the cannabis space. Mr. Welsh was able to develop relationships with some of the most visible entertainers under WME representation, and is currently facilitating deals for several of those entertainers in the legal cannabis industry. 

In an effort to return to his musical roots, Mr. Welsh moved to the Personal Appearance Department at WME in February of 2015. In that same month Mr. Welsh co-founded the Frontera Law Group with Luke Stanton, and joined Frontera full time in July of 2015. Through aggressive networking and an unrelenting desire to be the first mover in the cannabis to entertainment/media space, Mr. Welsh fostered an extensive network with the current and future tastemakers of the entertainment industry to facilitate deal flow between these two industries. 

In April of 2017, Mr. Welsh co-founded a full-service creative agency, Composite, with Cody Tesnow, Charles Hayes, Duco Muller, and Luke Stanton. Composite helps guide and grow brands in the legal cannabis industry, and specializes in creative & content production, marketing research & strategy, and product development. 

By navigating this unique path, Mr. Welsh is sensitive to specific legal issues involved in entertainment and cannabis coming together, such as intellectual property, endorsements, licensing, criminal and civil liability and other business and legal considerations. Mr. Welsh and Frontera have been recognized as national 

thought leaders in the cannabis industry by Entrepreneur Magazine (named as one of the Top 100 Cannabis Leaders in 2018), and by MG Magazine (named as one of the Top 50 companies to work for in the cannabis industry in 2018). 

Music has always remained a tremendously positive outlet of creativity for Mr. Welsh, and he continues to utilize that passion for creative expression by performing live saxophone and DJ sets as frequently as possible in the greater Los Angeles area.

GMR Executive Spotlight Q&A – 

Full birth name: Jeffrey Dennis Welsh

Title: Co-Founder of Frontera, Co-Founder of Composite

Company: Frontera Law Group, Composite Agency

Years at current company: 5 years at Frontera, 2.5 years at Composite

Education profile:

University of Hartford – Bachelor of Music, Saxophone Performance  – Graduated May 2007

University of Southern California – Master of Music – Graduated May 2009

Pepperdine University School of Law – Juris Doctor – Graduated May 2013

Most successful professional accomplishment before cannabis: In college I became the first saxophonist to ever win the Van Rooy Competition, which is the largest monetary undergraduate music competition in the United States.  I was fortunate enough to also perform a United States premier of Takashi Yoshimatsu’s Cyber-Bird concerto for saxophone and full orchestra.  At USC, I performed with both the Hollywood Bowl and Los Angeles Philharmonic orchestras.

Company Mission: Frontera’s corporate mission is to provide invaluable strategic advice for companies in and around the cannabis industry through an ecosystem of cannabis thought leaders in an effort to expedite and facilitate successful and sustainable cannabis businesses.

Composite’s corporate mission is to elevate brands into a legal and universally respected cannabis industry that contributes to the well-being of society. 

Company’s most successful achievement: For Frontera, I am most proud of the fact that we are the largest cannabis focused law firm in the State of California, both in terms of number of clients represented (over 300) and in size of our staff.

Frontera have been recognized as national thought leaders in the cannabis industry by Entrepreneur Magazine (named as one of the Top 100 Cannabis Leaders in 2018), and by MG Magazine (named as one of the Top 50 companies to work for in the cannabis industry in 2018).

Has the company raised any capital (yes or no): No

Any plans on raising capital in the future? For Composite yes, for Frontera as a law firm we are unable to take on growth capital.

Most important company 5 year goal:

For Frontera – to continue organically expanding our bandwidth, and our ecosystem of partners in an effort to maintain preeminence in California.

For Composite – to have at least 2 brands that we created in-house be acquired!


StaffStaffMay 20, 2019

Guest submission By David Lechner and Charles S. Alovisetti

Legal cannabis sector fundamentals have strengthened in recent months thanks to new markets coming online and rising sales in existing markets. As a result, there has been a wealth of M&A activity lately, as existing operators increase their pace of acquisitions and new investors flock to the industry, buoyed by these investment opportunities. This has led to smaller operators selling their businesses to the larger players who are looking to consolidate or enter the market or both. This can be a smart move if properly executed, but there are also plenty of ways in which it can go awry.

Here are five crucial tips for operators thinking about selling their businesses in the coming years. This is the first part of a two-part series. In part two, we will provide five additional tips focused on the regulatory issues cannabis companies need to understand.

1. Be on the ‘up and up’. Because of some of the negative perceptions related to the legal cannabis sector, it is of utmost importance that you have been operating your business according to state law. Skeletons in the closet will come back to haunt you, leading to buyers completely walking away or at the very least, a big discount on valuation. If you’re out of compliance, get back into compliance before going on the market.

2. Cheap advisors are costly. Good bankers, lawyers, and accountants are worth it. These are the players you’re putting on the field, and you are only as strong as the weakest link. Do you need the most expensive player at every position? No, but if you hire a lesser-known accounting firm for your audit, for example, it could reduce the buyer’s perceived value of your business.

3. Get your house in order before engaging. Often small companies aren’t ready to go through a full transaction lifecycle when they engage with potential buyers. They may have gotten an inbound offer out of the blue that they want to move forward on. But they stumble when it comes time to proceed into diligence and detailed discussions. The first order of business should be to get audited financials from a real accounting firm. Ideally three years, minimum two. This is particularly important if you want to be acquired by a public company (as many licensed businesses in Colorado are currently contemplating). If a public company makes an acquisition that is considered significant according to the Securities Exchange Commission, then the acquiring company needs to file target and pro forma financial statements within 75 days of closing – this will prove an issue if the target (i.e., you) doesn’t have audited financials in place.

4. Time kills deals. You want to minimize your time in the market and in the diligence phase. Get your house in order and set up a data room that contains all the documents that buyers will want to review (IP, technology, financials, etc.). Have someone with M&A experience (e.g. a current or former investment banker), run you through diligence – it’s better if you know where your skeletons are buried now before buyers discover them. If you need to halt a process for three months waiting for a key item to be resolved, or to find some important document, buyers will lose interest. And then there are exogenous events that can spook the markets (e.g., trade wars), the longer your process hangs out there, the greater the risk it goes sideways and falls apart.

5. Be realistic with valuation. Simply because Company X sold for a certain multiple, it doesn’t mean that yours is worth the same. Valuation is driven by fundamentals – size (revenue), diversification (different geographies, diverse set of customers and product lines), and financial performance (historical performance, ‘cleanliness’ of financials, profitability, future growth). A company with $1b of revenue will have a higher multiple (e.g. price to sales) than one with just $50m of revenue. Similarly, a public company’s multiple will be higher than that for a private company due to these factors and as a private operator, you’ll need to temper your expectations.

David Lechner is a Chief Financial Officer with $25 billion of M&A and capital markets work. He consults with clients on due diligence, acquisitions, integrations, financial reporting, and operational improvements. Originally from Toronto, he now resides in Denver with his family.

Charles Alovisetti is a partner and chair of the corporate practice group at Vicente Sederberg LLP, a national law firm focused exclusively on the cannabis industry. He assists licensed and ancillary cannabis businesses with corporate legal matters, and he has experience working with clients on a broad range of transactions.

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The Green Market Report focuses on the financial news of the rapidly growing cannabis industry. Our target approach filters out the daily noise and does a deep dive into the financial, business and economic side of the cannabis industry. Our team is cultivating the industry’s critical news into one source and providing open source insights and data analysis


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