As codified by Lieutenant Colonel Paul Marcy in 2013:
“As an operator in Special Forces, SSgt Wayne was often entrusted with a great amount of responsibility and has always responded with aplomb. This past deployment, he was responsible for combat advising a platoon of Afghan Commandos in the highly kinetic Helmand River Valley of Afghanistan. In this demanding position, he acted as the de-facto platoon commander in excess of 35 firefights, making decisions and handling responsibilities far above his pay grade”.
“Sgt Wayne played a critical role in MSOT 8111’s operational successes. His diligence while on point kept his teammates safe. His intelligence collections made it possible to target enemy forces and protect the people of Afghanistan. In the face of devastating enemy fire, he maintained his composure and accomplished the mission. His value to MARSOC, and the Special Operations community as a whole is immeasurable and was evident on a daily basis during combat operations. His consummate professionalism, steadfast leadership, selfless attitude, tireless work ethic, and the proactive manner in which he accomplished his mission have made him directly responsible for the high level of mission success Marine Special Operations Team 8111 enjoyed”.
Premise: Cannabis industry is highly complex, ever changing. Myriad of regulations to master & comply with at the state, county, even municipal levels. Then, there’s the burdens of 280E tax compliance, seed to sale accountability requirements, supply chain dependencies & risks, challenges with capital structures & owner experience in the niche, as well as exit hurdles. Access to banking/traditional financing sources is hard to navigate, and even harder to close a deal.
It’s a development stage industry with very volatile industry conditions, potential future conflicts with Federal & state regulations and continued illicit black-market influence.
Frequently, we see cobbled together ownership within very complex entity structures with a potential foggy maze of potential conflicting interests of friends/family & sponsor group capital providers.
As a cannabis service provider, it’s tempting to try and continue to serve multiple industries as a retained industry expert” with a smorgasbord offering of different services.
When considering engaging a cannabis accounting & financial expert, be sure to take a rifle approach to target providers who tailor/limit their service offering to focus on “an” (singular) industry. In fact, it’s even better to find those with demonstrated concentrations in a limited number of state cannabis markets, because of the complexities involved.
LITIGATION TRENDS WITHIN THE CANNABIS INDUSTRY
The cannabis industry is growing and so are the number of cannabis-related lawsuits.
Common disputes involving issues of landlord-tenant, breach of contract, and fraud are increasing in frequency. Commercial disputes of this kind are expected to continue as the industry matures:
- Marijuana disputes also intertwine with other industries such as finance and real estate.
- Cannabis company operations may present difficulties with the tracing of money. Remember that traditional banking services are not always available to marijuana business owners.
- Risks to financial institutions are high considering there is a chance for money-laundered funds to funnel through the banks.
- For the marijuana businesses that do have banking relationships, many still operate by cash-based transactions because companies like Visa and MasterCard will not allow cannabis transactions. The natural consequence of this is the potential for a lack of financial tracing and increase in tax evasion. These challenges may lead to litigation involving banks and the federal government.
- Cannabis businesses must be creative with collateral because they cannot provide plants or inventory as collateral and are generally prohibited from using an interest in their cannabis licenses as collateral. Many marijuana business owners seek private funding from friends and family or from private equity firms or other entities that tend to charge higher interest rates, increasing the potential for loan default and litigation related to the lack of collateral to back the loan.
- In its early stages of growth, poor documentation riddled the cannabis industry, opening the door for more disputes. As the industry becomes more sophisticated, litigation trends will shift. One forward-looking trend that may arise is in products liability as the market advances and the Food and Drug Administration enforces its regulations; https://www.reuters.com/legal/litigation/emerging-trends-cannabis-litigation-2023-update-2023-05-09/:
- Most common category of dispute noted in the analysis was “commercial disputes”:
- Actions for breach of contract
- Collections on outstanding loans
- Securities issues
- Other business torts (e.g., breach of fiduciary duty and fraud)
- This trend is expected to continue, especially as new markets come online in those states that have only recently legalized adult-use cannabis and as older markets continue to mature and (in some instances) become overly saturated.
- Intellectual property disputes, and antitrust disputes tracked closely to the previous year’s survey.
- Most common category of dispute noted in the analysis was “commercial disputes”:
Securities and Exchange Commission enforcement actions — for example, alleging fraudulent offering and sale of securities in cannabis companies to investors are on the rise and likely to continue to increase. Challenges in raising capital, the need to solicit/close with multiple sources, lack of experience and investments in the cannabis space, varying degrees of investor risk tolerance, conflicting agendas are all coming into play. As the use of “creative” SPAC deals, reverse mergers, and pink sheet off the counter public offerings continue to be used, so will the volume of distressed deals and corresponding deal litigation.
WHY INDUSTRY & SERVICE OFFERING MATTERS
The degree of volatility and uncertainty noted above means that things quite often won’t turn out as expected; forecast and projected results shortfalls, credit defaults, risk event disruptions, investor disputes, foreclosure actions all can and do come into play.
Engaging a professional with demonstrated cannabis industry concentration & expertise, regardless of service need is crucial to prevent disruption, but to mitigate the impacts quickly and efficiently when faced with dealing with it.
I’ve been a retained litigation expert and consultant in numerous and extraordinarily complex commercial cases; both testifying and advisory. Early on, I received some terrific coaching and mentoring from some really superb commercial litigators. Man, you gotta stay in your own lane and play in your own sandbox, so to speak. When I made the decision to refocus our service offering to 100% cannabis, it was because OF an honest assessment that I could not be “ all things to all people”. I had to make the tough decision to become a life-long cannabis student and learner. And, with that also came the realization that attempting to offer all of our cannabis accounting & CFO services nationwide was not reality, either. At least not now and not in the near future it isn’t.
in a single lane, we come to know what it’s like to operate at an elevated level of competence, while avoiding the feelings of uncertainty and angst that can afflict the generalist who often gets in over their head.
When you deal with the same types of clients with the same types of issues, you start to see patterns and make connections that others can’t. Instead of constantly getting up to speed on an industry and its statutory and regulatory framework, making initial assessments and determining a course of action becomes instinctual.
CONCLUSION/SUMMARY
I learned a couple decades ago, early on in the initial launch/start-up phase of IronHorse LLC that as much as we needed to book the work, we had to bite the bullet and learn that by saying “no,” to certain client engagement opportunities, we were in reality opening better doors to saying “yes” to others. It was only after we scaled back our industry specializations & service focus that we actually experienced stronger growth and more stability.
More importantly, as a cannabis venture operator, a cannabis capital source and certainly a cannabis litigator, it’s vital you perform your own due diligence and engage cannabis accounting & financial experts who are concentrated in this space. As one who does, I assure you we embrace the critical importance of being all in on, and all about cannabis.
Always Beside You
Value$Canna CFO LLC is a specialty cannabis CFO services/consulting firm that delivers accounting and financial reporting, risk management advisory, CFO contributions & cannabis value driver/KPI dashboards to cannabis business owners and their team members. Tony Wayne is also President of IronHorse LLC. IronHorse LLC is a specialty consulting firm that specializes in distressed enterprise consulting, CRO engagements, receiverships & complex commercial litigation support. https://www.valuecannacfo.com/; https://www.linkedin.com/in/tony-wayne-13b92b
