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Considering a Cannabis Business in the Regulated Marketplace

Columnist: Dan Beck
September, 2018 Issue
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Dan Beck
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Legalization and the regulated market present an opportunity for existing cannabis businesses to emerge from the shadows, for new operators to enter the marketplace, and for a variety of professionals and ancillary business to serve the bourgeoning cannabis industry. While the cannabis industry faces an array of regulatory issues including permitting, licensing and compliance requirements, the field is wide open for those looking to get in on the ground floor. Here's an overview of current trends in the emerging market place, the future of banking for the industry, and the North Bay’s position of leadership in the industry.

The emerging market

The increasing legalization of cannabis in states throughout the nation is creating opportunities for businesses across a broad spectrum of industries and services. As an emerging business sector, the opportunity or “frenzy” to join the cannabis market has been coined “Green Rush.” As with any new business opportunity, there are real and perceived barriers to entry including nuanced layers of local and state regulations, compliance requirements, tax liabilities, and the hard-to-shake stigma of “reefer madness.” Further, a dynamic and volatile marketplace coupled with existing operators accustomed to playing by their own rules, create unique obstacles for new businesses and potential investors.

We are now nine months into the legal marketplace in California, and the industry is just beginning to settle into regularity and predictability. Opportunities exist across all sectors and there’s a high demand for ancillary professional services to meet the needs of the regulated industry. To comply with permitting, licensing, and other requirements, cannabis businesses need a variety of professional services such as banking, accounting, bookkeeping, payroll, insurance, real estate, marketing and more.

While cannabis has been a part of California’s culture for decades, it’s commonly said, “This is not your parent’s weed.” This is both a reference to the genetic refinements achieved over the decades, new consumption methods, and a reflection of the expansive marketplace and the entrepreneurial opportunities that exist in the industry. The cannabis industry begins with cultivation, which itself is dynamic with indoor, outdoor and mixed-light farming practices. Beyond the dynamics of farming, the cannabis manufacturing space is thriving with innovation and the entrepreneurial spirit. Manufacturing generally starts with the extraction of oils or concentrates, which can be processed for direct consumption (smoking or ingestion), or are infused in various products. Manufactured products such as edibles, topicals, tinctures and pet care products, may contain various combinations and potencies of THC and CBD. Edibles may include such items as foods, confections, candies and beverages. Topicals are typically CBD products that contain little or no THC and include all varieties of products such as lotions, balms, sprays, soaps, transdermal patches, beauty products and more. Research and development in the cannabis manufacturing sector is boundless, and the investment opportunity is just as limitless.

What about banking?

Banking has long been a concern of the cannabis industry and is an indicator of change for investors observing the industry from the outside. As states continue to legalize cannabis in one form or another, government and advocates are diligently working to eliminate barriers to banking for the industry. In June, the California legislature approved a measure to authorize the establishment of state-chartered banks for the limited purpose of serving the cannabis industry. Third-party financial institutions are also eager to enter the marketplace with a variety of solutions and non-banking products that allow direct transfer of funds through a securitized escrow-type transaction. These developments indicate that banking solutions for the cannabis industry are being addressed and standardized banking is on the horizon.

The local marketplace
The North Bay and the North Coast have a long history in the cannabis industry and are highly regarded for producing the nation’s finest cannabis, developing cannabis products, industry innovation, cultivation knowledge, and ancillary horticultural and hydroponic supplies. Before legalization, these North Bay cannabis operators thrived and contributed immensely to the local economy. Today, local municipalities have developed—or are currently refining—ordinances and regulations that allow, in varying degrees, for commercial cannabis businesses across the North Bay. Municipalities that are “friendly” to the cannabis industry are seeing a boom in commercial lease activity, real estate transactions, land-use applications and business development. The cannabis industry offers endless business opportunities for landlords, investors, industry insiders, service providers and ancillary industries. As the industry continues to stabilize and expand, it may be the perfect time to enter the cannabis industry.

Definitions
THC (tetrahydrocannabinol) a principal psychoactive compound in cannabis that produces euphoric effects.

CBD (cannabidiol) is one of a class of diverse compounds that acts on cannabinoid receptors in cells in the body that alter neurotransmitter release in the brain. Research has shown CBD to have analgesic, anti-inflammatory, and anti-anxiety properties without the psychoactive effects that THC provides.

Dan Beck formed the Canna Legal practice group of Beck Law P.C. in 2009 after years of representing cannabis operators in criminal cases. Since legalization, Beck has helped launch and build many cannabis operations. He’s dedicated to serving the cannabis industry and has developed a strong practice in the areas of local and state regulatory and permitting compliance, real estate purchases, sales and leasing, marketing and licensing of cannabis products, corporate governess, intellectual property, business disputes and employment. For information, visit
www.cannalegal.us. You can reach Dan at (707) 576-7175, or write to danbeck@becklaw.net.



 

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