Business often require outside capital to finance operating activities and to enable scaling and growth. Financing in the cannabis industry is notoriously challenging with regulatory obstacles at the local, state and federal levels. Recent market dynamics pose additional challenges for both financiers and cannabis operators.
We sat down with Len Tannenbaum, CEO & Partner of Advanced Flower Capital Gamma (AFC Gamma, NASDAQ: AFCG) to learn more about AFC Gamma and to get his perspective on recent market trends.
Aaron Green: In a nutshell, what is your investment/lending philosophy?
Len Tannenbaum: AFC Gamma is one of the largest providers of institutional loans to cannabis companies nationwide in all aspects of production: cultivation, processing, and distribution. Cannabis companies, no matter the size, traditionally lack the lending opportunities that other enterprises have available, and that’s where AFC Gamma comes in. As an institutional lender, we provide financial solutions to the cannabis industry.
AFC Gamma is a commercial mortgage REIT that provides loans to companies secured by three pillars: cash flows, licenses, and real estate. We provide term loans, draw facilities, and construction loans. Each loan is unique and tailored specifically to meet the needs of our borrowers. This unique partnership approach with our clients allows us to find solutions to help them expand and grow alongside them.
Since starting AFC Gamma, we have completed almost $500 million of transactions. We provide capital to an industry that others do not and, in turn, allow these operators to build cultivation facilities, production facilities, and dispensaries.
Green: What types of companies are you primarily financing?
Tannenbaum: AFC Gamma seeks to work with operators, ideally in limited license states. We make loans to companies secured by three pillars: cash flows, licenses, and real estate. We tend to lend to operators in regulatory-friendly states, such as: Ohio, Pennsylvania, New York, New Jersey, Maryland, Massachusetts, Arizona, New Mexico, Missouri, Illinois, Michigan, and Nevada. Traditionally, we shy away from states like California, Washington and Oregon given our approach to lending. We have 16 borrowers in 17 states, and what we look for are companies that we can grow with over the long term.
Green: What qualities do you look for in a cannabis industry operator or operating group?
Tannenbaum: We tend to work with three different buckets of operators. You have the large publicly traded multi-state operators (MSOs) we have lent to, such as Verano. Then you have the tier right below the top tier MSOs, where you have some public enterprises like Acreage, who is one of our borrowers, and then some private companies such as Nature’s Medicine and Justice Grown. The third tier are smaller operators. They’re single or two-state operators, and we’re typically coming in to help them build out licenses that they want or help them expand within that state. That’s why state-by-state dynamics are so important to us and why we typically only lend to limited license states.
We look at portfolio diversity on a step-by-step basis rather than a borrower-by-borrower basis. We tend to focus on deals in limited license states and also deals that have real estate as collateral. We have found that REIT loans give our clients the most flexibility, and we are able to finance more companies this way.
Green: Capital market dynamics have led to significant public cannabis company revaluations in 2022. How has this affected your business?
Tannenbaum: Although capital market dynamics have made an impact on a significant number of public cannabis companies’ revaluations this year, our overall business hasn’t been affected too much and that’s because the other lending options available right now are not ideal choices for most borrowers. One of the ways a lender can achieve credit enhancements or securities is by raising capital in the public markets. When the markets are more challenging, those companies have a harder time accessing capital when they may need it most. In turn, this could cause slow growth overall, more cash conservation and it removes one of the benefits to lenders. We’d like everyone to have more robust equity from that standpoint, but the flip side is, if equity gets too high in price, those borrowers won’t come to us lenders and they’ll raise capital in the equity markets since the equity is cheap. We’re definitely conducting a lot of business because the equity market is not available to cannabis companies. If that were to change, while our loans would be theoretically safer, they would choose equity instead of debt.
Green: Debt on cannabis companies balance sheets have increased significantly in recent years. What is your perspective on that?
Tannenbaum: When equity markets were free and the valuations were high, cannabis companies raised money in the equity markets rather than take on debt. Now that the equity markets have been somewhat closed and valuations are much lower, we see their debt has increased over the past two years.
Green: How does the lack of institutional investor participation in the cannabis industry affect your business?
Tannenbaum: Right now, we are one of the biggest lenders in cannabis. Looking to the future, though, if the SAFE Banking Act passes, we could see an influx of institutional capital that would increase competition amongst cannabis-specific and mainstream lenders. From the outset, most of the competition will come from hedge funds, not big banks. This competition will drive down interest rates and attract borrowers like MSOs.
Green: What would you like to see in either state or federal legalization?
Tannenbaum: The Senate passing the SAFE Banking Act. Should this happen, lenders, including AFC Gamma, will be able to borrow cheaper, which will, in turn, allow lenders to lend cheaper. It will be a net positive for all operators. It could also be positive for lenders assuming they have the infrastructure and capabilities to scale and decrease the cost of capital once the money starts flowing and more deals are being made.
Green: What trends are you following closely as we head towards the end of 2022?
Tannenbaum: The most important trend we’re following is state by state trends. We’re excited to see new states getting their act together like New York. We’re excited about Georgia. We’re also looking forward to Missouri going rec. On the flip side, we’re also watching Virginia issue more than 400 licenses, diluting down the limited license states into basically an unlimited license state, which personally doesn’t make sense.
The other trend we’re watching across the country is cannabis prices. There is definitely a gray and legacy market that goes across border that should be enforced. That flow of cannabis product is depressing prices, especially in the unlimited license states. I believe there is a chance that trend starts reversing as many grows are now inefficient. The low end of inefficient grows are going to start closing, which may increase prices going into next year.
PARSIPPANY, NJ, October 17, 2022 – The Cannabis Quality Conference & Expo (CQC) just announced the newest addition to the event’s agenda. Commissioner Maria Del Cid-Kosso of the New Jersey Cannabis Regulatory Commission will deliver a keynote presentation at 1:00 PM EST on Monday, October 17.
Commissioner Del Cid is an inaugural commissioner of the NJ Cannabis Regulatory Commission, the government body overseeing regulating the state’s new cannabis industry. Prior to being appointed by Governor Phil Murphy in February of 2021, she was the Director of Policy and Legislative Services at the New Jersey Department of Health. She was awarded the Union County Women of Excellence Award in Government, the Hazel Frank Gluck Award from the Eagleton Institute of Politics, Urban League of Union County Young Professionals Award in Government, and has been recognized as Insider NJ’s 2021 Top 6 Millennial; Insider’s 100 Cannabis Leaders; Insider’s 50 under 30; and Insider’s Top 100 Millennials (2018, 2019, and 2020).
Following Commissioner Del Cid’s keynote presentation, a panel discussion on The Future of East Coast Cannabis: Social Equity, Justice & Legalization will take place in the afternoon. Following that will be a panel on The Standardization State of the Union: Science-Based Resources for Driving Cannabis Safety with an overview of the New Jersey cannabis marketplace to end the first day.
The second day will kick off with a Keynote titled Centering Equity in Cannabis Policy, Quality & Business with Toi Hutchinson, President & CEO at Marijuana Policy Project. Other agenda highlights include:
The State of the State: An Update on New Jersey Legalization by Steven M. Schain, Esquire, Attorney at Smart-Counsel, LLC
Tri-State Cannabis: Pro Tips for Winning Applications by Sumer Thomas, Director of Regulatory Affairs and Russ Hudson, Project Manager at Canna Advisors
Navigating Cannabis Testing Regulations for Multi-State Operations by Michael Kahn, President & Founder of MCR Labs
Keynote by Edmund DeVeaux, President of the New Jersey Cannabusiness Association
A Guide to Infusion Technology | Design Experiences that Inspire and Innovate with Cannabis Ingredients by Austin Stevenson, Chief Innovation Officer at Vertosa
Valuable Analysis Ahead of Asset Acquisition by Matthew Anderson, CEO of Vanguard Scientific
Registration options are available for in-person, virtual and hybrid attendance.
Event Hours
Monday, October 17: 12 pm – 6:30 pm (ET)
Tuesday, October 18: 8 am – 5:45 pm (ET)
Wednesday, October 19: 8 am – 12 pm (ET)
Cannabis industry professionals also interested in the food industry can attend the Food Safety Consortium, which begins on Wednesday, October 19 – Friday, October 21.
About Cannabis Industry Journal
Cannabis Industry Journal is a digital media community for cannabis industry professionals. We inform, educate and connect cannabis growers, extractors, processors, infused products manufacturers, dispensaries, laboratories, suppliers, vendors and regulators with original, in-depth features and reports, curated industry news and user-contributed content, and live and virtual events that offer knowledge, perspectives, strategies and resources to facilitate an informed, legalized and safe cannabis marketplace.
About the Cannabis Quality Conference & Expo
The Cannabis Quality Conference & Expo is an educational and networking event for the cannabis industry that has cannabis safety, quality and regulatory compliance as the foundation of the educational content of the program. With a unique focus on science, technology, safety and compliance, the “CQC” enables attendees to engage in conversations that are critical for advancing careers and organizations alike. Delegates visit with exhibitors to learn about cutting-edge solutions, explore three high-level educational tracks for learning valuable industry trends, and network with industry executives to find solutions to improve quality, efficiency and cost effectiveness in the evolving cannabis industry.
PARSIPPANY, NJ, October 17-19, 2022 – The Cannabis Quality Conference & Expo (CQC) heads to New Jersey October 17-19 this year. The agenda features three tracks of educational talks, panel discussions, keynotes and breakout sessions.
At this year’s event, the conference will debut two new features of the program: Lunch & Learn sessions and Happy Hour Roundtables. Matthew Anderson, CEO of Vanguard Scientific, will sit down with two experts in cannabis law for interviews during the lunch hour:
Investigations & Enforcement: A Former Federal Prosecutor’s Perspective
Matthew Anderson will interview Barak Cohen, Chair of the Cannabis Industry Group at Perkins Coie, to discuss federal investigations, Justice Department prosecutions and white-collar offenses. This Lunch & Learn will take place 12:00 to 12:25 PM on Tuesday, October 18.
Compliance is Key: Best Practices for Your New Jersey Cannabis Business
Matthew Anderson will interview Casey Leaver, Director of Regulatory Compliance at Vicente Sederberg, to discuss compliance culture, quality controls, New Jersey regulations and more. This Lunch & Learn will take place 12:35 to 1:00 PM on Tuesday, October 18.
Following the conference agenda on Monday, October 17 and Tuesday October 18, attendees are invited to join the cocktail reception for Happy Hour Roundtables. From 4:45 to 5:45 PM, subject matter experts will be available to chat, answer questions & offer guidance on the following topics:
Regulatory Compliance: Jason Thomas, Precision Quality & Compliance
Banking, Finance & Real Estate: Steve Schain, Esq., Smart-Counsel LLC
Standards in Cannabis: David Vaillencourt, The GMP Collective
Social Equity & Justice: Ernest Toney, BIPOCANN
The conference will begin with a panel discussion on The Future of East Coast Cannabis: Social Equity, Justice & Legalization. Following that will be a panel on The Standardization State of the Union: Science-Based Resources for Driving Cannabis Safety with an overview of the New Jersey cannabis marketplace to end the first day.
The second day will kick off with a Keynote titled Centering Equity in Cannabis Policy, Quality & Business with Toi Hutchinson, President & CEO at Marijuana Policy Project. Other agenda highlights include:
The State of the State: An Update on New Jersey Legalization by Steven M. Schain, Esquire, Attorney at Smart-Counsel, LLC
Tri-State Cannabis: Pro Tips for Winning Applications by Sumer Thomas, Director of Regulatory Affairs and Russ Hudson, Project Manager at Canna Advisors
Navigating Cannabis Testing Regulations for Multi-State Operations by Michael Kahn, President & Founder of MCR Labs
Keynote by Edmund DeVeaux, President of the New Jersey Cannabusiness Association
A Guide to Infusion Technology | Design Experiences that Inspire and Innovate with Cannabis Ingredients by Austin Stevenson, Chief Innovation Officer at Vertosa
Valuable Analysis Ahead of Asset Acquisition by Matthew Anderson, CEO of Vanguard Scientific
Registration options are available for in-person, virtual and hybrid attendance.
Event Hours
Monday, October 17: 12 pm – 6:30 pm (ET)
Tuesday, October 18: 8 am – 5:45 pm (ET)
Wednesday, October 19: 8 am – 12 pm (ET)
Cannabis industry professionals also interested in the food industry can attend the Food Safety Consortium, which begins on Wednesday, October 19 – Friday, October 21.
About Cannabis Industry Journal
Cannabis Industry Journal is a digital media community for cannabis industry professionals. We inform, educate and connect cannabis growers, extractors, processors, infused products manufacturers, dispensaries, laboratories, suppliers, vendors and regulators with original, in-depth features and reports, curated industry news and user-contributed content, and live and virtual events that offer knowledge, perspectives, strategies and resources to facilitate an informed, legalized and safe cannabis marketplace.
About the Cannabis Quality Conference & Expo
The Cannabis Quality Conference & Expo is an educational and networking event for the cannabis industry that has cannabis safety, quality and regulatory compliance as the foundation of the educational content of the program. With a unique focus on science, technology, safety and compliance, the “CQC” enables attendees to engage in conversations that are critical for advancing careers and organizations alike. Delegates visit with exhibitors to learn about cutting-edge solutions, explore three high-level educational tracks for learning valuable industry trends, and network with industry executives to find solutions to improve quality, efficiency and cost effectiveness in the evolving cannabis industry.
Creating incentive for honest testing and labeling
TechTalk: Millipore Sigma
Dr. Stephan Altmaier, Sr. Manager, Merck KGa Darmstadt
AOAC: Why Third-Party Accreditation Matters More than Ever
Anthony Repay, Laboratory Director, Method Testing Laboratories
Attendees will learn about the history the AOAC, the role of third-party accreditations in Cannabis microbiology testing and how to seamlessly integrate into your existing processes to enhance consumer safety.
The Evolution of the Hemp Testing Market: An Introduction
Mikhail Gadomski, Principal Chemist, Deibel Laboratories
Attendees of this session will learn:
What is the Difference Between Hemp and Cannabis?
What are Natural and Synthetic Psychoactive Cannabinoids; THC 9, CBD, THC 8, THC 10, THCO, etc.?
Status of Federal and State Testing Regulations
Cannabinoid Extraction Efficiency for Potency Analysis: An In-Depth Look of Multiple Techniques
Melinda Urich, LC Solutions Scientist, Restek
Attendees of this session will learn:
The importance of extraction efficiency.
Variables to consider when choosing a sample preparation technique.
Understanding which technique is best for your testing lab.
“Data” is a hard concept to picture. It’s even harder to visualize what your data is saying about your business. Many important insights are processed on different systems, never to see the light of day.
In the digital advertising industry, we call this “data silos.” In the cannabis industry, we call this the cost of doing business.
Without traditional tech tools or a source of truth on market sentiment and trends, there’s no common picture that can show us the day-to-day behavior of today’s cannabis consumer. Companies are often guessing what consumers want based only on the data they have available.
To keep growing, dispensaries and brands have to modernize how they understand, activate and measure customer data. Luckily, it may be easier than you think to start making better use of your customer data right away, which means it’s easy to simplify how you connect to both existing and new consumers, driving more engagement and revenue.
Cannabis companies that started digital-first have a head start on legacy businesses: phone numbers, emails, customer preferences are all first-party data that can help you find and advertise to new customers.
Here’s how:
1. Build Your Customer Database with a Rewards Program.
A 2022 YouGov survey found that when cannabis consumers are asked about how they make purchasing decisions:
36% said quality and safety
34% said lowest price
32% said location (proximity to home)
31% said preferred products
Most cannabis businesses know the power of rewards programs, but usually depend on steep discounts to get customers back in the door. Rewards programs can also offer promotions for new product releases, exclusive access, community events and other things that offer information about things you know your customers already care about.
The most valuable thing about a rewards program isn’t just the sales – it’s the data. If a customer makes a profile with an email and a phone number, you have the basic building blocks for a first-party data strategy. Just make sure you have a way to keep that data organized on the back-end.
Want the real secret? Segment your email and SMS list by what you know your customers want. Send different communications for different customer groups and behaviors – like edible users and pre-roll buyers or monthly buyers and weekly buyers. Figure out what resonates and repeat!
2. Budtenders that Care.
A relationship with a budtender is sometimes transactional. Other times, it’s confessional, fun, or, if a consumer is new to buying cannabis or trying different products, educational.
As one survey found: 22% of customers always decide what to buy based on budtender advice and 69% said they seriously consider their opinions.
Good budtenders get to know the customers and can become advocates for staying in touch. Training them to sign up customers for a rewards program or exclusive offers can help build the relationship that keeps people coming back and allows you to stay in touch. This is how you can link your data efforts with your frontline employees.
3. Find a Secure Way to Manage Your Customer Data.
To segment customer data and build customer profiles with additional information – like purchase history or demographics – you need to find a solution built for a growing customer database. Some options, like an email marketing platform, can get you halfway there. But a lot of companies still rely on Google Sheets, which can take hours to understand and end up exposing a lot of customer data out in the open.
The right customer data platform should help you connect and integrate all your different data sources, from website and ecommerce platform to point-of-sale. This allows you to understand macro and micro market trends by making your customer segments transparent and easy to manage as they move down the path to purchase. You can also identify which segments drive the most value over time and what attributes and behaviors they have in common.
By managing customer data from one platform, you can dramatically increase the transparency across all the valuable insights that affect your business. And then make use of those in your next big advertising campaign.
Combining Co-Marketing with Community
You can avoid the cannabis data squeeze by modernizing how you handle customer data. Dispensaries with advanced data management practices are often processing thousands of transactions a day and constantly enriching their understanding of customers and their target markets. Unlike dispensaries, brands don’t have the same volume of new data. This has a lot of implications when you’re trying to reach new customers, because when a brand launches a digital advertising campaign, a lot of budget can get wasted if the audiences are based on a limited dataset.
That’s where co-marketing digital advertising campaigns can help. Cannabis companies collaborate to activate events and retail displays. To really build awareness and drive sales, cannabis brands should reach a dispensary’s existing customers and advertise in coordination with the dispensary. With the right dataset, you can show ads just to a dispensary’s best customers, and the ones most likely to buy your product.
The most exciting part about the future of the cannabis industry all comes down to data. The community grew together, and now businesses can innovate together – building a better customer experience by understanding every stage in the journey. In a relationship-first industry, cannabis digital advertising has to be as personalized as a budtender’s recommendations.
Solvent Remediation – The Last Step for Safe, Clean Hemp Extraction
Tom Bisbee, Production Director, EcoGen Biosciences
Attendees can expect to learn:
Understanding solvent remediation technology and processes
Residual solvents present huge risks
Consumers deserve transparency
Advancing Cannabinoid Therapeutics Through Regulated Drug Discovery
Matthew Anderson, CEO, Vanguard Scientific
Nick Herbst, VP of Engineering, Vanguard Scientific
Brian Brandley, Ph.D., Laboratory Director, Biopharmaceutical Research Co.
A panel discussion with Dr. Brian Brandley, the CSO of Biopharmaceutical Research Company, a DEA-licensed pharmaceutical company that is pioneering the legal cannabis space in the U.S. through the development of federally compliant active pharmaceutical ingredients (API) for plant-based therapeutics, and Nick Herbst, VP of Engineering at Vanguard Scientific, and the Lead Engineer for the Company’s MIDAS SCCO2 Extraction Program. During this 45-minute round table discussion moderated by Vanguard’s CEO Matthew Anderson, the panelists will provide an overview of what it takes to make ‘pharmaceutical-grade’ cannabis products. The conversation will range from facility requirements, methods development, equipment qualification, process validations and more.
GMPs for Cannabis Extraction: Don’t Overcomplicate it
Andrew Cole, Director, Client Delivery Audits, Cannon Quality Group
Attendees can expect to learn:
Understanding the basics in plain English.
Learn what you need to do to meet minimum Industry expectations for Quality and Scalability.
The cannabis beverage market is expected to reach $2 Billion by 2026 and is growing at a rapid pace. In Canada, the market share of infused beverages grew nearly 850% since 2020, according to a recent Headset report, the trend is expected to follow in the States. Some traditional beverage companies are hesitant to jump in due to the niche branding and supply chain models needed to capture significant market share. Other adult beverage companies such as Vita Coco and Pabst are dipping their toes into the cannabis beverage market to capture early market opportunities.
Sales and marketing agencies like Petalfast, with a core team stemming from the natural foods and beverage industries, have already started cracking the code for cannabis brands by implementing systems straight out of those industry’s playbooks. This includes disrupting the CA market by becoming the first to implement a traditional three-tier distribution model.
We caught up with Jason Vegotsky, CEO of Petalfast to learn more about the cannabis beverage distribution market. Prior to Petalfast, Jason was Chief Revenue Officer at KushCo Holdings (now Greenlane Holdings), a role he took on after selling his butane supply company to KushCo.
Aaron Green: How did you get involved in the cannabis industry?
Jason Vegotsky: I began my career in wine and spirits distribution, but I always knew I wanted to work for myself. My first foray into launching a business, raising capital and brand building was through my beef jerky company, Lawless Jerky, which I built and sold after five years. Drawing on my food and beverage experience, I quickly entered and understood the cannabis market. I launched a company called Summit Innovations that sold butane to producers making oil. I eventually sold Summit to KushCo Holdings, Inc. (now known as Greenlane Holdings, Inc.) and became their President and Chief Revenue Officer. Through that experience, I began to notice gaps in the cannabis distribution model. Petalfast was built to fill that gap, providing clients with exceptional go-to-market strategies, leading to increased revenue and customer loyalty.
Green: How does experience in natural foods and traditional beverages translate to the cannabis industry?
Vegotsky: The route-to-market strategy is similar to that of cannabis, and the industry can benefit from the knowledge and experiences of those who work in natural foods and beverages. The extensive regulatory history and long-standing distribution models of these industries can provide a framework that those in the cannabis industry can capitalize on.
Green: What is the current distribution model for the majority of cannabis beverage companies today?
Vegotsky: Cannabis beverage companies face significant regulatory hurdles regarding distribution. Transportation restrictions, state-by-state differences in THC serving sizes and packaging requirements, retail display and storage limitations, and consumer adoption are just a few examples of what cannabis beverage brands run into when looking to enter, compete or scale in a given market.
At Petalfast, we offer a tiered distribution model, and our clients get phenomenal distribution through our logistics partner, Nabis. Products are circulated to all of California’s dispensaries and delivery services, allowing brands to focus on what matters most: creating the highest quality cannabis products on the market.
Green: What is a three-tier distribution model? Why do you think the cannabis beverage market is ripe for this model?
Vegotsky: The three-tier distribution model is commonly deployed by alcohol and other traditional food and beverage companies as it provides each tier to scale their operations and focus on their specific services. The three tiers include the brand, the wholesaler (sales + distribution), and the retailer in this distribution model. Because cash flow is such a significant challenge in the cannabis industry, adding an extra tier by separating your distribution and sales is advantageous to brands as it decreases overhead and allows brands to have the ability to scale.
Green: What are the opportunities for smaller brands looking to carve out a niche?
Vegotsky: One of the benefits of working in an emerging market is the opportunity to get in on the ground floor, learn as much as possible about the industry and find where gaps exist. Brand building in this space requires a deep understanding of the consumer and the overall culture — something that most brands are still trying to crack. If a smaller brand can effectively target a base within a distinct product category, it can be very effective in scaling within its niche.
Green: With big players from adult beverages dipping their toes in the cannabis beverage space, is consolidation inevitable?
Vegotsky: At a certain level, yes. Well-established companies will seek out acquisitions of smaller, successful companies, especially ones that are capital constrained, but buyers need to be aware that capital alone will not be enough. The culture of cannabis is very different from alcohol or other adjacent beverage categories, so the success of these big players in adult beverages will be linked to their ability to locate and understand the consumer and implement branding strategies accordingly. Adult beverage companies entering the cannabis market must also realize that the flow of product to retailers is not the same as in alcohol, so they will need to adjust accordingly. The cannabis-infused beverage market is expected to reach $2 billion by 2026, so alcohol companies looking to join this movement should start exploring their options now.
Green: What trends are you following in cannabis beverages? What does the future of cannabis beverages look like?
Vegotsky: Canna-tourism has grown to a $17 billion industry. With the rise in cannabis-infused beverages, we’re seeing an increase in creative consumption offerings, from tastings and food and beverage pairings to dispensary tours and bud-and-breakfasts.
Cannabis beverages are attractive to newcomers as they allow for easier control of the effects. Businesses that provide an experience similar to that of a wine or brewery tour can capitalize on new consumers looking to explore the benefits of cannabis in a controlled environment.
The modern consumer is also more health conscious, and with the increased availability of legal cannabis, many are replacing alcoholic beverages with the plant. There has been a reported decrease in alcohol consumption since the 1980s, and many now believe cannabis is safer than alcohol. This belief is especially prevalent among younger generations, leading to more users incorporating cannabis-infused beverages into their daily lives. How we socialize or unwind at the end of the day will start to look different, and brands will become market leaders by speaking to the varied needs of consumers.
Green: How does the industry get there?
Vegotsky: For one, federal decriminalization and removing cannabis as a Schedule I drug on the controlled substances list would help. Cannabis companies don’t have access to the traditional marketing playbook to promote their brands due to TV advertising and social media restrictions. To build brand awareness, businesses should focus efforts on the retail level. Engaging with consumers in-store allows brands to grab their attention and drive faster sales until other avenues open up. At Petalfast, we decided to invest in field and trade marketing to bring brands to life at the retail level. We do this better than anybody else, and we do it at scale.
We know a thing or two about scaling a cannabis business. While we don’t own a plant-touching business ourselves, we have helped companies like Tokyo Smoke, Superette and Northern Helm to open dozens of dispensaries in less than 3 years as their IT company. Here are some of the things we’ve learned along the way.
Find reliable partners
You can’t do it all alone. Especially when you’re trying to grow fast in a new industry like cannabis. Find reliable external partners you can depend on in areas like construction, design, staffing, financing, legal, real estate, accounting, HR, IT and security. If you’re just starting, consider dividing the work between competing firms, then committing to the one that performs the best.
Maintain consistency
You don’t want to reinvent the wheel with every new location. Develop standardized processes, procedures and equipment as early as possible. This is critical for aspects of your business like efficiency, profit margins and brand awareness.
We work with our clients to develop a standard IT stack (all the same hardware, software and configurations). This makes setups quicker and cross-location management easier and can make you eligible for bulk purchasing discounts.
At the same time, if any of them don’t work out, switch them out as soon as possible. Don’t compound the error by sticking with what isn’t working.
Also don’t be afraid to try new things here and there or make each location unique in more subtle ways. Our clients at Superette are a great example of keeping their brand consistent enough across their locations that you know it’s a Superette store just by looking at it; at the same time each store is just a little bit different so that each location is a unique experience.
Leverage multi-site tech
Most cannabis software is web-based and lets you manage multiple different locations in a single platform. Make sure to make good use of this and not use different software for different locations.
This goes for a lot of non-cannabis-specific software too, like Sage, Office 365, Google Workspaces and Solink (a platform that lets you manage all your surveillance systems in one dashboard, and integrates with your POS or ERP).
Use compliance and licensing software
Cannabis regulations can vary widely not only state by state but city by city. Keeping up with all these regulations can be difficult even if you already have a legal expert to rely on.
Compliance software like Simplifya, ProCanna and BuildMySOP let you quickly figure out what the regulations are in a given area, which can make it easier to find a good location, get set up and stay compliant. These applications, along with licensing trackers like Cannabiz Media, can also help you find where cannabis license opportunities are available and send you alerts whenever a state or city is accepting new applications.
Buy materials ahead
This is especially important now with the supply chain crisis still going on, but in general it’s a good idea to start gathering all the materials you need as soon as you’re certain about expanding. In IT in particular, pretty much everything including cash drawers, receipt printers, tablets, POS terminals, firewall appliances and laptops has been in pretty short supply. We’ve heard that it’s the same for just about all materials that go into setting up a new cannabis location whether it’s a dispensary, cultivation, distribution or manufacturing facility.
We’ve stayed on top of it and avoided delays by buying months ahead, purchasing a surplus of product and maintaining close communication with our vendors and distributors; we suggest you do the same for any products you’re purchasing internally.
If you’re buying online and the store says “in-stock,” you may want to contact the store/vendor to double-check that it’s accurate. Sometimes you buy it and you find out that “in-stock” means its parts are “in-stock” in a factory in Asia somewhere and your product is still months away from being manufactured, shipped and delivered to you.
Promote from within
When you’re growing is a good time to promote the all-stars already on your team, giving them a chance to expand their skills and take on greater responsibilities. We’ve seen this with some of our clients where they promote their star budtenders to shift leads or managers at their new stores, and store managers to district managers in new territories. It works out for everyone – the employee gets a raise and a step up the ladder, and you ensure you maintain your company’s culture and fill important positions with people you already know and trust (not to mention it’s often more cost-efficient to hire from within like this than to bring in someone new).
Hire from without when necessary
Sometimes promoting from within isn’t an option, like when you need someone with a particular skillset or level of experience.
Maybe your current COO has done a great job opening and operating 5 stores, but what about 50? If you want a sure thing, you’ll want to hire someone that’s already shown they can handle 50 or more stores, and most likely you’ll have to look outside the cannabis industry to find it.
You’re seeing this more and more in the cannabis industry – some are promoting from within, but many are also hiring experts from other companies and from outside the industry, including lots of people with strong retail, food manufacturing, merchandising, packaged goods and highly regulated goods (especially alcohol) backgrounds.
This can be more expensive than promoting from within and can potentially have a negative influence on company culture and morale, but on the other hand you’re getting valuable expertise that can help you take your cannabis business to the next level; and plus, you may even be able to hire these people at a relative bargain since there are many out there that are eager to work in such an exciting, new and high-growth industry.
Be ready for things to break down
Even if you’re fully prepared, you should still expect some kind of hiccup or hurdle with any new location rollout. It’s just the way it is on projects with an ambitious timeline and a lot of moving parts. The usual culprits are routine construction delays, cable companies and other utilities screwing up, storms, and having to adjust your schedule according to government inspectors on short notice. On some of our jobs in Canada, for example, we’ve run into a few blizzards and cameras and wires getting knocked out/frozen over; and on one occasion we were moderately inconvenienced setting up a store just up the street from the 2022 Ottawa trucker protests.
Don’t panic, don’t get frustrated. Your careful planning will at least ensure that most things go right, giving you the flexibility to react to the things that don’t.
Consider avoiding unlimited license markets
There’s a reason many MSOs avoid unlimited license markets like Oklahoma and Oregon. Limited license markets provide protection against competition. Unlimited license states are often free-for-alls and a race-to-the-bottom on pricing. They’re much tougher markets.
Have a vision
Rather than just wanting to grow and make a lot money, it can be helpful to have a unique, compelling and somewhat clear vision for your company, like Superette’s “making buying cannabis as fun as using it.” This helps you motivate your team, maintain your focus and cohesiveness as you add lots of new people, and differentiate yourself in a crowded market.
Consider franchising where it’s legal and makes sense
Our client Tokyo Smoke has opened over 80 locations in just over 3 years of operations. If that seems like too much growth for one company, you’re sort of right – some of Tokyo Smoke’s stores aren’t company-owned, they’re actually separately owned and managed franchises.
Now franchising a cannabis business isn’t legal everywhere at the moment, but where it is legal it’s a time-tested method of growing your brand and company footprint fast, and establishing dominant mindshare and market share that can’t easily be challenged or reversed.
Consider M&A
Sometimes M&A is the only option for breaking into a new market, like if the market is already oversaturated or not accepting new applications. Established cannabis businesses can start at $1-$10 million per location depending on the situation. Don’t quote us on it, but with some markets becoming saturated and sales declining in areas like Oregon and Canada, you may be able to get a good deal from someone that wants out of the business before things gets worse – assuming you’re bullish on a market rebound or think you can perform better in the market than the current owner.
California is the fastest-growing cannabis beverage market, according to a recent Headset report. The count of beverage product offerings in California has grown quickly, nearly doubling from 2020 to 2021. As of December 2021, there were approximately 530 distinct cannabis beverage offerings.
Mocktails have been a growing product category within the cannabis beverage segment. Klaus, headed up by Warren Bobrow, the “Cocktail Whisperer,” recently entered the California market with their ready-to-drink THC cocktail, Mezzrole, a unique terpene-forward beverage with three simple culinary-grade ingredients.
We caught up with Warren to learn more about his path to the cannabis industry and his inspiration for Mezzrole. Warren is a multi-published author of six books including “Cannabis Cocktails, Mocktails, and Tonics” and has contributed to publications such as Forbes and Skunk Magazine. After the loss of his fresh pasta business in Hurricane Hugo, he worked in banking for 20 years before reinventing himself and following his passions—becoming a bar back to bartender and master mixologist and penning his six cocktail-focused books. Warren crafted Klaus with knowledge gained from years of experience in the mixology and culinary worlds and with his strong enthusiasm for cannabis.
Aaron Green: How did you get involved in the cannabis industry?
Warren Bobrow: It was a happenstance, and it was something that I never considered before. I was working in the traditional liquor industry, and because liquor is inherently a poisonous substance, I was slowly poisoning myself and my mind with the alcohol. I made a conscious decision back in July of 2018 – I was down to Tales of the Cocktail in New Orleans – and I said, “this is my last drink.” I was halfway through a Hemingway, which is absolutely my favorite cocktail to have and that’s what I was known for. That’s the drink that paved the way to a wonderful career on-premises and off-premises doing brand ambassadorship and being a named person within the liquor industry. As with all great careers, this one had to come to an end, or I was going to die because liquor was poisoning me. I was probably about 75 pounds heavier than I am right now. I just didn’t feel myself and I was going to be sick.
So, I decided to take my knowledge of cannabis, which was something that I’ve enjoyed since I was 12 years old – I am 61 now – and put it to use for me in this book, Cannabis Cocktails, Mocktails and Tonics. My first book, Apothecary Cocktails, really did pave the way. I wanted to include cannabis in my early books, but my publisher wouldn’t let me. It just wasn’t time until 2015 when I wrote Cannabis Cocktails, which is all based on the early apothecary. The inspiration for writing the book certainly was from being down in New Orleans and going to the Pharmacy Museum. They had an exhibition of cannabis in the early apothecary, and I knew immediately what I was going to do with the rest of my life. There you have it!
Green: It seems like it was a sharp cut off with the alcohol industry
Bobrow: Yes, like one day to the next, literally. It was absolute. I made the decision; I came back to New Jersey, and I never drank again. I drink a little beer and wine, but I haven’t had a distilled drink in years.
Green: How did the concept for Klaus come about? Was it something that you always had in the back of your mind?
Bobrow: The idea for creating a cannabis infused beverage came from being incarcerated in New York City for smoking cannabis in the street and being taken out of commission for 48 hours, I knew that if I was drinking a cannabis infused beverage like Klaus, which is the one that I created in California, no one would know my business. Of course, when this happened, it was in the early 2000s, so the technology and the pretense just weren’t available yet. But it did put something in my mind. If I was to create a cannabis-infused beverage using my knowledge and experience as a master mixologist, the fear of consuming cannabis would be diminished.
If you look at the book, Cannabis Cocktails, and you see the recipes, they’re not for the meek. They’re really meant for a medical community – someone who needs to really eliminate pain, if you will. Cocktails in the book started at about 250 milligrams of THC, whereas with Klaus they’re 10 milligrams, Two different stories completely!
My inspiration for creating Klaus certainly was from the gnome [Warren displays Klaus, The Gnome]. He’s a star and he’s been all over the world with me. I don’t know why I first started traveling with him. Maybe it’s because he was sitting up there up on my mantle and he told me that he wanted to go out on the road with me. I was traveling all over the world as a rum judge for the Ministry of Rum and for Rum XP. We just show up at food events. I’m a trained chef, I love going to the Fancy Food Show in New York City, and I’d meet people and they invite me out to see their places. Then I started writing for Forbes and I don’t know, my career has been up and down. I’ve tried to follow my dreams ever since I left the corporate world in May of 2009.
Green: Let’s talk about the product.
Bobrow: I just have one SKU right now, which is the Mezzrole named for Mezz Mezzrow, Louis Armstrong’s weed dealer. You can’t make this stuff up. It’s all real.
Green: First, how did you land on the flavor profile?
Bobrow: For someone who’s a rum head like myself, we used to drink rum for breakfast. That’s how you become a rum head. The Mezzrole is based on a Ti’ Punch, which is the national drink of Martinique. Ti’ Punch is usually made in Martinique with rum Agricole, which is a sugar cane-based rum rather than a molasses-based rum. It’s the freshly pressed sugar cane rum before it ferments so it has a lovely floral quality and it’s 100 proof. There’s nothing weak about it!
A Ti’ Punch is freshly squeezed lime quarters, the 100 proof Agricole – one or two ounces – and cane sugar syrup stirred usually with your finger like my old friend Gaz Regan, who’s no longer with us, used to do it. He was known for his finger stirred negronis. I would do it preferably in a clean glass and there’s no ice involved because if you’re on a sailboat, you probably don’t have ice anyway. So, it’s potent. It’s a very potent drink. That’s the basis of the Mezzrole.
The Mezzrole contains a single strain of cannabis. We used a craft, land-raised strain called Hippie Crasher. It’s an indica leaning hybrid that is terpene forward. The Mezzrole utilizes the terpene aromatics of the cannabis strain. So, we have this gorgeous French lime puree that I get made from limes that are sourced down in Martinique. They have a certain oily quality to them and they’re very pungent. They’re very citrus forward and very flavorful.
Then, I’m using a ginger syrup that’s made in what I would say is a Great Britain or Jamaican style called Picketts. It’s from Denver, Colorado. My old friend Matt Pickett, and his late brother Jim created it. Jim was the bartender for Malcolm Forbes on his yacht, the Highlander, when they had it in the waters between me and Palm Beach, or wherever they happened to be on the island. Jim crafted this incredible ginger syrup, which is really authentic. And in later years, it became the Pickett’s ginger syrup that I would use in this beverage because I’m paying homage to Matt’s brother by using his extra hot and spicy ginger syrup in here along with the French lime purée.
The final element – there are only three flavor elements [besides the cannabis] – is rice vinegar. Rice vinegar in this case is something called mirin. There are two different types of mirin. There’s the sweet mirin and then there’s the dry mirin, and Mezzrole utilizes the dry mirin. I didn’t want to add any sugar. Mezzrole is six tenths of a gram of sugar for the entire can, which is eight ounces, 16 calories.
So, to recap, each can of Mezzrole is eight fluid ounces, six tenths of a gram of sugar, ginger, lime and rice vinegar with THC infusion. And it’s not a seltzer!
Green: What was special to you about the Ti’ Punch?
Bobrow: My family had a yacht, and we would go places in the Caribbean. One of the places we would go in the Caribbean was Down Island and they would have drinks like the Ti’ Punch. I remember that it was emblazoned in my brain. It was a drink that got me drunk. It was what sailors did; they got drunk. And you would get drunk on drinks that go back to the days of the pirates, because they probably didn’t have ice on the sailing vessels. So, why should a couple million-dollar yacht make any difference? We had icemakers, but you drink the drink without ice. You drink it like it was drunk in the age of sailing.
I wanted to reinterpret the Ti’ Punch and bring credence and life to that drink by bringing it to life in the Mezzrole. But the Mezzrole has another story behind it entirely. That’s because Mezz Mezzrow, who was a jazz head during the jazz era, brought between two and 4,000 pounds of cannabis up from Mexico, and sold it in Detroit, Chicago and Harlem during the early days of jazz. He made quite a name for himself. At the time, cannabis was not illegal on a national level yet. If you were to ask for a joint or reefer, you might become detained by the police, especially if you were Black. Not only were the police at that time incredibly anti-jazz and anti-Black and anti-cannabis, but they were just anti people having fun! So there had to be code names and a well-rolled cannabis cigarette was known as a “Mezzrole” and that’s what I named the cocktail after.
I’m paying homage to Louis, and I’m friendly with Louis’ daughter, Sharon. She’s the daughter that no one ever knew about. It’s a very interesting story. We’re hopefully going to do something together. I find great inspiration in jazz, and we wanted to pay homage to the role of characters in jazz by creating a beverage that hopefully wouldn’t get us arrested.
Green: Can you walk me through your choice of strain for the beverage?
Bobrow: I work with a company named Vertosa. They are the magicians in the world of nanotechnology emulsions. They’re scientists like yourself, who are upper intellects who dream in color. And the colors that they’ve chosen are the colors of the plant. So, they’ve enlivened the plant chemically through their process. I’m not privy to that process, but I’ll tell you it works. Their emulsion is gorgeous stuff. I just chose the emulsion for my next two SKUs and it’s exactly what I was looking for. It’s slightly bitter, it has depth and character, and we haven’t even added the terpenes in yet. So, it’s well balanced, and it will work exceptionally well with the craft ingredients that I’m working with. I don’t use industrialized ingredients, these are all bartending ingredients, if you will. We do 5,000 can production runs with bartending ingredients. It’s incredible food science. I love it.
Green: What was behind your decision in adding the terpene flavors?
Bobrow: What makes that interesting is no one else is doing it. So, we’re the first again! Not only did I write the first book on cannabis, and cocktails, and tonics, and all that stuff, but I created the first beverage that actually smells like cannabis. So, when you’re drinking one of my beverages, and you drink down maybe a quarter inch, and you put your nose right over the top and smell it, it smells just like the plant along with that ginger and the lime and that tangy quality of the mirin. And it’s spicy. It has an herbaceous quality to it. It’s really uncanny.
Green: Were there any challenges in working with terpenes in a beverage?
Bobrow: Yes, there’s always challenges. First off, I’m here in New Jersey, and the company that I’m working with is in California, so they can’t send me anything. So, I work very closely with a food scientist named Chris Anderson who did my scalability, and he’s absolutely brilliant. His palate mimics my own. I don’t want a sweet beverage. I want a tangy beverage. I want something that has balanced quality and fun and it makes you want to dance. I’m not looking for something to put me to sleep. That’s not my goal in life. Life is very short, and you want to have a beverage that is talkative and doesn’t get you totally destroyed. There are beverages out on the market that have 500 milligrams of THC called syrups. They’re absolutely delicious, but they’re so destructive because they want you to put them in a sugary beverage and drink the whole thing down.
I’m not a kid anymore and I don’t drink like a kid. I drink with sophisticated flavors and make beverages that are memorable. People come to me – and have since the early part of 2009 – and they say things like, “That’s the best cocktail I’ve ever had in my life. How do you do that?” My aim in life is to ruin people for their bartender because I expose all the things that our bartenders are doing to rip them off.
I started as a bar back and I worked my way up. I went to this guy named Chris James, who was working at The Ryland Inn running their beverage program. I needed a job, and he hired me as this bar back for a year and they kicked my butt. After that I could write about this stuff with knowledge and not just with something I read in a book. There’s a lot to be said for education and going to bartending school. There’s also a lot to be said for cutting your own ice and squeezing your own juice and taking out the trash.
Green: What are some of the challenges you are facing at Klaus?
Bobrow: We’re hoping to do a Series A round of financing. I wonder who would be interested in lending to us or giving us money or investing in us. I always wonder why anyone would be interested in any of this! But I have a talent and a passion, and I know that it will take me to the next step in life. I’ve waited and been very patient. I have massive shoes to fill, and I’m so committed to being ambitious.
I was an executive assistant in a Trust Bank for 20 years. I put my life on hold for others because they wanted to make an example out of me. I never became the person that my parents wanted me to become. They wanted me to become a lawyer and I didn’t have the aptitude for that. I had the aptitude for being a creative soul and a creative mind. It just took me 20 years longer to be able to achieve that.
I consider myself the luckiest man in the world because I did work for the C-suite and for the top of the house and I sold wine to them when I worked on the nights and weekends in a wine store. My customers were the presidents and “kingmakers of the world.” Here in Northern New Jersey, if nothing else, it’s pretty affluent. So, I’ve long been accustomed to coming from that environment. I know what that environment means and the importance of that environment. I had to figure out how to make it myself because I was, in polite parley, “disowned.” So, I am self-made, and I have a great product that I’ve created out of nowhere. It’s hopefully going to allow me to figure out what the next step will be in my life. I want to make this a national name.
Green: What trends are you following in the cannabis beverage space?
Bobrow: I’ve had some good ones. I’ve had some okay ones. And I’ve had some that are just, I don’t know. I’m a cook. I’m a saucier. I love flavors. I’m trained in France. I cook. It’s a lifelong thing. I started as a dishwasher, and I worked my way up. I’ve traveled the world eating.
I’ll tell you, if you don’t know flavors, you can’t put anything together. And if you don’t know what goes into making a beverage that’s different than what anyone else is doing in the world, then you don’t deserve to be in this business because it’s highly competitive and people play for keeps. If I only get one chance to capture people’s imagination, it comes with this beverage right here [Warren holds up a can of Mezzrole].
Green: What’s next for Klaus?
Bobrow: I hope to be doing Klaus Nein. It’s a terpene forward, non-cannabis infused craft beverage. It doesn’t have any THC, so I can sell it everywhere. I caught the travel bug years ago, when I was traveling all over the world for the rum business. And I got it back again. I hate that the world became such a small place during COVID. Because it really is a big place. And it’s a place that I need to explore more of. Stay tuned!
Green: What are you most interested in learning about?
Bobrow: You know, it’s funny. I think everyone that I come across I can learn something from. My teachers at Emerson and later at MIT, where I spent a fitful year, taught me that I wasn’t the smartest person in the room, but I certainly was the most inquisitive. So, I want to be known as someone who has pretty good listening skills. I also have great skills in the way of trying to draw out answers from people. So, I have a lot to learn and I’m excited about the opportunity of learning. If I can share a little bit of my knowledge with other people within the industry and they respect me for what I’ve achieved, then I’ll be a much happier person. I’m already happy. I’m very lucky. I am the luckiest guy in the room.
Green: Thank you Warren. That concludes the interview!
Benjamin Franklin famously advised fire-threatened Philadelphians in 1736 that “an ounce of prevention is worth a pound of cure.”
With industry growth and maturation comes increased opportunities and challenges. As the cannabis business matures and spreads into new geographic regions, the industry can take advantage of larger markets; however, it also faces increased risk and litigation across a myriad of its operations. This article identifies some of those growing pains along with suggesting how to avoid the more obvious and typical types of issues before they become a problem.
Contracts/Commercial Agreements
One source of emerging trends in cannabis litigation notes that about 1/3 of litigation in 2022 could be classified broadly as commercial disputes. As the various state laws allow for expansion of legal cannabis operations into more states, operators will enter into more commercial agreements to grow and scale operations across the United States.
I am surprised by how many companies do not adequately document their commercial agreements. A host of issues too numerous to discuss in depth here should be addressed in a commercial agreement depending on the type of transaction. In short, make sure agreements are in writing, signed and include an effective date. They should be complete and unambiguous, allocating responsibilities and risk as intended.
Fundraising
When fundraising, whether as debt or equity, a company must comply with complicated and technical U.S. and applicable state securities laws. These laws and regulations require either the registration of the securities offering, which is very expensive, or an applicable exemption from a registration. Failure to comply could lead to lawsuits filed by investors trying to recoup all their money, even if they have no damages, along with possible fraud claims or fines and penalties imposed by applicable federal or state agencies.
Landlord-Tenant disputes
When renting commercial real property, create agreements that address the major issues in writing in case of disputes with property owners. Understanding the lease terms and requirements, as well as tenant rights and duties under state and local law, are essential. Pay attention to lawful uses, minimum term and renewal options, operating expenses and tax requirements, tenant default issues, base rent and other rental charges, common area maintenance charges, maintenance and repair, tenant improvement requirements and allowances, sublet and assignment, and requirements for the refund of the security deposit.
Employment
A common area of misunderstanding that leads to disputes is the law governing employee relations. Companies often misclassify employees, creating valid claims for past due benefits, fines and other damages for failure to classify correctly. In California, for example, correctly classifying a worker as an independent contractor is difficult. Some common mistakes to avoid include:
Designating non-exempt workers as exempt and misclassifying employees as independent contractors.
Failure to pay required minimum wages or overtime.
Not providing required meal and rest breaks.
Failure to keep accurate time records for non-exempt workers.
Inaccurate and noncompliant payroll records (aka “wage statements”) with all the required information.
Improperly administering leaves of absence, especially for employees with medical conditions or disabilities.
Not carefully documenting performance issues by using performance reviews, or “writing up” poor performance, etc.
Failure to have a written employee handbook covering important policies such as vacation and required conduct, as well as misapplying those policies, can lead to disputes. Pay attention to state and local employment laws that apply at the different stages of development and growth.
Intellectual Property
Protecting the company’s intellectual property is important to maintain the goodwill and value of a business. Carefully evaluate the requirements for any patent, trademark, copyright, and/or trade secret protection and come up with a plan to implement and monitor the applicable intellectual property assets. Do not disclose possible patentable intellectual property and inventions before filing a provisional patent application, or the ability to obtain patent protection will be destroyed. Before using a tradename or trademark in commerce, investigate if anyone else is using a similar name for similar goods and services. Failure to do so could lead to claims for infringement and a judgement requiring the company to stop using its preferred name or logo after investing time and money in creating the brand. Consider registering at the state and federal level the name and logo to secure your rights in the brand. What and where a cannabis company can register its brand name and logo for protection are currently limited, so be advised registration can be tricky.
Trade secret protection attaches to valuable information not readily ascertainable by lawful means, such as a formula, pattern, method, device, compilation, program, technique, or process that is secret. Protection afforded to trade secrets does not expire if the information is kept secret. For instance, the Coca-Cola formula has been kept secret for over 100 years, thus maintaining its value. Companies must also implement and maintain appropriate measures to protect the inadvertent disclosure of the information in order to maintain an asset’s status as a trade secret. Before disclosing any confidential information, make sure to have a proper written confidentiality agreement in place with the recipient, or you may lose the protection afforded by trade secret law.
Hiring the right workers to develop valuable intellectual property is important to the success of any business. Make sure to have employees and contractors assign their interests and ownership rights to the work they create, and develop a written invention-assignment agreement in favor of the company to avoid ownership disputes. Interests in copyrightable works created by service providers must be assigned in a written agreement. Failure to do so could diminish the company’s value.
Taxes & Licensing
Sometimes a business unavoidably gets behind in paying its taxes. Failure to pay taxes on time leads to penalties and fines and possible expensive audits by the tax authorities. In addition, personal liability can attach to directors and officers for failure to pay employment taxes. Cannabis companies may have several licensing requirements as well that are important to track to stay in good standing.
Insurance
Adequate insurance is a must-have for every business. Conduct a periodic checkup of the company’s insurance coverage. Consider directors’ and officers’ insurance, general commercial liability and property, products liability, workers’ compensation, employment practices liability coverage, cybersecurity, and business interruption insurance. Those types of coverage are important protections for the risks related to any business that sells a product or service, has employees, deals with the public, or could lose income from unanticipated events like fire, natural disasters and civil interruptions. Discuss your particular insurance needs with a qualified insurance broker, as one size does not fit all.
Consult with Qualified Legal Counsel
Consult with legal counsel to analyze and prepare for the risks noted in this article and other common legal issues to protect the company’s assets, avoid disputes and build and maintain company value. Otherwise, you may find that, as old Ben Franklin noted, you’ll spend many pounds to try to cure problems that could have been avoided with just an “ounce of prevention.”
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