ValueWalk’s interview with Whitt Steineker and Jay Wright, partners and co-leaders of Bradley’s Cannabis Industry team. In this interview, Whitt and Jay discuss the importance of the federal Controlled Substances Act, if medical marijuana is legal on a federal level, if Canadian marijuana businesses are safer than American marijuana investments, investment opportunities in hemp-derived CBD, and the future for the marijuana industry in America.
What does your law firm do?
Bradley is a national law firm with a reputation for skilled legal work, exceptional client service and impeccable integrity. We provide business clients around the world with a full suite of legal services in dozens of industries and practice areas – including virtually all legal needs facing cannabis companies as well as companies providing ancillary services to the cannabis industry.
How can firms best navigate the different federal and state laws regarding marijuana products?
There is no substitute for becoming educated about the differences between state and federal law and then truly understanding how the two sets of laws work in practice. The most important law is the federal Controlled Substances Act, which makes it a federal crime to manufacture, distribute and/or sell marijuana anywhere in the United States, no matter what state laws may say to the contrary.
If a company is prepared to move forward manufacturing, distributing or selling marijuana or investing or otherwise assisting a marijuana-related business despite this federal prohibition, the company must take extraordinary precautions to ensure that it is following applicable state and local laws to the letter. Having an attorney that is well-versed not only in federal marijuana policy but also the laws of the jurisdiction(s) in which it operates is essential for marijuana-related businesses.
Can you tell us about the legal landscape for medical marijuana – are there states in which it is still banned? Is it legal on the federal level?
Marijuana is illegal at the federal level for any purpose – including medical marijuana – with extremely narrow exceptions that do not impact the general public. At the same time, nearly three dozen states have implemented medical marijuana programs at the state level, and that number has increased nearly every year for the past decade. That number is likely to increase, but there are still states that follow the federal government’s lead of broadly prohibiting marijuana.
How can companies that deal with recreational marijuana in states where it’s legal or in Canada get funding?
Any company that violates the federal Controlled Substances Act in the United States is faced with the reality that it must recruit investors who are prepared to undertake an investment that itself arguably violates federal law. To be sure, a number of well-known investors and investment groups have invested heavily in the cannabis sector, and many of them are seeing tremendous returns. In fact, it is the potential legal issues related to the investment – ranging from exposure to the controlled substances act to the risk of a civil asset forfeiture that could wipe out the investment and any collateral – that allow these investors to command such attractive returns.
As a general rule, marijuana-related businesses in Canada do not implicate the same concerns because marijuana is generally legal at all levels of government in Canada. For this reason, we regularly advise clients that investments in Canadian marijuana businesses offer a safer alternative to American marijuana investments. Of course, that safety often translates to more modest returns on a percentage basis.
There are a few marijuana public companies; however, it is a young industry – is most of the action in the venture capital space?
Absolutely. And it’s the relative smallness of high-capacity investors that requires marijuana companies to offer attractive rates to those who are willing to lend to the industry.
Every time there is a new gold rush, a lot of unscrupulous players get involved, and this appears to be the case with marijuana. How do investors avoid getting involved with questionable companies?
Question everything. In addition to traditional legal due diligence, your lawyers and advisors should be asking questions to provide assurances that the company is legitimate and licensed, that it is doing what it says it is doing, and that the possibility of returns is based on realistic assumptions. On top of that, ask for professional references and take the time to carefully investigate not only the company but also its management and investors.
With money piling into the sector, are some VC firms going to get into situations where they lose a lot of money to fraud?
What exactly is CBD, and what is the investment picture in that industry?
Cannabidiol (CBD) is one of more than 100 identified cannabinoids in cannabis plants. CBD can be found in hemp plants and in marijuana plants.
The investment possibilities in hemp-derived CBD are staggering, with some analysts predicting that hemp-derived CBD products will be a $20+ billion industry annually.
When did CBD become legal in America (and the same question concerning marijuana)?
The 2014 Farm Bill created a limited market for legal hemp, which is defined as the cannabis sativa L plant containing less than .3% THC. The 2018 Farm Bill opened the door much wider, making hemp broadly legal at the federal level.
Marijuana – the cannabis plant with above .3% THC – remains federally illegal for all purposes. That remains unchanged by either version of the Farm Bill.
Are there any countries that have recently legalized marijuana or plan to? What about banning it?
Canada legalized marijuana in late 2018. Uruguay has done the same. A number of countries in the Americas have taken substantial steps to decriminalize – but not fully legalize – a certain amount of marijuana for personal use. Marijuana remains illegal in many countries throughout the world, although there does not appear to be a broad trend toward more stringent marijuana laws.
What do you foresee in the future for the marijuana industry in America? Can we expect any changes on the federal level?
It seems likely that the trend of states legalizing marijuana (first for medicinal use and then for recreational use) will continue. The federal government does not seem poised to revisit the legality of marijuana in the immediate future, but there are several pieces of marijuana-related legislation pending in Congress with bipartisan support. One such proposal would open the federal banking system to marijuana proceeds and another proposal would leave the question of marijuana’s legal status to the individual states.