MMLG had an incredible time at the Green Market Summit in Chicago this week. We reconnected with some incredible colleagues within the cannabis space and made some new connections from the enthusiastic audience (to say nothing of learning about the emerging Illinois legal market.) And don’t worry, if you couldn’t be in Chicago yourself, here are five key takeaways from our panel on the economics of compliance and investment.
Investment comes with risks
Even the savviest of investors can have the blinders on when it comes to a “great” deal. That’s why it’s even more important for investors and companies to understand the risks that all should be aware of when it comes to legacy companies.
“A lot of folks on the investment side do not realize the paperwork and history of documentation required in an M ‘n A situation. We caution investors and buyers to have seven years (as required by state law) of documentation to be reviewed and compliant for any acquisition,” explained our director of compliance, Juli Crockett.
Juli’s 100% correct. We handle a lot of M+A and investment work, and this is what sticks out for us from a “troubleshooting” standpoint:
- Manufacturing equipment and facilities need serious $$$ for state and local compliance
- Record-keeping of previous ownership groups. Go beyond the financials (which are still critical) into record-keeping requirements and paperwork. Are the right systems in place to keep track, potentially years backward
- What should investors know about compliance and the risks of non-compliance. Educate yourself or talk to a cannabis consultancy pre-investment. Caveat emptor, people!
Compliance is EVERYONE’s responsibility
Our panelist, Clint Armstrong CEO at GroStaff, said it best: “If you’re expecting to open a cannabis business, expect for the capital requirements to be astronomical. That’s not to scare anyone, either. It’s just a fact. Another fact? It doesn’t matter how much capital you have if you have weak standard operating procedures and insufficient employee training. It’s something we hammer home at GroStaff along with emphasizing appropriate tax work, workers comp. and payroll matters. Compliance is everyone’s responsibility and it starts at the top of your organization.”
Compliance is a great tool for proactive companies
Enough with the fear-mongering. Compliance can be a company’s best friend. “Last summer, right before the July 1 deadline for the legalization transfer window closed, we in California saw a flood of retailers pushing product that was not going to be legal come July 1. But for companies who nimbly prepared for the closing of the window, they were ready to go on July 1 and saw huge sales across the board as they were literally the only legal stores with enough supply for a few days,” MMLG founder Aaron Lachant explained in Chicago.
The takeaway? Having knowledge of regulations, adapting to those regulations and preparing your business means you’re going to be in great shape and not sweating a deadline. Compliance and regulations can appear to be arbitrary and punitive, but they are almost always drawn up and designed to serve as a safeguard for the industry and the consumer. Use compliance to your company’s advantage.
The costs of non-compliance far outweigh compliance
The vast majority of violations are not malicious or deliberate. We all understand this, but the costs of non-compliance continue to skyrocket. If you hate paying losing your license/huge fines/going to court/wresting with attorney’s fees, talk to a cannabis compliance consulting firm and figure out some dates that work for you and your team on an internal audit.
Illinois is an extremely exciting place to be right now
We were amazed by the knowledge and enthusiasm of the informed audience at Green Market Summit. The Midwest has so much opportunity for cannabis right now, and Illinois is shaping up to be an incredible hub for cannabis. It’s a little wait-and-see until Pritzker’s plans are finalized, but the engaged and smart entrepreneurs we met in Chicago are taking advantage of this long runway and already drawing up those business plans.