Adrienne Dean wants to remind people that there are cannabis stores next to pet stores and karate studios. It’s nothing to worry about, but a recurring theme is that the people that govern a state are generally much more conservative than those who live there. Even though there’s medical cannabis in 47 states and three US territories, there’s still a major conflict between state and federal law.
She has been in the cannabis industry since 2018, beginning in Massachusetts, where she started in private practice before going to a larger firm with a national presence at Cogent Law. As a partner for five years, she has a supportive team of people with advanced knowledge who have practiced in their fields for up to 35 years. They have the expertise to help take cannabis companies public.
Overcoming Regulatory Hurdles
Having begun her career as a compliance specialist at Credit Suisse before moving into cannabis, her early experience with institutional compliance informed her approach to licensing and regulatory strategy for cannabis companies.
“The most interesting lesson that was applicable to cannabis is that the regulatory agencies always lag the industry,” she cautioned. “They’re always trying to figure out what industry is doing, and then determine whether they’re okay with that or not.”
In cannabis, “there is no industry without the regulators,” yet people complain about the regulators–especially in Massachusetts.
Nothing in the industry is federally legal, it’s all at the state level. She encourages clients to develop relationships with the regulators they are dealing with because, as she put it, “there’s an opportunity to educate them on what the industry is doing and how [to] do their jobs better.”
When dealing with regulators, numerous hurdles are encountered. Namely, over-regulation underscored by a lack of understanding of what is entailed in the cultivation of cannabis since the people that become regulators are state employees, they’ve worked in the government.
“They may have law degrees, but they don’t understand that this is agriculture,” said Dean.
Operating at the Municipal Level
Dean has represented cannabis businesses before local commissions and at the state Cannabis Control Commission. At the municipal level, a number of financial compliance hurdles can affect a deal’s viability or investor appetite. A company needs to be able to convince town officials that they are a knowledgeable team with financing lined up, able to indicate that there is a plan because municipalities don’t want half-built businesses.
“Having a financier lined up [makes] municipalities feel comfortable with your ability to execute the business, then that’s pretty much all that’s required to get their approval,” she explained. “Make sure that you comply with the zoning requirements.”
Massachusetts House of Representatives recently passed House Bill 4160, which still has to be voted on in the Senate but abolishes the vertical integration requirement and adjusted license caps. It proposes an increase over three years for the license cap from three to six for retailers. But there are caveats as it heads to the Senate.
Since these businesses are federally illegal, they cannot file for bankruptcy. Anybody that has the money to buy them out is being blocked by the current license cap. All a business can do is go into a receivership where somebody else holds assets while creditors divide up what’s left. That bill reserves medical retail licenses for social equity applicants, but medical stores are losing market share to the recreational market, giving social equity applicants something far less valuable than once projected.
Burdens on Small Businesses
There is a tendency to over-regulate things, so many struggle to remain in compliance due to limited resources. There is a lack of continuity of leadership as there has been massive turnover, resulting in over-compliance which is not industry-friendly. Those coming from a legacy background have problems staying in compliance with an endless number of regulations.
“It’s anti-business,” according to Dean. “A lot of the burden falls most heavily on small-business owners.”
Since federal illegality is an issue in terms of interstate commerce, a major issue for business owners are the workarounds in order to make banking institutions certain they are not money laundering. Banks are very conservative, unwilling to get involved until there is no risk. Colorado first started to serve the industry with credit unions that recognized the dangers of having piles of cash lying around. They recognized that these are legitimate businesses, they deserve access to banking too.
Unfortunately, what keeps the largest players out is the perception that there is more risk involved than there actually is. It can become very expensive and frustrating for the bankers that do have those programs, forced to flag things and file SARs (Suspicious Activity Reports) for things that are just standard. It’s incredibly paperwork intensive, so it impacts a company’s profitability as well.
Advice from an Expert
When exploring cannabis funds or businesses, certain due diligence best‑practice steps should be prioritized from a legal‑regulatory finance standpoint. “You need to have run at least one previously successful business. Ideally, a highly regulated business,” Dean advised.
The relationships between a group, the individuals in the company, are key. Ideally, somebody has some kind of financial background or knows how to deal with financing and corporate structuring. Somebody has to do a financial projection. “If you’re motivated, you could probably do it with some community college classes. Show some ability to perform in that realm. Learn a little bit of finance, a little bit of accounting, make friends with lawyers,” emphasized Dean.
Adrienne Dean is out to help people navigate the complexities of operating a cannabis company. To pay it forward, she charges social equity applicants half price for her services and offers up knowledge whenever possible.
“I will answer your question,” she said. “I’m not going to just keep all my knowledge to myself.”
