One-Hit Wonders

Publicly Traded Cannabis Company Plans $500M (!) EB-5 Raise (!!)

Published

2 years ago

March 8, 2023

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Cannabis and business immigration don’t mix. Or at least that’s the conservative guidance we often give clients that come to us with that question. That’s not because a particular investment may not be sound, rather because federal law creates inherent conflicts between immigration eligibility and participating in a cannabis venture.

Kate Robertson at MJBizDaily reported on March 1, on a first of its kind development in the space. Bright Green Corp., a publicly traded company on the Nasdaq exchange is planning to raise half a billion dollars in foreign capital through the U.S. EB-5 program. At first blush, that seems patently insane. But, there are a few important aspects of Bright Green’s proposal and 2022 EB-5 regulations that, at least in principal, make it more of a wildly risky gambit.

Cannabis and immigration

U.S. Immigration law is contained in the Immigration and Nationality Act (“INA”). The INA is federal law and administered by the U.S. Citizenship and Immigration Services (“USCIS”). Similarly, in spite of dozens of states enacting legislation that allows for recreational or medicinal use of cannabis, it remains federally illegal to possess, produce, and sell under the Controlled Substances Act (“CSA”) as a schedule I substance. The INA contains many penalties and bars to U.S. admissibility for violating federal law, including the CSA. Among them are bars to admissibility to the U.S. in the first instance and bars to being able to naturalize as a citizen down the road. For analysis of cannabis and naturalization, see Canna Law Blog posts here and here.

The INA provides that a person who is or has been a knowing aider, abettor, etc. in the illicit trafficking of any controlled substance under the CSA is inadmissible to the U.S. This begs the question: is it the case that an investment in a cannabis business makes a person an “aider, abettor, conspirator” of trafficking in an illicit substance? Not necessarily. Most lawyers would likely say that an active investment, meaning also having a role in running the cannabis business would violate the INA. On the other hand, some may say that a passive investment (not having an active role in running the business) would not. In either case, we rarely get to this analysis because lawful residence in the U.S. is the goal for most immigrant investors. Rolling the dice on an investment with questionable approvability is often an untenable risk.

This might make one wonder, why would Bright Green try to raise capital through investment immigration in the U.S., if there is substantial risk the investment may not be approved in the first place?

EB-5 and cannabis immigration

The answer requires a brief discussion of EB-5. The INA contains an immigrant investor program at 8 USC § 1153(b)(5) that allows foreign nationals to apply for permanent residence by making a minimum investment in a new commercial enterprise in the U.S. that creates or preserves 10 full time jobs as a result. The program, known as “EB-5”, is much more complex but for or purposes here that will do. The EB-5 program has since its creation yielded tens of billions in foreign investment to the U.S. and likewise created or preserved hundreds of thousands of jobs for U.S. workers.

In March of 2022, the EB-5 Reform and Integrity Act (“RIA”) was passed. The RIA contains much needed investor protection provisions and creates a stricter compliance and reporting regime for EB-5 project offerors and regional centers. Regional centers are USCIS approved economic entities that are now required to sponsor any EB-5 project with multiple investors (like Bright Green’s proposed project).

Regional centers now must submit applications called I-956F forms (formerly a voluntary “exemplar” filing) to USCIS before individual investors may file visa petitions. This filing must contain among other things extensive information and certifications about the offeror of the securities, the investment project manager, and all of the offering and investment documentation provided to investors. The filing contains every piece of information USCIS will scrutinize to determine project eligibility for purposes of EB-5 law. If USCIS approves an I-956F filing, that approval “shall be binding for purposes of the adjudication of subsequent petitions [filed by] immigrants investing in the same offering.” Before the RIA this was called an “exemplar” filing.

For many investment offerors with non-traditional projects, getting investors to subscribe to the offering will likely require such pre-approval before offering it to prospective investors. As Kate Robertson pointed out in her article, this appears to be what Bright Green has done. Given that an EB-5 investment in a cannabis business is potentially disqualifying under the INA, the I-956F filing affords the Bright Green the opportunity to have USCIS review the filing and make a binding determination about its eligibility for purposes of EB-5 law before the offering. There is no chance any cannabis company, publicly traded or otherwise, could raise $500 million of foreign investor capital in the absence of pre-approval by USICS. But the question remains, is it approvable?

The Bright Green project

Bright Green states in its press release about the project that it has built a one million square foot greenhouse for an “agricultural complex to be the largest in the world for fully-integrated and federally compliant research and drug manufacturing”. EB-5 investor funds will be used for “for working capital requirements to operate its current greenhouse facilities in Grants, New Mexico”.

While “not yet fully complaint”, Bright Green already has a memorandum of agreement “approving” its operations to supply bulk cannabis to cannabis researchers from the U.S. Drug Enforcement Administration (“DEA”), the agency tasked with enforcing the CSA. In principal at least, if the EB-5 cannabis investment is solely supplying cannabis to approved, licensed researchers pursuant to preexisting DEA approval then that is not “trafficking in an illicit substance” under the INA. This is because it is not a violation of the CSA to produce and sell cannabis to federally approved researchers. The CSA does provide for this kind of production to researchers who have gone through its highly rigorous process of approval.

It should be noted, however, that the company would need more than just a DEA letter approving this proposal in order to actually implement its plan. Further, it’s not at all clear that federally approved researchers need the amount of cannabis that the company’s 1 million square foot facility could generate. For an excellent discussion of Bright Green’s “plan” and its attendant issues, see this Substack post from Shane Pennington and Matt Zorn. Now, it’s certainly possible that only some of the enormous facility will be used for DEA approved cannabis production and other parts of the facility for non-cannabis production of other agricultural products.

With that being said, political winds shape agency action and it’s possible that a conservative administration is victorious following the 2024 presidential election. If federal agency policy like the Stephen Miller crafted, Trump Era USCIS were to reemerge, the consequences for the investors in Bright Green’s project could be nightmarish. Consider if the head of the DEA were to revoke Bright Green’s approval to produce federally legal research cannabis. That would throw the project and therefore the investors’ immigration eligibility into question under any interpretation of the INA. That is to say nothing of the attitude towards legal immigration at USCIS, which has yet to recover from the damage done by the previous administration. It is certainly possible that whatever favorable treatment this project is receiving now from the U.S. government changes course in 2025. Adjudication of EB-5 visa petitions at USCIS is currently taking between 5-7 years, so whatever happens following 2024, it will impact investors in this project.

What’s next?

Bright Green’s raise is ambitious to say the least and its federal cannabis allowance seems dubious. But, if approved by USCIS it would be the first raise of its kind pairing immigration and cannabis. Still, the project’s approvability relies on the DEA’s allowance of the company’s operations under the CSA. If the project is approved by USCIS, that will not mean that immigrant investments in cannabis business writ large are likewise approvable. Our conservative advice on this issue will remain the same until federal cannabis reform takes place, irrespective of Bright Green’s project approval.

We will monitor developments on this prospective raise and all things cannabis and immigration here at the Canna Law Blog.

The post Publicly Traded Cannabis Company Plans $500M (!) EB-5 Raise (!!) appeared first on Harris Bricken Sliwoski LLP.

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One-Hit Wonders

Federal Appeals Court: Pay That Man His Money, Unless That Money Is Illegal Marijuana Money

Published

1 week ago

September 12, 2024

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Good news, bad news if you’re a cannabis operator that owes money to a creditor. But probably bad news for the rule of law.

A federal appellate court has ruled that a cannabis operator is obligated to repay his debts to an ex-business partner, but it raised questions about whether the money used to repay the debt could violate federal marijuana laws.

What does this mean for a cannabis operator and potential investors?

The Facts

As usual, our friends at Law360 set the stage:

A Tenth Circuit panel has rejected a cannabis entrepreneur’s attempt to undo a $6.4 million judgment in a dispute with an ex-business partner, but it ordered a district court to revisit an enforcement order that could require the entrepreneur to violate federal drug law to pay the damages.

A Maryland federal judge entered a $6.4 million damages award against Mackie A. Barch and his company Trellis Holdings Maryland Inc. for failing to restore David Joshua Bartch’s stake in a Maryland cannabis cultivation and dispensary business, Culta Inc.

When they failed to pay up, Bartch filed suit in the District of Colorado seeking an order that would require Barch and Trellis to sell off their equity in Culta to satisfy the judgment, which the court granted.

Barch and Trellis claimed that their ex-partner lacked standing to seek enforcement of the judgment because the order would require them to engage in conduct in violation of the Controlled Substances Act. Cultivating and selling marijuana is legal under Colorado and Maryland laws, but still prohibited under the federal Controlled Substances Act.

The Ruling

The three-judge panel sided, in a divided decision, against Barch and Trellis. According to the court, Barch and Trellis have no path for relief from the judgment because the law only allows a party to seek such relief for violations of due process.

The rift between the majority and the dissent came down to questions of enforceability and practicality. As Law360 wrote:

The dissent argued that Culta’s business practices – which are illegal under the Controlled Substances Act – should have doomed Bartch’s breach of contract suit from the start. By validating the parties’ contract, the majority has instead decided to “ignore the elephant in the room that is the federally illegitimate business enterprise known as Culta,” Judge Baldock wrote.

“Plaintiff’s cause of action is based entirely upon an illegal contract to establish Culta, notably an enterprise in which federal law recognizes no property interest. I simply do not understand why a federal court would lend legitimacy to any of this,” according to the dissent.

The majority recognized that the trial court’s order could potentially require the violation of federal law but were not willing to overturn the order based on that mere possibility. The majority reasoned that because the order did not specifically require Barch and Trellis to cultivate or sell marijuana, it was at least possible that the debt could be repaid without violating federal law. The case was remanded for further instructions and clarity from the trial court on this point.

The Takeaway

Let’s start with one really obvious point and one just regularly obvious point. First, investors should be extremely cautious when providing funds to marijuana companies. This case illustrates how difficult it can be to recover funds when the source of repayments may largely be the result of federally illegal activity. Second, the marijuana industry is replete with unsavory characters. Sure, many marijuana companies are operated by upstanding businesspeople, but the very nature of the industry and its legal status over the decades make it ripe for those who might not feel compelled to follow the strict letter of the law.

Should you choose to invest in a marijuana company, you should do so with the advice of competent, experienced counsel and you should insist that there are legal methods of recovering your funds should that prove necessary. Doing so may seem a tall task, but with a little diligence you may be able to ensure that your funds are secured by assets that are not subject to the same types of challenges in this case.

And, as with any investment, trust but verify.

Source: https://www.buddingtrendsblog.com/2024/09/federal-appeals-court-pay-that-man-his-money-unless-that-money-is-illegal-marijuana-money/

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One-Hit Wonders

Banking On Buds: The Complex Interplay Between Cannabis And Commerce

Published

2 weeks ago

September 3, 2024

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In the ever-evolving landscape of American policy, the story of cannabis legalization unfolds as a testament to societal change and the complexities of governance. This narrative, however, is not without its dissonances, particularly in the realm of financial services.

Introduction

In a nation marked by its pioneering spirit and the relentless pursuit of progress, the cannabis industry emerges as a vibrant tableau of innovation, marred by the shadows of regulatory uncertainty. As states across the Union chart their own courses, legalizing cannabis for medical and recreational use, they weave a patchwork of policies that stand in stark contrast to the federal government’s steadfast classification of the plant. This discord at the heart of cannabis commerce sets the stage for a deeper exploration into an issue that transcends mere legality, touching upon the very fabric of economic integration and societal values.

The Current Legal and Regulatory Landscape

At the federal level, cannabis remains ensnared in the Schedule I category of the Controlled Substances Act, a classification that denotes a high potential for abuse and no accepted medical use. This designation, rooted in the drug policy of yesteryears, casts a long shadow over the burgeoning cannabis industry, constraining its access to essential financial services and stifling its growth potential. Banks and financial institutions, wary of the legal ramifications of servicing cannabis-related businesses (CRBs), find themselves at a crossroads, caught between the promise of a new market and the peril of federal reprisal.

Cannabis Banking and Legislation Timeline

The following timeline weaves together the historical context, pivotal moments, and potential future developments in cannabis banking and legislation, including the critical role of the SAFE Banking Act and the impact of reclassifying marijuana. It serves as a guide through the evolving relationship between the cannabis industry and the financial sector, highlighting the journey towards regulatory clarity and economic integration.

1970 – Controlled Substances Act (CSA) Enacted: Marijuana was classified as a Schedule I drug, indicating a high potential for abuse and no accepted medical use, severely limiting research, and banking capabilities.
1996 – California Legalizes Medical Marijuana: Marks the beginning of state-led initiatives diverging from federal law, creating a patchwork of regulations, and increasing the need for banking solutions for cannabis businesses.
2013 – Cole Memorandum Issued: Although not law, it provides some protection against federal enforcement in states that have legalized marijuana, signaling a slight shift in federal attitude but leaving financial institutions wary of engaging with cannabis businesses.
2014 – 2019 – Incremental Banking Guidance: The Financial Crimes Enforcement Network (FinCEN) issues guidance for banks on serving cannabis businesses in compliance with the Bank Secrecy Act, but the banking challenges persist due to the overarching federal prohibition.
2019 & 2021 – SAFE Banking Act Proposals: The Secure and Fair Enforcement (SAFE) Banking Act was introduced in Congress, aiming to protect financial institutions that service cannabis-related businesses in states where it has been legalized. Despite passing in the House, it stalls in the Senate.
2020 – Present – Growing Bipartisan Support for Cannabis Banking Reform: As more states legalize cannabis for medical or recreational use, there is increased bipartisan support for federal banking reforms, including the SAFE Banking Act, to provide a safe harbor for banks.
2024 (Not So Hypothetical Future) – Marijuana Rescheduled to Schedule III: In a landmark move, marijuana is reclassified as a Schedule III controlled substance, acknowledging its medical use and lowering barriers for banking and research. This hypothetical future event would significantly alter the cannabis industry landscape. This is happening now.
2024 – 2025 (Future Outlook) – Implementation of the SAFE Banking Act: Following the reclassification of marijuana, Congress passes the SAFE Banking Act, easing many of the remaining financial and banking challenges for cannabis businesses. Financial institutions begin openly serving the cannabis industry, supported by clear federal guidelines.
2025 and Beyond – Normalization and Expansion: With the barriers to banking and finance removed, the cannabis industry sees a period of significant growth and normalization. Financial products and services tailored to the cannabis industry become widespread, and cannabis businesses are integrated into the broader economy.

Navigating the Dissonance: The Case for Reform

Amid the thicket of regulatory challenges and banking quandaries, a beacon of consensus emerges from the legislative realms. On May 2, 2024, the National Conference of State Legislatures (NCSL) issued a compelling appeal to the Department of Justice, urging the reconsideration of cannabis’s Schedule I status. “Currently, a total of 47 inclusive of states, the District of Columbia, and all U.S. territories except American Samoa have legalized cannabis for medical and/or adult recreational use,” the NCSL articulated, highlighting the stark contrast between state-led initiatives and federal policy inertia. This plea for reclassification is not merely administrative; it is a clarion call for alignment, seeking to reconcile the federal stance with the lived realities of millions and the operational exigencies of a burgeoning industry.

Discussion Points

This moment of potential transformation invites a broader reflection on the implications of such a shift. The reclassification of cannabis and the enactment of measures like the SAFE Banking Act could herald a new era for not just the cannabis industry but for American society at large. It prompts us to question the role of federalism in drug policy, the dynamics of change in a conservative sector like banking, and the societal values that underpin our approach to regulation and commerce.

Furthermore, the push for reform illuminates the intricate dance between innovation and regulation. As we stand on the precipice of change, it is imperative to consider how financial institutions can navigate this evolving landscape. The integration of cannabis into mainstream commerce offers a unique opportunity to redefine the relationship between the state, the market, and the individual, challenging us to reimagine the boundaries of entrepreneurship, responsibility, and community in the 21st century.

So…Now What?

The conversation surrounding cannabis banking and federal reform is more than a policy debate; it is a reflection of our collective journey toward a more nuanced understanding of progress, governance, and the human experience. As we ponder the path forward, it is clear that the resolution of this dissonance will require not just legislative change but a reevaluation of societal norms and values. In this endeavor, entities like Ankura play a pivotal role, not as advocates for a particular outcome, but as navigators helping to chart a course through uncharted waters, ensuring that regardless of the direction we take, we move forward with insight, integrity, and an unwavering commitment to the common good.

Solutions: A Blueprint for Navigating the Green Wave Together

In the evolving narrative of cannabis legalization and its implications for the financial sector, the role of consultancy firms becomes not just relevant but indispensable. Amidst this backdrop, Ankura emerges not as a mere participant but as a guiding force, navigating the intricate interplay between regulation, commerce, and innovation. This section, far from a sales pitch, is a contemplation on the utility and insight that Ankura brings to a landscape at the cusp of transformation.

The Art of Navigation in Uncharted Waters

In the realm of cannabis banking, where the regulatory environment remains as fluid as the sea, Ankura stands as the seasoned navigator, charting a course through tumultuous waters. The firm’s approach, deeply rooted in expertise and foresight, transcends the conventional consultancy model. Ankura’s role is akin to that of a cartographer mapping the unknown, transforming the complexities of legislation and market dynamics into a navigable blueprint for its clients.

Crafting Compliance Amid Complexity

The crux of Ankura’s value lies in its nuanced understanding of compliance within the cannabis sector—a field where the ground beneath one’s feet shifts with regulatory whims. The firm’s expertise illuminates the path forward for financial institutions entangled in the Gordian knot of federal and state regulations. Through a bespoke blend of strategic advisory, Ankura empowers these institutions to not only meet the current compliance benchmarks but to anticipate and adapt to the regulatory evolutions on the horizon.

Fostering Growth Through Insight

Beyond the minutiae of compliance, the Ankura vision extends to the broader horizons of growth and sustainability for both financial institutions and cannabis-related businesses. The consultancy’s insights into market trends, consumer behavior, and legislative forecasts act as a beacon for clients navigating the competitive landscape of the cannabis industry. In this capacity, Ankura is more than a guide; it is a partner in cultivation, helping to sow the seeds of long-term success in the fertile ground of opportunity.

A Convergence of Expertise and Innovation

At the heart of the Ankura methodology is a commitment to innovation, a principle that resonates deeply within the cannabis sector. The firm leverages cutting-edge technologies and data analytics to provide solutions that are not only effective but forward-thinking. This approach reflects a broader philosophy: that the challenges of today’s cannabis industry are not roadblocks but catalysts for innovation, driving the development of more sophisticated, transparent, and efficient financial services.

And Finally: A Partnership for Progress

Ankura’s role exemplifies the partnership between expertise and ambition. This narrative is an acknowledgment of the critical role that insight, foresight, and strategic guidance play in navigating the complexities of cannabis banking. As cannabis legislation evolves, Ankura’s contributions are a testament to the power of collaboration and knowledge in shaping the future of industries and economies alike.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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One-Hit Wonders

Driving Under the Influence of Marijuana

Published

8 months ago

January 24, 2024

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No national standard exists to determine how long someone should wait to drive after consuming marijuana. However, experts at the Colorado Department of Public Health and Environment recommend waiting at least six hours after smoking less than 35 milligrams of THC and eight hours after eating or drinking something containing less than 18 milligrams.

For reference, a “typical” marijuana cigarette contains at least 60 milligrams of THC, and most edibles contain around 10 milligrams per serving size. A 12-hour wait is safer, as the high (and subsequent drowsiness) from smoking a typical amount lasts far longer.

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