Cannabis News

Cannabis M&A: Will California Allow License Transfers?

Published

9 months ago

February 15, 2024

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Cannabis M&A (short for mergers and acquisitions) in California is much more complicated and problematic than in other states. The biggest reason for this is that licenses are not transferrable, which all but eliminates the possibility of asset sales. In turn, this means that deals are much more complicated for both buyer and seller, and probably kills a lot of potential deals before they start. That might change soon, as the state is considering a bill that would allow license transfers.

Why are asset sales so important in cannabis M&A?

I recently wrote a post for one of our firm’s sister blogs on the top 5 issues buyers face when buying businesses in regulated industries. Here is what I wrote about the difference between “asset sales” and “business sales” in the M&A context:

[W]hen people talk about M&A, they often think of buying the entity (a “business sale”). However, it’s usually better practice to simply buy the assets of a business with a brand new entity (an “asset sale”). In an asset sale, the buyer will generally get all the assets, and not just the physical ones – IP, name, leases, etc. The advantage to doing it this way is that the buyer gets to continue operating the business but doesn’t inherit liabilities associated with the actual entity that sold the assets.

Let me flesh this out a little bit more. A business – say a corporation or LLC – has liabilities. Those liabilities may include taxes, debt, litigation, accounts payable, and so on. Those liabilities are “personal” to the business, meaning they are obligations of the business. If the business itself is purchased, the prior owner (seller) does not magically retain those liabilities and hand over the business free and clear. Even if the seller would agree to that, the buyer would have to get the creditors of the business to agree. And good luck with that.

There are some tools that business sale buyers have, such as making the sellers represent that there are no liabilities, requiring the seller to indemnify the buyer against disclosed or undisclosed liabilities, or even holding back some of the purchase price for a period of time after closing to deal with potential liabilities. To be clear though, these are not perfect solutions and we’ve seen cases where six- or even seven-figure liabilities come to light after the closing, with the seller nowhere to be found.

In asset sales, on the other hand, the buyer will buy some or all of the assets of the original business, including the license (more on that below). This means that the liabilities that are “personal” to the original business won’t follow it and the seller will have to deal with those on their own. This is hugely advantageous for buyers for obvious reasons.

Ok, asset sales are important…why not use them as a default?

The answer is pretty simple – regulation. Here’s what I wrote in that post linked above:

When it comes to regulated businesses, asset sales may not be an option. Regulated businesses may have licenses, permits, or other assets that cannot be sold to an unregulated entity. For example, in California’s cannabis industry, licenses are “personal” to the licensed business and can’t be sold. And the products that business owns can’t be transferred to an unlicensed buyer. In these kinds of regulated industries, asset sales are off the table.

In states like Oregon, where our corporate team has closed countless M&A deals, sales tend to be structured as asset sales. That’s because those states have processes in place to allow licenses to essentially move to different businesses and even possibly different locations.

California, on the other hand, doesn’t do that. For whatever reason, drafters of the state’s cannabis laws chose not to create processes for the transfer of licenses. And neither did state regulators at the Department of Cannabis Control (DCC). In fact, DCC regulations don’t even create an easy pathway for business sales – regulations regarding changes of ownership mandate that an original owner stay with the business for a time post-closing.

This same regulation makes clear that “Licenses are not transferrable or assignable to another person or owner” and, except in one very specific instance, “licensees may not be transferred from one premises to another.” This means that assets sales are off the table.

I should also mention here that California is a dual-licensing jurisdiction, which means that licensees must also have local licenses. Some (not many) localities have provisions in place to allow for license or location transfers, but doing so is difficult if not impossible given the DCC’s rules.

Will license transfers be allowed?

Earlier this week, California Assembly Member Phillip Chen proposed AB 2540. The proposed bill is very short, and the substantive change is to add the blue and italicized phrase to the following existing law:

“It being a matter of statewide concern, except as otherwise authorized in this division, the department shall have the sole authority to create, issue, deny, renew, discipline, condition, suspend, transfer, assign, reassign, or revoke licenses for commercial cannabis activity.”

This is literally all the bill in its current form states, and if the bill progresses through the legislature it is almost certain to be supplemented. While we don’t have a ton of information on AB 2540 just yet, we do have some information about what the purpose is from a 2023 effort by Chen to propose a substantially identical bill, AB 351, which died in committee. A committee analysis of the substantially identical bill from April 18, 2023 states:

Under existing law, DCC does not have explicit authorization to transfer, assign, or reassign a state-issued license. Currently, in order to acquire a license, one would have to acquire the entire company that holds the license (e.g., an LLC) and assume all of its liability. Subsequently, the owner of the company being bought would have to add the purchaser to the license. Once approved and added to the license, the purchaser could then offload the seller from the license. The author and sponsor contend that this process is overly burdensome and having the ability to transfer a license would improve continuity of operations.

I will just assume that this is the same logic behind AB 2540. If so, it hits the nail on the head. Business sales are problematic both because (1) they require the assumption of liabilities (many of which may be undisclosed by the seller or even unknown to the seller), and (2) the DCC has an irrational and unnecessarily complicated ownership change process, which requires at least one original owner to remain associated with a business for a length of time after it is sold.

What the future may hold

Given that Chen’s attempt to pass a similar bill failed last year, I think AB 2450 has a relatively rough ride going forward. That said, if the bill passes, it could open the state up for a host of cannabis M&A transactions that could completely change the industry. Cannabis M&A transactions will probably increase substantially if asset sales are permitted. This would be a huge relief for smaller business owners looking to offload licenses, retire, or just exit the industry.

As mentioned, the bill is in its infancy and has a long road ahead of it, during which time it could be modified or supplemented to the point where it is nearly a different bill. Whether or not that happens, if the bill passes, there is still the issue of local law, which the bill currently does not address. Unless cities or counties decided to follow suit, the state’s changes would be of minimal utility.

No matter what happens with AB 2450, it’s clear that the legislature is beginning to wake up to the fact that the industry is clearly broken and in need of major regulatory overhauls. For just one example, a few days ago, I published a post on an effort to allow integration of the hemp and cannabis industries, which would be an immense change to the status quo. Stay tuned to the Canna Law Blog for more updates on changes to California’s cannabis industry.

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Is Kratom Addictive? Understanding Dependence, Risks, and Safe Usage

Published

9 hours ago

November 12, 2024

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is kratom addictive

Is kratom addictive? Discover the potential for dependence on Kratom, the risks involved with its use, and how to approach its consumption responsibly.

From 2011 to 2017, over 1,800 calls to poison centers involved kratom in the U.S. This significant number highlights the concern regarding kratom addiction.

However, without Food and Drug Administration (FDA) oversight, and due to various consumption methods like teas and capsules, there are significant health risks. Safe use of kratom is now in question due to these issues.

Research debates how dependence develops, outlining signs like loss of control and withdrawal symptoms. These signs are seen in regular kratom users. Ironically, some people switch from drugs like heroin to kratom, looking for a legal alternative.

Understanding Kratom: Origins and Prevalence

Kratom comes from the Mitragyna speciosa tree in Southeast Asia. It can act like a stimulant or like opioids, based on how much you take. People use it in different ways, for a small energy boost or stronger effects at higher doses.

The legal status of kratom in the U.S. is complicated and changing. It’s a hot topic because some worry about its misuse. It’s still legal in several states. This shows how different places handle drug rules. The National Institute on Drug Abuse is looking into its medical benefits. But, the FDA hasn’t approved it for medical use yet. The DEA calls it a “drug of concern,” which means policies might change.

From 2011 to 2017, poison control centers in the U.S. got over 1,800 reports about kratom. This shows it’s widely used and might pose health risks.

Kratom’s main ingredients bind to opioid receptors very strongly, stronger than morphine even. This fact is key to understanding its effects.

As more people use kratom, more are reporting serious health problems. These include liver and heart issues, and tough withdrawal symptoms, particularly in those already sick.

The statistics show mounting worries about kratom in the U.S. As its use grows, it’s becoming more important to health policies and laws. What happens next will depend on further research and legal decisions.

Is Kratom Addictive: Investigating the Substance’s Nature

The question of kratom’s addictiveness focuses on how it affects brain receptors and its long-term health implications. The ongoing debate highlights concerns about dependence and the risk of addiction. Scientists are closely looking at these issues.

How Kratom Works in the Brain

Kratom’s main alkaloids, mitragynine and 7-hydroxymitragynine, bind to the brain’s opioid receptors, similar to painkillers and narcotics. This connection suggests a potential risk of dependence. These alkaloids are key to kratom’s pain relief but also point to possible addiction concerns, especially with frequent, high-dose usage.

Patterns and Consequences of Long-term Use

Using kratom often, especially in large doses, can increase the risk of dependence and intense withdrawal symptoms, similar to opioid withdrawal.

Although some use it for pain or to improve mood, long-term kratom users might see serious health problems, like liver damage and mental health issues.

Withdrawal symptoms, including irritability, nausea, and sleep problems, show kratom’s impact on one’s physical and mental health.

Assessment of Addiction Risks

Studies indicate a significant risk of addiction to kratom, especially with high doses or frequent use. Dependence develops as the body gets used to kratom, leading to tolerance and a need for more to feel its effects. Withdrawal symptoms emphasize this risk, as highlighted by health experts.

Physiological Effects: Kratom’s Impact on the Body

There is a lot of debate about the safety and use of kratom. This herbal extract comes from the Mitragyna speciosa plant. It has drawn attention for its possible harmful effects on the body. The FDA has issued many warnings about kratom, raising safety concerns.

Kratom Adverse Effects: Kratom users have reported side effects like nausea, vomiting, and confusion. More serious issues include high blood pressure and liver damage. These problems highlight the risks of using kratom.

Herbal Extract Safety: Some kratom products contain heavy metals and pathogens. These can cause severe health issues, including death. This shows the importance of safety in herbal products.

FDA Warnings and Regulations: The FDA has linked kratom to over 35 deaths and warns against using it. They point out the lack of medical uses and the risk of addiction.

Physiological Impact: Kratom’s effects depend on the dose and the user’s body. Yet, it can lead to dangerous outcomes like liver damage and seizures.

Safety Concerns from Authorities: Federal agencies like the DEA are worried about kratom’s safety. Although not a controlled substance, monitoring suggests users should be careful.

Kratom might offer temporary relief for some ailments, but it comes with significant risks. The FDA’s warnings should make people think twice. If considering kratom, it’s crucial to talk to a doctor first. Experts stress the need for safety and caution with herbal extracts.

Conclusion

Kratom’s role in health and regulation is complex, with views and research findings widely varied. Some people use kratom for its claimed health benefits, but it’s a hot topic. Experts advise caution and suggest consulting a doctor before using kratom due to the unclear effects.

Clinical studies using scores like SOWS and COWS haven’t confirmed withdrawal symptoms from kratom. This adds to the debate, especially when some users report withdrawal. This makes kratom a controversial subject among different findings and user experiences.

When it comes to treating opioid addiction, kratom can be both helpful and harmful. Some have used it successfully to fight addiction. Yet, some states have banned it. This highlights the need for regulations and consistent product quality. It also raises questions about kratom’s legal status due to mixed actions by authorities.

The situation shows how complex kratom is in the realm of substance use and law. Without clear evidence supporting either its benefits or risks, it poses a challenge. More research is needed to guide regulations and health advice. For now, anyone thinking of using kratom should be careful, seek medical advice, and keep up with laws and health guidelines.

WHAT IS KRATOM ANYWAY? READ ON…

WHAT IS KRATOM AND WHY ARE YOU HEARING ABOUT IT NOW?

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New Rule, December 5: Oregon Cannabis Retailers, Processors and Labor Peace Agreements

Published

10 hours ago

November 12, 2024

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Oregon’s Measure 119 passed last week, as expected. This means that as of December 5^th, every OLCC licensed retailer, processor, researcher and testing lab must secure a labor peace agreement before OLCC will approve a new or renewal license application. The labor peace agreement must be with a “bona fide labor organization.”

I previewed M119 back in September, explaining:

Compulsory peace agreements aren’t anything new in cannabis, although it would be something different here in Oregon. California, for example, requires labor peace agreements for many of its cannabis licensees, and has for many years. We had clients struggle with the concept initially, and we saw some fumbled rollouts, but people eventually adjusted.

Measure 119 further provides that retailers and processors would be required to remain neutral, under the peace agreements, when labor organizations communicate with employees about collective bargaining rights “with any licensure or renewal application.”

M119 may be legally problematic

I’m not a First Amendment lawyer, but it’s not clear to me that an Oregon business can be constrained from speaking with employees– regardless of what M119 provides. Oregon’s speech protections are extremely broad, which is why we have a naked bike ride, tons of strip clubs and no campaign finance restrictions.

I’m also not a labor lawyer, but I’m told M119 could hit a snag on the National Labor Relations Act.

I’ve run these concepts by an Oregon First Amendment lawyer and a couple of labor lawyers, and all confirmed to me that M119 has real exposure. I found that feedback interesting, because M119 sponsors would have understood this when they set out signature gathering. Back in September, I wrote:

The United Food and Commercial Workers Local 555 spent a good deal of money to get Measure 119 on the ballot, rounding up some 163,000 signatures when only 117,173 were required. This follows on a stymied effort to get House Bill 3183 passed last year, which would have accomplished the same thing legislatively.

HB 3183 failed after a couple of advisory letters from the State of Oregon, Legislative Counsel Committee (see here and here). Those letters discussed preemption exposure for what is now M119 under the National Labor Relations Act, The Taft Hartley Act, and other federal laws. Oregon Business and Industry, the largest business group in the state, also submitted opposing testimony, highlighting legal exposure.

As to the First Amendment issues, anyone watching this is advised to follow litigation recently brought by Ctrl Alt Destroy, Inc., on a similar requirement in California.

So let’s see how that goes, and let’s see if anyone in the Oregon cannabis space wants to make a run at litigating M119. For now, credit to UFCW Local 555, I guess, for not giving up and for getting this thing on the ballot. And for having some fun by slipping a Rickroll into the voter pamphlet. I’m sure that won a few people over.

The OLCC process

I don’t have any information yet on what OLCC is going to do ahead of the December 5^th deadline. It’s worth noting that, in addition to California, other recreational cannabis states including New York, New Jersey, Rhode Island, Connecticut and Delaware all have similar requirements. Most likely, OLCC will put out an FAQ page very soon that looks something like this and licensees will need to upload something or other to CAMP with respect to any post-December 5^thapplication or renewal.

As far as OLCC licensees negotiating these agreements, the best approach would be to speak with experienced labor counsel. Labor law is highly specialized, and negotiating a labor peace agreement with any outfit claiming to be a “bona fide labor organization” is not a typical exercise.

For now, this is just one more thing for licensed cannabis businesses to comply with. Please reach out to us if you have any questions or need a referral.

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The CBD Dog Treat Guide

Published

11 hours ago

November 12, 2024

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CBD dog treats good or bad

As the popularity of CBD (cannabidiol) continues to rise, many pet owners are exploring its potential benefits for their furry companions. CBD is derived from the hemp plant and is known for its therapeutic properties, which may help alleviate anxiety, pain, inflammation, and other health issues in dogs. However, when considering CBD treats for your dog, it’s crucial to understand the ingredients that go into these products. This article will delve into the essential ingredients to look for in CBD treats, their benefits, potential risks, and how to choose the right product for your canine friend.

Understanding CBD and Its Benefits for Dogs

Before we dive into the ingredients, it’s important to understand what CBD is and how it can benefit dogs. CBD is a non-psychoactive compound found in cannabis plants. Unlike THC (tetrahydrocannabinol), which can produce a “high,” CBD does not have intoxicating effects. Instead, it interacts with the endocannabinoid system (ECS) in both humans and animals, which plays a crucial role in regulating various physiological processes.

Potential Benefits of CBD for Dogs

Anxiety Relief: Many dogs experience anxiety due to various factors such as loud noises, separation from their owners, or changes in their environment. CBD may help reduce anxiety levels by promoting a sense of calm.

Choosing the Right CBD Treats

When selecting CBD treats for your dog, it’s essential to look beyond just the CBD content. The overall quality of the treat is equally important. Here are some key ingredients you should be aware of:

1. High-Quality CBD Oil

The foundation of any good CBD treat is the quality of the CBD oil used. Look for treats that contain:

Full-Spectrum or Broad-Spectrum CBD: Full-spectrum products contain all cannabinoids found in the hemp plant, including trace amounts of THC (below 0.3% as per legal standards). Broad-spectrum products contain multiple cannabinoids but no THC. Both types can provide an “entourage effect,” enhancing the therapeutic benefits.

2. Natural Ingredients

Just like human food, the ingredients in your dog’s treats matter significantly. Look for treats made with natural ingredients rather than artificial additives or preservatives. Here are some beneficial components:

Whole grains like oat flour or brown rice flour provide essential nutrients and fiber that support digestive health. They are also a good source of energy for active dogs.

Healthy fats are vital for maintaining your dog’s coat and skin health. Ingredients like coconut oil or peanut butter not only enhance flavor but also provide beneficial fatty acids that support overall well-being.

Incorporating fruits and vegetables into your dog’s treats can boost their nutritional value:

To make treats more appealing without resorting to artificial flavors, look for natural flavorings like chicken broth or carob (a chocolate substitute safe for dogs). These ingredients can enhance taste while keeping the treat healthy.

3. Functional Ingredients

Some treats may include additional functional ingredients designed to address specific health concerns:

These compounds are often included in joint support treats to help maintain joint health and mobility, especially in older dogs or those with arthritis.

Probiotics can promote gut health by supporting a healthy balance of bacteria in your dog’s digestive system.

Certain herbs like chamomile or ginger may offer calming effects or aid digestion. Always ensure these herbs are safe for canine consumption before choosing treats containing them.

Ingredients to Avoid

While there are many beneficial ingredients to seek out, it’s equally important to know which ones to avoid:

1. Artificial Additives

Many commercial pet treats contain artificial colors, flavors, and preservatives that can be harmful to your dog’s health. These additives may lead to allergic reactions or other health issues over time.

2. High Sugar Content

Just like humans, dogs do not need excessive sugar in their diets. Treats high in sugar can lead to obesity and dental problems.

3. Low-Quality Fillers

Avoid treats with low-quality fillers such as corn syrup or by-products that do not provide any nutritional value.

4. THC (Tetrahydrocannabinol)

Always ensure that any CBD product you choose contains less than 0.3% THC to avoid any psychoactive effects on your dog.

How to Introduce CBD Treats Safely

When introducing any new treat into your dog’s diet—especially one containing CBD—it’s essential to do so gradually:

Start Small: Begin with a small amount of the treat to see how your dog reacts.

Monitor Your Dog: Observe your dog for any adverse reactions such as changes in behavior or gastrointestinal upset.

Adjust Dosage as Needed: Depending on your dog’s size and needs, you may need to adjust the dosage over time.

Consult Your Veterinarian: Before starting any new supplement regimen, including CBD treats, consult with your veterinarian—especially if your dog has existing health conditions or is taking other medications.

Conclusion

CBD treats can be a beneficial addition to your dog’s diet when chosen carefully with attention to ingredient quality and safety. By understanding what goes into these treats—such as high-quality CBD oil, natural ingredients, functional additives—and knowing what to avoid, you can make informed decisions that support your dog’s health and well-being.

Always prioritize transparency from manufacturers regarding ingredient sourcing and product testing; this will ensure you’re providing your furry friend with safe and effective options tailored to their needs. With proper research and guidance from a veterinarian, you can confidently explore the potential benefits of CBD treats for your beloved pet while ensuring they enjoy a tasty snack that’s good for them too!