Cannabis News

Are 504 Private Placement Security Offerings Allowed in Cannabis Businesses?

Published

2 years ago

March 20, 2023

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We’ve written regularly about the plight of cannabis businesses not being able to secure traditional lending (and other financial services) from major, federally regulated institutions. In this post, we dive deeper into a promising federally regulated equity offering as an alternative funding means: Rule 504 under Securities and Exchange Commission (“SEC”) Regulation D.

Why aren’t banks more involved?

Despite adoption by a growing number of states, marijuana is (still) federally illegal. Federal laws preventing money laundering and other financial crimes create regulatory hurdles so significant for most major banks to service cannabis businesses that it just isn’t worth the compliance burden.

While state-regulated credit unions have stepped up to fill some of the void, institutional lending remains largely unattainable. The remainder of the void is filled by private lenders from the private equity and venture capital crowd and individual investors that require often significant collateral and interest rates that reflect the ongoing marijuana industry risk.

Raising money through private placements

When a cannabis company wants to raise capital through a private placement (sale) of securities, it subjects itself to federal and potentially state securities laws, regardless of whether they are raising through debt, equity, convertible debt, or something more creative like a SAFE (simple agreement for future equity).

What is a security or investment contract? Howey tells us

All private capital raises implicate securities laws. The definition of a security, while complex and fact-specific, in the private capital raise context is most clearly captured by the infamous U.S. Supreme Court case SEC v. Howey Co.

In Howey, the Court held that the catch-all term “investment contract” as used in the Securities Act’s definition of a security includes any contract or scheme where there is: 1) an investment of money; 2) in a common enterprise; 3) with the expectation of profit; 4) to be derived primarily from the efforts of others. Thus, the passive investment of capital into a cannabis business with the expectation of a return based on the success of the cannabis business is a security.

Under the federal securities laws, a company (the “issuer”) may not offer or sell securities unless the offering has been registered with the SEC or an exemption from registration is available. If they can, issuers typically prefer to avoid registration of securities offerings because it’s a lot of work and highly expensive. So, how can a cannabis company offer exempt securities to raise capital?

How does a Rule 504 exempt offering work?

Offerings may be exempt from the SEC’s registration requirements pursuant to Securities Act Section 4(a)(2) or its safe harbor under Regulation D of the Securities Act. Reg D includes Rule 504 that offerors commonly use to use securities without registration. This exemption sits nicely between the traditional Reg A+ public offering and Reg CF crowdfunding offering.

At the risk of oversimplifying, Rule 504 allows for the sale of up to $10MM in securities to non-accredited investors, but the issuer cannot advertise the offering publicly (this is called “general solicitation”). Accredited investors can still be involved and generally do not count against any investor limitations. Accredited investors, generally, have at least $1 million in net worth or income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years.

For most smaller cannabis companies trying to raise capital, their capital needs are often too small for accredited investors to be interested in or do not have access to accredited investors in the first place. Thus, Rule 504’s allowance for non-accredited investors and its relative simplicity becomes a possible solution. We note here that a Rule 504 offering does not preempt state securities registration requirements as other exemptions do, so state law compliance must be taken into account.

Avoiding bad actor disqualification

Like the other Reg D exemptions, Rule 504 contains a “bad actor” provision, which disallows certain people and issuers from being able to avail themselves of the exemption. So, what is a bad actor and do cannabis companies by virtue of trading in a federally illegal substance qualify as one? The short answer is no.

For the purposes of this post, the bad actor provision in Rule 504 disqualifies any issuer from taking advantage of the exception from having to register securities if its directors, general partners, managers, executive officers, or persons with more than 20% voting power of the offeror have certain criminal convictions.

Relevant criminal convictions

Fortunately, all of the convictions and other disqualifying events as stated by the SEC are focused almost exclusively on securities related offenses. While operating a cannabis business is technical unlawful under the Controlled Substances Act, none of the disqualifying events are characterized by violations of federal law not involving securities. So, while the term “bad actor” may seem like it could prohibit a marijuana company from offering unregistered securities under Rule 504, that is not the case.

Indeed, many cannabis companies raise capital by offering exempted securities under Rule 504 and applicable state exemptions. Its allowance for non-accredited investor participation also makes it uniquely suited to the situation many cannabis businesses find themselves in and their capital needs.

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Webinar Replay: Post-Election Cannabis Wrap – Smoke ’em if You’ve Got ’em

Published

12 hours ago

November 13, 2024

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On Thursday, November 7th, Vince Sliwoski, Aaron Pelley and Fred Rocafort held a post election discussion “Post-Election Cannabis Wrap – Smoke ’em if You’ve Got ’em”. Watch the replay!

Key Takeaways from the “Smoke ’em if You’ve Got ’em – 2024 Post Election Cannabis Wrap” Webinar:

Panelists:
- Vince Sliwoski: Oregon Business lawyer specializing in cannabis and commercial real estate.
- Aaron Pelley: Experienced in cannabis law since Washington’s legalization in 2012.
- Fred Rocafort: Trademark attorney working closely with the cannabis team.
Election Results Overview:
- Most 2024 cannabis ballot measures did not pass.
- Florida, South Dakota, and North Dakota saw failures.
- Nebraska became the 39th state to legalize cannabis for medical use when it passed two cannabis initiatives, Initiatives 437 and 438.
Federal and State-Level Developments:
- Medical use is currently legal in 38 states, and 24 states allow recreational use.
- Republican support for marijuana legalization is growing.
Federal Policy Implications:
- Schedule III Rescheduling: The process to move cannabis to Schedule III is ongoing, which could significantly impact the industry.
- Importance of Federal Appointments: The future of cannabis policy depends heavily on who is appointed to key positions in the administration.
International and Domestic Trade:
- Schedule III status could ease import/export restrictions on cannabis.
- Unified control of House, Senate, and presidency might expedite legislative progress.
Economic and Industry Impact:
- Cannabis stocks experienced volatility post-election, reflecting investor uncertainty.
- Federal legalization and banking reforms are crucial for industry stability and growth.
Future Outlook:
- The potential for federal rescheduling remains strong, with hearings scheduled for early 2025.
- State-level initiatives and regulatory developments will continue to shape the industry.

Watch the replay!

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I Had Just One Puff

Published

13 hours ago

November 13, 2024

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one puff of a joint a drug test

“How Long Does One Puff of Weed Stay in Your System?”… This topic can be difficult to answer since it is dependent on elements such as the size of the hit and what constitutes a “one hit.” If you take a large bong pull then cough, it might linger in your system for 5-7 days. A moderate dose from a joint can last 3-5 days, whereas a few hits from a vaporizer may last 1-3 days.

The length of time that marijuana stays in the body varies based on a number of factors, including metabolism, THC levels, frequency of use, and hydration.

Delta-9-tetrahydrocannabinol, or THC, is the primary psychoactive component of cannabis. THC and its metabolites, which remain in your body long after the effects have subsided, are detected by drug tests.

Since these metabolites are fat-soluble, they cling to bodily fat molecules. They could thus take a while to fully pass through your system, particularly if your body fat percentage is higher.

THC is absorbed by tissues and organs (including the brain, heart, and fat) and converted by the liver into chemicals such as 11-hydroxy-THC and carboxy-THC. Cannabis is eliminated in feces at a rate of around 65%, while urine accounts for 20%. The leftover amount might be kept within the body.

THC deposited in bodily tissues ultimately re-enters the circulation and is processed by the liver. For frequent users, THC accumulates in fatty tissues quicker than it can be removed, thus it may be detectable in drug tests for days or weeks following consumption.

The detection time varies according to the amount and frequency of cannabis usage. Higher dosages and regular usage result in longer detection times.

The type of drug test also affects detection windows. Blood and saliva tests typically detect cannabis metabolites for shorter periods, while urine and hair samples can reveal use for weeks or even months. In some cases, hair tests have detected cannabis use over 90 days after consumption.

Detection Windows for Various Cannabis Drug Tests

Urine Tests

Among all drug tests, urine testing is the most commonly used method for screening for drug use in an individual.

Detection times vary, but a 2017 review suggests the following windows for cannabis in urine after last use:

– Single-use (e.g., one joint): up to 3 days

– Moderate use (around 4 times a week): 5–7 days

– Chronic use (daily): 10–15 days

– Chronic heavy use (multiple times daily): over 30 days

Blood Tests

Blood tests generally detect recent cannabis use, typically within 2–12 hours after consumption. However, in cases of heavy use, cannabis has been detected up to 30 days later. Chronic heavy use can extend the detection period in the bloodstream.

Saliva Tests

THC can enter saliva through secondhand cannabis smoke, but THC metabolites are only present if you’ve personally smoked or ingested cannabis.

Saliva testing has a short detection window and can sometimes identify cannabis use on the same day. A 2020 review found that THC was detectable in the saliva of frequent users for up to 72 hours after use, and it may remain in saliva longer than in blood following recent use.

In areas where cannabis is illegal, saliva testing is often used for roadside screenings.

Hair Tests

Hair follicle tests can detect cannabis use for up to 90 days. After use, cannabinoids reach the hair follicles through small blood vessels and from sebum and sweat surrounding the hair.

Hair grows at approximately 0.5 inches per month, so a 1.5-inch segment of hair close to the scalp can reveal cannabis use over the past three months.

Factors Affecting THC and Metabolite Retention

The length of time THC and its metabolites stay in your system depends on various factors. Some, like body mass index (BMI) and metabolic rate, relate to individual body processing, not the drug itself.

Other factors are specific to cannabis use, including:

– Dosage: How much you consume

– Frequency: How often you use cannabis

– Method of consumption: Smoking, dabbing, edibles, or sublingual

– THC potency: Higher potency can extend detection time

Higher doses and more frequent use generally extend THC retention. Cannabis consumed orally may remain in the system slightly longer than smoked cannabis, and stronger cannabis strains, higher in THC, may also stay detectable for a longer period.

How Quickly Do the Effects of Cannabis Set In?

When smoking cannabis, effects appear almost immediately, while ingested cannabis may take 1–3 hours to peak.

The psychoactive component THC produces a “high” with common effects such as:

– Altered senses, including perception of time

– Mood changes

– Difficulty with thinking and problem-solving

– Impaired memory

Other short-term effects can include:

– Anxiety and confusion

– Decreased coordination

– Dry mouth and eyes

– Nausea or lightheadedness

– Trouble focusing

– Increased appetite

– Rapid heart rate

– Restlessness and sleepiness

In rare cases, high doses may lead to hallucinations, delusions, or acute psychosis.

Regular cannabis use may have additional mental and physical effects. While research is ongoing, cannabis use may increase the risk of:

– Cognitive issues like memory loss

– Cardiovascular problems including heart disease and stroke

– Respiratory illnesses such as bronchitis or lung infections

– Mood disorders like depression and anxiety

Cannabis use during pregnancy can negatively impact fetal growth and development.

Duration of Effects

Short-term effects generally taper off within 1–3 hours, but for chronic users, some long-term effects may last days, weeks, or even months. Certain effects may even be permanent.

Bottom Line

The amount of time that cannabis remains in your system following a single use varies greatly depending on individual characteristics such as body fat, metabolism, frequency of use, and mode of intake. Frequent users may maintain traces of THC for weeks, whereas infrequent users may test positive for as little as a few days. Hair tests can disclose usage for up to 90 days, while blood and saliva tests identify more recent use. Urine tests are the most popular and have varying detection durations. The duration that THC and its metabolites are detectable will ultimately depend on a number of factors, including dose, strength, and individual body chemistry.

PEE IN A CUP COMING UP, READ ON..

HOW LONG DOES WEED STAY IN YOUR URINE FOR A DRUG TEST?

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

Published

1 day 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.