Cannabis News

Strategies for Distressed Cannabis Businesses

Published

2 months ago

July 27, 2023

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It’s pretty easy to write about everything that’s going wrong in today’s cannabis industry. Today, I want to change gears and talk about some of the strategies we’ve seen work for distressed cannabis businesses in the past. Yes, some of these strategies may seem obvious at first. But pulling them off correctly – especially in a highly regulated market – may be a challenge.

What I’m about to talk about might not work for every cannabis business and certainly not for every problem they face. And this is certainly not legal advice. The point I’m trying to make is that despite being in an over-taxed, over-regulated, industry on the edge of (if not in) a recession, there may be ways out. So without further ado, here goes:

1. Negotiating with tax authorities

Hands down, the worst problem facing cannabis businesses today is taxation. If you’re not as familiar with that issue, I suggest you delve into my recent post, “Cannabis Taxation is Theft” to see how dire the situation is. At the end of last year, cannabis businesses owed the California Department of Tax and Fee Administration (CDTFA) hundreds of millions of dollars in unpaid taxes. This number is going to keep growing until the state figures out a way to deal with it.

As the CDTFA’s unpaid tax balance balloons, we have seen the agency become increasingly aggressive. It can assess 60% penalties plus interest and other fees for late payments! It can levy assets, report cannabis businesses to the Department of Cannabis Control (DCC) to suspend licenses, and can even go after individual officers or managers of cannabis businesses in some cases. And this is just the state – the IRS has much more power and local tax agencies can be as aggressive as their state and federal counterparts.

As the CDTFA and other agencies have become more aggressive, we’ve developed a practice of negotiating payment plans for a number of clients. CDTFA typically won’t budge on waiving penalties until underlying tax principal has been paid. But that’s the state. Local jurisdictions may operate on completely different wavelengths, and may even agree to a waiver up front. It really just depends on the circumstances of the taxpayer, the tax agency, and the ways they negotiate.

2. Resolving costly disputes in court and before court

I don’t think I’ve ever seen a distressed cannabis business that wasn’t mired in at least one, usually nasty, dispute. In a lot of cases, a company hasn’t paid vendor X, and hasn’t been paid by vendor Y, so the company has to fight on both ends. Sometimes employees sue. Sometimes competitors sue. Sometimes the government files an administrative action. Sometimes they have to sue someone. You get the idea.

It almost seems too obvious to say, but it is key for distressed cannabis businesses to resolve disputes as quickly as possible and as cost-effectively as possible, while avoiding a bad settlement. Going to court, or even taking precursor actions to going to court, are not easy things for people to do. It’s costly, stressful, and has no guaranty of success. A lot of businesses are understandably hesitant to reach out to counsel “until things get too late,” and for a lot of them, things got too late weeks before they did that.

Sometimes, it may seem like an issue will never be resolved, but a simple demand letter gets the other side to pay. Or a cease and desist letter gets the other side to cut its shenanigans out. When things need to be escalated, pre-filing mediation or even early mediation can be an effective tool to avoid costly litigation. Our dispute resolution team has seen plenty of cases resolved out of court or at least early on that could easily have turned into 2-3 years in court. But sometimes that doesn’t work. Sometimes, filing and moving forward with litigation is the only way out. And sometimes a hard-fought dispute leads a business to a massive judgment and recovery of attorneys’ fees.

Again, all of this may seem obvious, because it is – conceptually at least. But navigating difficult disputes to achieve a cost-effective, reasonable outcome is incredibly complicated.

3. Other third-party remedies (both in and out of court)

Sometimes cannabis businesses have specific options that they can use in connection with a dispute or potential dispute in addition to just sending demands or litigating. Those might include:

Taking secured property. Lenders often insist on collateralizing assets as part of a loan. This is called a “security interest” and is governed by Article 9 of the Uniform Commercial Code. Sometimes, even landlords do this. If the debtor defaults and fails to cure its default, the creditor will have the right to take the secured property. Think about repossessing a car. Depending on the state and type of asset, this may require filing an action, but that’s not always the case. And depending on the terms of the security agreement, the creditor may be able to auction the asset or even keep the asset for its own use. So collateral interests can be a huge benefit to cannabis creditors.

Landlord self-help remedies. Some states allow commercial landlords to engage in self-help remedies. This includes changing locks, evicting tenants, etc. If a state (and also a lease!) allows this, it can be a powerful tool for landlords to evict non-paying tenants. But many states expressly bar self-help remedies, and landlords that engage in self-help in these states can find themselves in a worse situation than before.

Appointing a receiver. I wrote about receiverships just the other day, so I won’t belabor the point in this post. A receiver can help get a business back on track, or, if things fail, sell off business assets. This can be an immensely powerful tool for creditors.

Writs of attachment. Let’s say a cannabis business fails to pay money to a creditor. The creditor can take them to court (see point 2 above) but by the time a case is resolved, the cannabis business may be insolvent. If the creditor has good reason to believe that the debtor has assets and will get rid of them, it can file a writ of attachment and have the court “freeze” the assets of the debtor pending resolution of the action. Procedures for getting a writ of attachment vary from state to state, sometimes significantly. But once a bank account is frozen, that money’s not going anywhere and the creditor can rest easy for the duration of the suit. Moreover, once a debtor’s assets are attached, there’s a huge incentive for that debtor to start settlement talks in good faith.

These are just a few of what I think of as the “extra” remedies beyond just filing a lawsuit and waiting for the suit to make its way through the court system. Again, some of these things can be done out of court depending on the contract at issue and depending on state law. Attorneys versed in cannabis dispute resolution can guide creditors and debtors alike through prosecuting and defending against these remedies.

4. Business restructuring

When a state opens up cannabis licensing, there’s usually a mad dash to acquire as many licenses and locations as possible. Over the following years, cannabis business owners begin to realize that some aspects of their supply chain aren’t profitable or don’t make sense for other reasons. Combine this with all of the other costs of being in the industry and the dwindling cannabis economy, those businesses often have to figure out ways to restructure.

One of the most common things we’ve seen over the years is a shedding of assets. Here are some common examples:

Selling an operating subsidiary (a business sale) an operating subsidiary’s assets (an asset sale). This will allow a parent company to sell off one or more “branches” or locations and net some capital that it can use to fund other branches. The problem is this only really works for productive assets. If a company’s subsidiary has no business or very poor sales history, it’s going to be hard to find an interested buyer.

Sale-leaseback deals. In my experience, probably 90+% of all cannabis real estate deals are leases, as opposed to acquisitions, because it’s a lot easier and takes up a lot less up-front capital to lease a parcel of land. Businesses that nevertheless bought real estate and become cash-strapped often try to sell the real estate off and lease it back. Like with a business sale, it means that the seller will have a capital infusion that it can reinvest in its business.

Shedding licenses. If a location is not producing revenue, and there’s nothing else special about it, no buyer will want it. For those assets, cannabis businesses may just opt to get rid of them. I’ve seen this quite a bit over the years with distribution licenses in California. Many cannabis businesses thought a distro license would be a nice addition and help them stay vertically integrated. But for those businesses that never intended to offer distribution as a service to third parties, having a license doesn’t usually mean a whole lot. The ability to do self-transport may end up costing more in licensing, vehicle, employee, and insurance per year than simply paying someone else. So in many cases, businesses may just drop these licenses altogether.

Refinancing past-due debt. As the market for cannabis matures, we’re seeing more established lenders jump into the game. This can mean interest rates and other debt service costs that are lower than a few years ago. We’ve helped plenty of cannabis businesses refinance and secure better loan terms, whether that means lower interest, longer payment terms, or completely different loan structures. Refinancing can be an essential tool for cannabis debtors.

These kinds of restructuring opportunities can shed costly assets and gain money, or better manage mountains of debt– sometimes all at once. But cannabis businesses need to be aware that there are tons of pitfalls if this is not done the right way. For example, restructuring often requires explicit permission from regulators, secured creditors, or even landlords of the property where assets are being sold. And in my experience, these third-party approvals tend to be the hardest, longest, and most complicated parts about a business restructuring. This is especially true for cannabis landlords who, from time to time, can be the worst part of any business restructuring. Failure to consider these types of gating issues at the beginning can not only kill a deal, but it can also lead to license revocation or other penalties.

It’s hard to be a cannabis business owner in 2023. But when things get tough, it doesn’t necessarily have to mean insolvency or dissolution – if a business thinks ahead and picks remedies that make sense given its situation. As 2023 continues to unfold and we continue to see the distressed market under pressure, we’ll be sure to keep writing about all of these topics. So stay tuned to the Canna Law Blog.

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New York Cannabis: License Number Estimates

Published

3 hours ago

October 2, 2023

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During New York’s Cannabis Advisory Board’s meeting on September 26, 2023, the Office of Cannabis Management’s (OCM) Executive Director Christopher Alexander revealed that the OCM anticipated issuing “over a thousand, closer to 1,500 licenses” as part of the initial licensing window that is currently scheduled to open on October 4, 2023. As referenced in this comprehensive summary from John Schoyer of the Green Market Report, the OCM had previously disclosed that the OCM ultimately envisions a market with at least 2,000 retailers and 800 growers.

Executive Director Alexander’s announcement did not provide any insight into how the OCM plans on allocating licenses among the license types that will be available during the initial application window. Nor did it indicate whether there will be any sort of geographic allocations in the same way that the Conditional Adult-Use Retail Dispensary licenses were limited by region.

From an application perspective, it is most interesting (or, more appropriately, alarming), that the OCM’s announcement reiterated the October 4, 2023 application opening date. Although Executive Director Alexander stated that there will be a guidance document published in the coming days, no such guidance document has been published to date. It is difficult to comprehend the doubling down of an application start date with so much in the air and so little time, but, well, here we are.

As we openly begged in our recent plea to the OCM, applicants are still missing necessary application forms and crucial guidance for prospective applicants. We guess we’ll just have to see what happens with New York cannabis licensing as we get ever closer to October 4, 2023. Stay tuned.

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Auto Union Workers Go On Strike and Get 25% Off at Their Local Marijuana Dispensary in Michigan

Published

6 hours ago

October 2, 2023

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auw workers strike

Ultra Cannabis, a recreational dispensary headquartered in Michigan, is demonstrating its solidarity with the committed members and suppliers of the United Auto Workers (UAW) union during the ongoing strike against prominent automakers. In a gesture of support, Ultra Cannabis has unveiled an exclusive 25% discount for all UAW members and supplier associates who provide a valid union ID.

The UAW strike, which commenced on September 15, 2023, has garnered widespread national interest, particularly among Ford Motor Co. employees. General Motors and Stellantis have joined forces to advocate for fair contracts and improved working conditions. As the strike’s effects ripple through Michigan, impacting both families and communities, Ultra Cannabis is steadfast in its dedication to providing vital support to UAW members and their suppliers during these challenging times.

Jonathan Yaldo, the owner of Ultra Cannabis, expressed that UAW members and suppliers are more than just customers; they are our neighbors, friends, and extended family. They are committed to alleviating the financial burdens of the strike, and this discount is a small but meaningful gesture to illustrate the strength that comes from unity in assisting one another.

The 18207 West 8 Mile in Detroit dispensary is extending a 25% discount on all recreational cannabis items to UAW members and supplier associates who can present a valid ID. This offer remains accessible for the entire UAW and supplier strike duration.

Strike Expands To 20 States

The United Auto Workers union escalated its strike against major automakers, with workers at all 38 parts-distribution centers operated by General Motors and Stellantis, the parent company of Jeep and Ram, in 20 states walking out. However, Ford was spared from further shutdowns.

Ford managed to avoid additional strikes because the company had addressed some of the union’s demands during negotiations over the past week, as UAW President Shawn Fain reported during an online presentation to union members.

Fain noted, “Substantial progress has been achieved at Ford. While significant issues still require resolution, it’s important to acknowledge Ford’s genuine commitment to reaching a mutually agreeable deal. However, the situation at GM and Stellantis presents a contrasting scenario.

He emphasized that GM and Stellantis, the successor to Fiat Chrysler, have rebuffed the union’s propositions concerning cost-of-living adjustments, profit sharing, and job security, stating that they will require significant pressure to agree.

GM stated that it had proposed five “historic” offers encompassing wage and job security considerations. GM characterized the UAW’s leadership’s decision to escalate the strike as unnecessary, alleging that personal agendas drove it.

Stellantis, on the other hand, asserted that it had presented “a highly competitive proposal.” They claim to offer all current full-time hourly employees with earnings between $80,000 and $96,000 within four years and seven months, focusing on “workforce stability” during that period. The company reported that the UAW had yet to respond.

Instead of targeting additional production plants on Friday, the UAW directed its actions toward the distribution centers responsible for supplying parts to car dealer service departments. This strategic move could involve consumers in the dispute if dealers experience shortages of essential elements.

According to the UAW, more walkouts are expected to impact 5,600 more workers and the nearly 13,000 who initiated strikes last week at three Ford, GM, and Stellantis assembly plants. The initial strikes will persist, as confirmed by the union.

It’s worth noting that the UAW continues to refrain from targeting plants responsible for producing Detroit’s best-selling vehicles, such as the Ford F-150 and Stellantis’ Ram pickups. These models account for a significant portion of the companies’ revenue and profits. This approach reflects the union’s strategy of gradually intensifying the strike’s impact on the automakers.

Impact of the Strike

Deutsche Bank analysts have estimated that General Motors (GM), Ford, and Stellantis have collectively lost production of more than 16,000 vehicles since the strike commenced. This strike began at a Ford assembly plant near Detroit, a GM factory in Wentzville, Missouri, and a Stellantis Jeep plant in Toledo, Ohio.

Alongside this, Anderson Economic Group, a consulting firm in Michigan specializing in industry analysis, has calculated that the strike has inflicted approximately $1.6 billion in economic damage. This damage includes over $500 million for the automotive companies and more than $100 million in lost wages for striking workers and those laid off.

So far, the strike has led to the temporary layoff of approximately 6,000 workers by the automakers and some of their suppliers. General Motors even had to close down a factory in Kansas that depended on parts produced at the Wentzville plant.

However, the strike’s impact on nationwide car dealerships has not been evident. Analysts suggest it will take a few weeks before a significant shortage of new vehicles becomes apparent, though prices may increase sooner if a prolonged strike prompts panic buying.

Amid negotiations, the union is pushing for wage increases of around 36% over four years, citing the carmakers’ substantial recent profits and high CEO compensation as justification.

The companies, in response, have offered a little over half of that amount, citing their need to invest in transitioning from gas-powered vehicles to electric ones. Some of the union’s demands, such as 40 hours’ pay for a 32-hour work week, have been outright dismissed.

While Ford has made some concessions, including reinstating cost-of-living wage increases and improved profit-sharing and job security, significant gaps still exist in critical economic issues.

The union has been negotiating concurrently with all three Detroit giants instead of focusing on one company and setting a pattern for contracts at the others. By favoring Ford after a week of negotiations, the UAW is following its traditional bargaining pattern of securing the best deal from one company and expecting the others to match it.

The recent escalation of the strike, targeting parts distribution centers, could quickly impact GM and Stellantis. According to analysts, this strategic move is seen as a bold and potentially risky poker move by the UAW. However, some experts believe involving current owners of GM and Stellantis vehicles in the dispute may backfire on the union as those needing car repairs may not be sympathetic to the strike.

Despite the strike expansion, it involves only a fraction of the UAW’s total membership, allowing the union’s strike fund to last longer as most members continue to work under the expired contract and contribute to the fund. However, an extended strike raises the risk of division among workers receiving entire paychecks and those receiving strike benefits.

Conclusion

The ongoing strike in the automotive industry is causing substantial economic damage, with both carmakers and workers feeling its effects. The negotiations remain contentious, with significant gaps between the union’s demands and the companies’ offers.

The strike’s impact on the availability and prices of new vehicles is expected to become more pronounced in the coming weeks. The dynamic situation will evolve as negotiations progress and the strike’s effects ripple through the industry.

CANNABIS INDUSTRY AND UNIONS, READ ON…

CANNABIS INDUSTRY WORKERS JOINS UNION, GETS FIRED, WINS JOB BACK!

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3 Skills You Need to Learn if You Want to Get High at Work and Not Get Fired

Published

7 hours ago

October 2, 2023

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high at work not getting caught

Skills to Learn if you want to be able to “Smoke on the Job” without getting Fired!

Life’s necessities like housing, food, and gas just seem to get more expensive by the day. Finding good, stable work to keep up can be a real challenge, especially for stoners. Clocking in sober when you’d rather be smoking definitely sucks. But as technology evolves and new fields emerge, fresh opportunities arise for making bank from the comfort of home.

In this article, I’ll be covering some lucrative skills worth exploring if you want to be able to smoke cannabis while you work. I’m not talking about slacking off – you’ll still need to deliver results. But mastering these areas can land you sweet remote gigs or steady contracting that afford flexibility. Just imagine taking client calls or meetings with a joint hanging from your lip!

The key is finding roles revolving around freelancing, consulting, or specialized technical skills. When you have in-demand expertise instead of being easily replaceable, you gain leverage to dictate your own working conditions. Set your own hours, bring your own habits.

Of course, fields like manual labor or food service on location won’t fly for wake and bake. But the virtual domain offers many cannabis-friendly ways to profit. With the right skills, you can earn income on your schedule from anywhere. Who says you can’t build a career you love while loving the flower? Let’s get started!

3D Design – Figma, Canva, Blender, Unreal

The world of 3D design has opened up immensely in the past decade, allowing creatives new avenues to generate income. With free software like Figma, Canva, Blender, and Unreal Engine, anyone can start crafting unique digital works and assets. The skills scale exponentially too.

For example, Figma allows you to easily design websites, apps, prototypes, presentations, graphics, and more. It’s an incredibly intuitive and flexible platform. With practice, you can specialize in UI/UX design, landing pages, wireframes, or even entire interface systems.

Similar story with Canva – start by making social graphics and editable templates. But master visual communication and branding approaches to offer social media kits or visualized strategy decks. The deliverables span far and wide.

With Blender, both 3D modeling and animation are at your fingertips. Build environments, prototype products, create text/logo intros, animate characters, the list goes on. Pick a specialization and build a stunning portfolio.

Game design and interactive 3D experiences are possible with Unreal Engine. Craft immersive worlds, program gameplay mechanics, and bring digital creations to life. The core skills apply across industries.

The beauty is that these emerging design mediums are cannabis-friendly. You can spark your creative flow while working from anywhere. Brand yourself for what you uniquely offer – the baked artistry sells itself. As long as you manage time and meet expectations, you can excel while exhaling.

So if you want design skills enabling location freedom and wake ‘n bake workflow, look no further than 3D. Make the digital realm your oyster while paying the bills your way.

Become a “Code Monkey”

Learning to code is like being handed a money printing machine. With so many businesses going digital, programmers have become incredibly valued in every industry. And the opportunities span far beyond just web development.

For example, mastering Python can let you build chatbots, machine learning apps, dynamic web backends, scripts to automate tasks, and much more. As AI proliferates, that skillset pays dividends. Just look at all the sites offering “free trials” before charging monthly subscriptions for basic chatbots. Build it for them once and collect a nice check.

App development is another lucrative path. Flutter for cross-platform mobile apps, React Native for iOS/Android, Swift for native iOS, etc. So many businesses want their own branded apps these days – be the one selling them polished products.

Or dive into backend with Node.js, Django, Ruby on Rails. Every site needs smooth user interfaces but also complex databases and infrastructure behind the scenes. Specialize in transforming concept to reality.

With research and consistent practice, you can level up your expertise in any of these areas. It’s never been easier to access the training for free. Identify high-demand skills and commit to mastery.

The beauty of code is that results matter far more than process. As long as you meet project expectations, clients don’t care if you’re baked around the clock. Just be that anti-social code monkey who delivers gold in exchange for green!

AI-Money Mastery

Artificial intelligence has handed creative entrepreneurs an unprecedented money-making tool. As AI content and image generators explode in sophistication, the real value lies in applying them strategically. With know-how, you can systemize passive income while you chill with cannabis.

For instance, websites like ChatGPT, Anthropic, and Copy.ai offer conversational AI capable of generating marketing copy, articles, emails, social posts and more. Feed it prompts aligned to your audience and curate the outputs into dank content.

You could rapidly build a publication in your niche fueled entirely by AI. Or offer “Done for you” services for clients based on AI content personalized to their brand. Set it and profit while the robot cranks.

Graphic AI platforms like Midjourney, Stable Diffusion, and DALL-E 2 enable ostensibly unlimited image generation tailored to any concept. Want trippy psychedelic designs for merch? How about AI-generated landscapes for prints you can sell? The possibilities are endless.

Combined with print-on-demand services like Redbubble, Society6, and Etsy, you have instant potential for passive income. Upload AI art to products people can buy with no upfront investment or risk to you. Ka-ching while you kick back.

And we’ve only scratched the surface of AI’s potential. Chatbots to automate customer service, AI tools to streamline SEO, leveraging algorithms to mass produce Youtube Shorts or TikTok videos – the applications abound.

Of course, blindly throwing AI at money-making schemes won’t work. You need an intuitive understanding of what resonates with humans. But blend that creative instinct with AI’s untiring output, and you have a cash cow.

Be one of the innovators who recognizes AI’s strategic potential early. Let the robots work while you reap the rewards. The sky’s the limit to tap new markets and optimize existing ones. Just don’t get too stoned and let your AI moneymaker become sentient!

Become a Headshop!

Owning a cannabis culture store or headshop can be an incredibly rewarding venture for stoner entrepreneurs. I’ve known two friends who started from scratch and grew successful regional chains. With the right hustle and passion, you can make this dream a reality.

My buddy Daniel began with a tiny rented space in a flea market-style mini mall. He curated quality glass pipes, vapes, and accessories while providing stellar customer service. Within five years he expanded to 4 prime locations, including a two-story flagship store in the mall.

Another friend, Lalo, couldn’t afford retail space starting out. So he created compact display cases of pipes, grinders, rolling papers etc. Then arranged deals with venues to place them there for a split of sales. Before long he had dozens of cases spread across different high-traffic stores, bars, even barbershops!

Both integrated social media marketing and inventory management early on. This allowed them to curate precisely to local customer demand and turn over products quickly. They reinvested profits to grow while enjoying the ride.

With a bit of starting capital, you can launch your own specialized oasis catering to fellow stoners. Focus on stellar products that you personally love while providing a welcoming vibe. If your passion shines through, success will grow.

Make it a goal to offer the widest selection of quality gear. Foster community with events and enthusiasm. Be the ultimate hub for all things cannabis culture.

Done right, you’ll have a fun, fulfilling and yes – profitable – venture. Getting to sample products and interact with fellow stoners all day? That’s the dream life right there! Just remember the business basics through the bake sessions and you’re gold.

Of course, the skills you’re going to be learning here is how to run a business. Buying, selling, finding the best deals, knowing what’s hot! You’ll probably mess up and run into some issues along the way – but stick to it and you’ll learn the joys of making money doing something you love!

The Sticky Bottom Line

The bottom line is that technology has leveled the playing field, allowing even the “unschooled” to master lucrative skills and get paid. You just have to actually put in the work to build expertise and a polished portfolio.

Show, don’t tell.

With social media and content marketing, you can establish your brand as a top creator without begging gatekeepers for a chance. Let your projects speak for themselves.

Start by picking a skill that genuinely appeals to you – don’t just chase money or you’ll burn out. If you enjoy the craft, your passion will show through. Build a personal website to showcase your best work prominently.

Stay active posting samples on Instagram, Twitter, Behance, DeviantArt, wherever your audience resides. Social proof matters, so highlight client testimonials and collaborations.

Once you’ve honed your skills and curated an impressive portfolio, it’s time to find work. Browse popular freelancing sites like Upwork, Fiverr, and Freelancer to bid on projects that fit your abilities.

However, cold pitching potential clients directly can be even more lucrative. Find companies you’d like to work with and email them personalized offers to solve their problems. You’d be surprised how many will give you a shot.