We recently reported that the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) was retaining its Bank Secrecy Act marijuana guidance. Last week, a senior official in the Department of the Treasury indicated that, as a result of U.S. Attorney Sessions’ recent actions, FinCEN is reviewing the guidance it issued on February 14, 2014 entitled: “BSA Expectations Regarding Marijuana Related Businesses.” Any rescission of that guidance is likely to have significant effects on any cannabis business using any forms of payments other than cash.

We’ll continue to keep on top of this issue and share our insights as the federal positions evolve.

As we reported last week, U.S. Attorney Jeff Sessions issued a memorandum on January 4 rescinding the seminal cannabis “Cole Memo” and other DOJ guidance involving cannabis. This has raised continuing issues and confusion for financial institutions concerning what the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) would do concerning the guidance it issued on February 14, 2014 entitled “BSA Expectations Regarding Marijuana-Related Businesses.”

This morning, we received the following note from the FinCEN’s Resource Center:

“The SAR reporting expectations outlined in the February 14, 2014 guidance, FIN-2014-G001 remains in place.  FinCEN will continue to work closely with law enforcement and the financial sector to combat illicit finance, and we will notify the financial sector of any changes to FinCEN’s SAR reporting expectations.”

We’ll continue to keep on top of this issue and share our insights as the federal positions evolve.

Determining the fair market value of an interest in a cannabis business is a difficult task. Existing and potential clients frequently ask us how cannabis businesses should be valued and whether or not there are any “trends” in assessing value. These questions are not surprising given the various instances where a valuation is important. You may find yourself asking how much a cannabis business is worth in any of the following circumstances:

  1. Estate Planning
  2. Business Succession Planning
  3. Shareholder/Member Agreements
  4. Business Disputes
  5. Securities Offerings
  6. Dissenter’s Rights
  7. Mergers & Acquisitions
  8. Lending & Finance
  9. Tax Planning
  10. Transfer Pricing

Certified appraisers generally use three different approaches to valuing an asset, including a cannabis business.  Those approaches are:

  1. Asset Approach —Also known as replacement cost. How much would it cost to rebuild the asset?
  2. Market Approach — What are the value-comparable businesses? Relies heavily on the availability of comparable datasets and subjective adjustments.
  3. Income Approach — Commonly used for income-producing real estate. Value is determined using the expected future cash flow of the income-producing asset.

There are advantages and disadvantages to each approach. Furthermore, business owners and potential investors should make valuation adjustments given the inherent risks involved and the speculation of federal legalization. It may be appropriate to discount the value of a business given the inherent risk of federal enforcement. However, it may also be appropriate to inflate the value of a business given the potential impact of federal legalizations.

We encourage our readers looking for additional information from the experts themselves to check out this great blog.

In the past two weeks, the SEC has temporarily suspended two marijuana stocks that trade on the OTC Markets. The suspensions lasting until June 5, involved, respectively, a questionable press release concerning a proposed acquisition and a lack of information provided to investors concerning the company’s controlling interests. While specific to these two companies, it is possible that the SEC may apply more careful scrutiny concerning publicly-traded cannabis-related businesses in the future.

Lane Powell supports the Cannabis Investor Network (CIN) in Seattle.  The mission of CIN is to connect accredited investors with state-legal cannabis businesses that need additional capital.  Lane Powell hosted the inaugural event in our Seattle office earlier this year with about 40 guests, and hosted the second event last night with about twice that number.  Pitches from several segments of the cannabis industry were very well received and everyone seemed to welcome the opportunity to connect with other business people in the industry.  CIN is based in Seattle and open to Accredited Investors and cannabis businesses seeking capital.

How it works:

Those interested in pitching their company to the Cannabis Investment Network begin by submitting their application and materials online through this Deal Funding page. Companies must be beyond the idea phase though they need not have revenue. Candidates for presentation should submit a comprehensive pitch deck, which includes your business plan, financial projections and other relevant company background and information.

Following submission of your application and supporting documentation, CIN will review and evaluate your proposal to ensure it has everything needed to make an informed decision. During this review process, CIN representatives will be in contact with you to source additional details about your company, the management team, operations, marketing plans and financial projections. Once CIN has what it needs and thinks your company would be a good fit to present to its Investor Network, CIN will schedule an in-person meeting or phone screen with you where you walk through your pitch deck.

After the screening meeting, if CIN decides to proceed, CIN will schedule your company to present at an upcoming meeting.

At the investor event, you will be given approximately ten minutes to present and five minutes for Q&A. You should expect that you will be participating with several other companies at the meeting.

Monday, June 20, 2016, was summer solstice. But in Washington, there were two other things to celebrate: a day to recover after the Fremont Solstice weekend, and, for legal marijuana businesses, the first day for the licensed marijuana industry to obtain funds from out-of-state financiers under the new rules from the Washington State Liquor and Cannabis Board (WSLCB).

This post describes the regulatory framework governing loans to Washington-licensed marijuana businesses and the penalties for noncompliance.

Continue Reading Out-of-State, Non-Bank Financing Becomes Available for Washington State Licensed Marijuana Businesses