U.S. Sen. Dick Durbin has proposed a new bill that would bypass federal barriers of marijuana research.
WASHINGTON, D.C. — U.S. Sen. Dick Durbin (D-IL) proposed a new bill that would bypass federal barriers of marijuana research.
The goal of the proposed Expanding Cannabis Research and Information Act is to dive deeper into potential harms and benefits of marijuana in light of the recent marijuana bill Illinois Gov. J.B. Pritzker signed.
The lawsuit echoes similar licensing disputes for Harvest in Pennsylvania, Ohio.
Elevele, a Highland Park, Ill., medical cannabis dispensary, is suing Harvest Enterprises, a multi-state cannabis operation based in Tempe, Ariz. The dispensary’s owners have attempted to terminate a purchase agreement that would have seen Harvest acquiring 100-percent equity in Elevele and increasing its footprint in Illinois.
And there’s the rub: In attempting to terminate the purchase agreement, Elevele’s owners allege that Harvest’s ongoing acquisition spree gives the conglomerate more than Illinois’ cap of five medical cannabis dispensary licenses per owner. During negotiations with Elevele, the Arizona company’s management “repeatedly acknowledged to Elevele that it and its affiliates had the contractual right to acquire more than five dispensary licenses in the State of Illinois,” according to the lawsuit. Earlier this year, Harvest acquired Chicago-based Verano Holdings and its three Illinois retail licenses. By violating Illinois regulations, according to the lawsuit, Harvest would put the purchase agreement (and Elevele’s own operations) in jeopardy.
Read the full lawsuit below.
Harvest disputed Elevele’s attempt to terminate the purchase agreement. “The Termination Notice is invalid,” Harvest assistant general counsel Lazarus Rothstein wrote in a July 23 email to Elevele’s attorney. “Elevele has no basis to terminate the Agreement, and Elevele is not relieved of its obligation to close the contemplated Membership Interest purchase as soon as possible.”
Elevele filed its lawsuit on July 24. The complaint asks that the U.S. District judge compel Harvest to terminate the deal.
“Despite Elevele’s repeated requests,” the lawsuit states, “Harvest has provided Elevele with no plan for how it intends to relinquish any of the excess licenses it has acquired and thus enable the transaction to close.”
Beginning Jan. 1, 2020, adult-use cannabis will be legal in Illinois. The law allows all current medical dispensary license holders to acquire a second site within the first two months of the new adult-use program. Elevele’s owners insist, however, that the “condition of uncertainty” now surrounding its first license will prevent the company from pursuing new opportunities in the adult-use marketplace.
Elevele points out in its lawsuit that this dispute isn’t occurring in a vacuum; the same sort of Harvest ownership conflicts arose in Pennsylvania and Ohio. In Pennsylvania, Harvest ran afoul of state regulators when it pronounced in public statements that it held seven medical cannabis dispensary licenses—more than the allowable five, much like the Illinois situation.
In Ohio, state records suggest that the company had misrepresented its ownership structure in a cannabis cultivation business by “claiming the [Ohio] company was 51-percent owned by a member of an ‘economically disadvantaged group,’” according to the Cincinnati Enquirer. In fact, the owner and CEO of Ohio-based Harvest Grows is Harvest CEO Steve White, who, according to the Ohio Department of Commerce, wields “all powers, functions and obligations customary for a chief executive office of a company.” The state has threatened to revoke that cultivation license.
Elevele LLC v. Harvest Enterprises by sandydocs on Scribd
With Innovative Industrial Properties helping to finance the deal, MMAC sells Los Angeles cannabis campus to DionyMed.
DionyMed, a publicly traded Canadian cannabis brand, is acquiring MMAC’s 1.83-acre cannabis campus in Los Angeles. The purchase price is $13 million in cash and $6 million in stock. Because the real property in this transaction will flow through a real estate investment trust (REIT), the M&A deal functions as two deals in one.
The Canadian cannabis company used a cannabis REIT to do the financing on this deal. DionyMed will acquire the Los Angeles asset from MMAC and then sell the property to Innovative Industrial Properties (IIP) for $13 million; IIP will then lease the property back to DionyMed on a 15-year contract (with two optional five-year extensions).
The IIP leaseback model has been seen across the U.S. in different cannabis markets. For both DionyMed and MMAC, the net result is an acquisition that provides greater access to capital to both buyer and seller. Jonathan Storper, a Hanson Bridgett attorney who represented MMAC in the deal, said that U.S.-based cannabis companies are increasingly looking for creative ways to scale their business. Financing that growth through M&A—and, in many cases, going through public Canadian buyers—can be an effective strategy as competition among U.S. businesses continues to heat up in California and in other state markets.
“The overall issue is this is a maturing industry, but not a mature industry,” Storper says. “It's a growing industry that's looking for financing in a federal regulatory environment that makes it extremely difficult.”
IIP shares trade on the New York Stock Exchange. The company’s ability to work across the U.S.-Canada border and help facilitate a real estate deal like the DionyMed-MMAC deal has brought it into numerous M&A transactions recently. In this leaseback structure, time and money become more flexible variables in a deal.
RELATED: This Company Helps Medical Cannabis Cultivators Access Real Estate Capital
“A leaseback arrangement is useful when a company needs to use the cash invested in an asset for other investments, but the asset is still needed in order to operate,” according to Investopedia.com.
It’s a model that’s led IIP to pick up a 12-state portfolio of cannabis real estate. “We act as a source of capital to these state-licensed operators by acquiring and leasing back their real estate,” according to the company’s information on leaseback strategy. “This allows for the opportunity to redeploy the proceeds into core operations, yielding a higher return than they would otherwise get from owning real estate.”
As a DionyMed press release outlines, the Los Angeles cannabis campus provides the Canadian company:
“This acquisition strategically positions DionyMed as a leader in California’s cannabis market,” Edward Fields, CEO of DionyMed, said in a public statement. “By incorporating MMAC’s Southern California direct-to-consumer fulfillment center, distribution facility, manufacturing hub, cultivation facility and dispensary storefront, with our existing operational base in Northern California, DionyMed is positioned for long-term growth to serve the largest cannabis market in the country.”
For MMAC, the infusion of capital will allow the company to focus on its new dispensary in San Francisco (operating under the name Project Cannabis) and scale its operations in southern California. “The funds will allow them to continue to consider how to grow and scale their business,” Storper told Cannabis Business Times.
“Now that we’ve established our Los Angeles platform, the sale of the property provides MMAC additional working capital to quickly expand its footprint beyond the Los Angeles area,” Cameron Smith, COO of MMAC, said in a public statement. “Further, by partnering with DionyMed, one of the top operators in the cannabis industry, we can utilize their efficient direct-to-consumer cannabis platform to drive increased awareness of our brands.”
The closing of this acquisition allows Green Growth Brands to operate up to 47 dispensaries across Nevada, Massachusetts and Florida.
COLUMBUS, OH, Aug. 1, 2019 /CNW/ - PRESS RELEASE - Green Growth Brands, Inc. has announced the completion of its previously announced acquisition of Spring Oaks Greenhouses, Inc., per the terms detailed on July 29, 2019.
The closing of this acquisition brings GGB's ability to operate up to 47 dispensaries across three key states: Nevada, Massachusetts and Florida.
A Senate committee held a hearing July 23 to hear testimony from cannabis and financial industry stakeholders on the importance of passing the SAFE Banking Act.
As tensions continue to mount between the cannabis and financial industries, policy reform legislation is gaining traction in Congress—namely, the Secure And Fair Enforcement (SAFE) Banking Act.
The Senate Committee on Banking, Housing, and Urban Affairs held a hearing July 23 titled “Challenges for Cannabis and Banking: Outside Perspectives,” where stakeholders from the cannabis and financial industries testified on the need to pass the SAFE Banking Act, or S. 1200, which would allow cannabis businesses to access banking and lending services.
Watch video of the hearing here.
Sponsored by Sen. Jeff Merkley (D-OR), the SAFE Banking Act would bar federal banking regulators from penalizing banks that work with state-compliant cannabis-related businesses, taking action on loans made to those businesses or limiting a depository institution’s access to the Deposit Insurance Fund. The legislation would also protect ancillary businesses from being charged with money laundering and other financial crimes, and would require the Financial Institution Examination Council to develop guidance to assist credit unions and banks in serving the cannabis industry.
The legislation currently has 31 cosponsors in the Senate, and a House companion bill, H.R. 1595, was introduced in February by Reps. Ed Perlmutter (D-CO), Denny Heck (D-WA), Steve Stivers (R-OH) and Warren Davidson (R-OH). The House bill has 206 cosponsors and the House Financial Services Committee approved it in March with bipartisan support.
John Lord, CEO of LivWell Enlightened Health, a cannabis retailer with dispensary locations in Colorado and Oregon, and chairman of the board for the Cannabis Trade Federation (CTF), testified at the hearing, sharing his experience as a cannabis operator.
Read Lord’s full testimony here.
During the hearing, witnesses were asked to describe how banks handle cannabis-related accounts and cannabis-derived funds deposited by industry stakeholders such as attorneys, Lord told Cannabis Business Times. Testimony centered on how the SAFE Banking Act would create a “safe harbor” for financial institutions to help the cannabis industry access banking services, he said.
“As the CEO and owner of a vertically integrated cannabis business in Colorado, my testimony focused primarily on my own experience,” Lord said. “I discussed what it is like to manage a company that generates approximately $100 million in annual revenue, with all retail transactions being conducted in cash. I described the challenges and safety risks involved in running such a business under these conditions, including highlighting when I had no option but to transport $3 million in a gym bag to the Denver IRS office to pay my federal taxes.”
Lord outlined the need for social justice and social equity in the emerging cannabis industry, and how access to banking is necessary to help advance these efforts. “My testimony highlighted the barriers to entry in the industry that exist—and will continue to exist—for those disproportionately impacted by the war on drugs when banking is not available,” he said.
The hearing was historic, according to CTF CEO Neal Levine, in that it was the first time the Senate has debated an end to cannabis prohibition, although the conversation was very tightly focused on banking provisions.
“It was incredibly significant that the U.S. Congress is having hearings on key pieces of cannabis reform legislation as we work towards unwinding prohibition,” Levine told Cannabis Business Times.
And this type of reform is long overdue, he added. “We have reached the stage now [where] 33 states plus the District of Columbia and several U.S. territories have opted out of prohibition in some form. Eleven states, the District and two territories have opted out entirely. We have a situation where we’ve got over 200,000 people working in the cannabis industry every single day, and every single day they report to work, they can be arrested for a federal felony. As an industry, because of this dichotomy between this federal and state law, we get hit with 280E taxation, which means we’re taxed on our revenue, not our profits, and we have trouble even using the bank. … Plus, all the cascading impacts that has on our employees, where employees get denied mortgages and car loans … because of this dichotomy between federal and state law. It is time for Congress to act.”
Indeed, the cannabis industry has faced longstanding tension with financial institutions. Cannabis businesses largely cannot accept credit card payments, and an all-cash model presents an obvious danger to public safety.
“There’s a danger to our customers because people know that people are coming in there with a lot of cash, walking in to potentially buy their product,” Levine said. “There are stories like the one that John told, like he had no way to do an electronic transfer to pay his taxes, so he was forced to show up at the IRS office to pay taxes. They wouldn’t let him go in the back, and he had to stuff the bills into the teller window, three bills at a time. There are endless stories.”
In addition, all-cash businesses present challenges to the government, as well, when it comes to accurately collecting taxes.
“The entire system makes no sense and it’s all based on the federal government treating us like we’re an illegal drug cartel, when we’re operating legally under state and local law with a high degree of regulation, which is why I say Congress must act,” Levine said. “The situation has become completely untenable.”
Overall, Lord found the hearing productive. “I appreciated the persuasive testimony of the two Senate sponsors of the SAFE Banking Act, which included my Colorado senator, Cory Gardner, as they outlined the crucial need for this legislation and set the table for the second panel’s testimony to provide personal experiences to support their statements,” he said. “During the second panel, the committee heard not only from me, but also from bank and credit union representatives who underscored the need to change federal law so that financial institutions can more effectively serve cannabis businesses.”
The SAFE Banking Act is expected to receive a vote on the House Floor this fall, and Lord and Levine see the Senate committee hearing as a sign that the legislation may also gain traction in the that chamber during this legislative session.
“Leaving the hearing, my overall impression was that the committee members present understand the significant need to take action on the issue,” Lord said.
“Sometime in the fall, the SAFE Banking Act should pass out of the full House of Representatives, and this hearing was a key procedural step for the Senate to be able to markup the bill and move it,” Levine added. “There’s a lot of cannabis legislation out there that’s being introduced, but we’re very optimistic about the chances of SAFE Banking passing into law this Congress, and we’re also optimistic about the STATES Act itself possibly being able to pass through this Congress. In the STATES Act, we’ve got a bipartisan piece of legislation that would end the conflict between federal and state law that the president said he would sign. And the SAFE Banking Act and the STATES Act are two very complementary pieces of legislation."
Cannabis Business Times’ interactive legislative map is another tool to help cultivators quickly navigate state cannabis laws and find news relevant to their markets. View More
Eric Sandy
Melissa Schiller