What You Need to Know When Buying a Cannabis Business, Part 2: The Regulatory Environment
Buying a cannabis business does not occur in a matter of days, and transactions fall apart for a variety of reasons, as we discussed in Part 1 of this blog series focused on the buy-side of a cannabis M&A transaction. In this Part 2, we focus on the regulatory environment, discussing concepts that first-time buyers and their attorneys should be aware of.
Navigating Through Federal Illegality
Marijuana remains a Schedule I controlled substance under the U.S. Federal Controlled Substances Act. Many states have enacted legislation and created regulatory frameworks that permit the cultivation, processing, manufacturing, and retail sale of marijuana within their borders.
However, the acquisition agreements, beginning with the term sheet (or letter of intent) and the attorney firm’s engagement letter should clearly acknowledge the illegality of marijuana according to federal law. They should also include provisions relating to future positive or negative changes in applicable laws and regulations (and their uneven enforcement) that may frustrate the entire purpose of the transaction.
Are You Dealing with Marijuana or Hemp?
The 2018 Agricultural Improvement Act (the “2018 Farm Bill”) removed “hemp” from the definition of “marijuana,” and now hemp can generally be considered a commodity much like any other agricultural