Big Marijuana Enters South Jersey

20191117_140520000_iOS This week Acreage Holdings, one of the world’s largest vertically integrated international marijuana companies, said it was buying “100% of the equity interests” in Compassionate Care Foundation in Egg Harbor in anticipation of the New Jersey’s intention to legalize cannabis for adult recreational use. Compassionate Care Foundation’s vertically integrated operations include licenses for cultivation, manufacturing & processing, and three regional retail dispensaries.

Acreage Holdings already bought a 135,000-square-foot orchid greenhouse in Sewell last year to convert it into the largest cannabis cultivation facility on the East Coast. The company is formed in Canada, with shares traded on the Canadian stock exchange, and has its headquarters in New York City. The company’s chairman announced “This reorganization will result in increased access to affordable medical cannabis for New Jersey’s existing patients in short order. Moreover, we have long believed that upon adult-use legalization, the New England and Mid-Atlantic regions will be the preeminent cannabis market in the U.S. and Acreage is best positioned of any U.S. cannabis company to benefit.”

Acreage Holdings is one of the most politically connected companies in the U.S. It’s board members include former Speaker of the House John Boehner and former Massachusetts Governor and presidential candidate William Weld. Last year the company retained the services of Philip Norcross’ lobbying firm, Optimus Partners, for consulting services. Norcross is the strongest Democratic power broker in south Jersey politics.

Closing of the new purchase agreement is subject to New Jersey state approval. It is unclear how the deal will work, since Compassionate Care Foundation is a nonprofit. Nonprofit businesses do not have shareholders but typically have a provision that remaining equity interests revert to public benefit.

@potCPA is a brand of Tony Novak CPA that supports smaller independent companies and individuals related to the cannabis industry. While we have no opinion of this specific proposed consolidation deal with Acreage Holdings, we generally believe that it is better to keep local marijuana businesses independent for the benefit of the south Jersey community.

Looking past decriminalization

20191117_140520000_iOS This coming week our federal legislature will take up a bill to decriminalize cannabis. Most states, including ours, are attempting similar measures. But my form’s focus isn’t on these proceedings. In fact, we have little confidence in the near term outcome. That timeline really doesn’t matter in the big picture.

What we know is that eventually cannabis will be decriminalized. What then? That will be a beginning, not an end to huge numbers of civil prosecutions of growers, sellers and their supporters. Many entrepreneurs will make mistakes that will cost them small fortunes in payments to the government. My firm is specifically focused on representing the tens of thousands of local entrepreneurs who will face civil tax prosecutions and business license penalty cases to follow that will require an adviser to offer tax expertise, representation before authorities and large picture financial coaching for recovery.

Some call the situation “Prohibition 2.0”. Others see it quite differently. See my short video “Eight Inconvenient Truths About the Cannabis Industry (that nobody is talking about)” for discussion on the current situation.

The news coming from California gives us some insight in what will come here on the east coast. Cannabis is already decriminalized in California. Yet government prosecutions are on the rise. Now it’s all about collecting the money. Approximately 85% of the entire industry remains unlicensed and untaxed. The risk of raids on growers’ events like farmers markets, arrests for selling without a license, and tax prosecutions are a part of daily life for more than a million people in that state alone. The cost of those prosecutions will be devastating to many. Yet it isn’t the end of the world*.

My work focuses on dealing with these post-decriminalization issues that leaves millions exposed to new types of business and financial problems. I’ve always been useful in representing those accused of violating government rules.

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*I don’t mean to belittle the several tragic cases starting with cannabis and ending in suicide or police shootings. Rather, I’m focused on the majority of civil prosecution cases that will be life-altering but not insurmountable.

November 2019 update on cannabis in NJ

Here’s where we are with the insanity and injustice of cannabis law in our part of New Jersey right now.

The state’s next dispensary will open in about a month here in Vineland. Initially the facility will be open for training; its locally grown cannabis supply won’t be available until next year. The facility is financed and supported by some of the area’s most well-connected community leaders.

The state legislature in Trenton is again trying to decriminalize cannabis this month. The effort seems doomed to fail. Some legislators want to delay the decision until after the question is addressed in the 2020 election. New Jersey voters overwhelmingly support decriminalization but have not yet actually voted on the issue.

Meanwhile someone is arrested on cannabis charges every 14 minutes in New Jersey, according to a new analysis by the American Civil Liberties Union of New Jersey. Most of those arrested are minorities. Local police activity reports show that cannabis possession arrests are still common and Cumberland County Prosecutor’s Office continues to prosecute cannabis cases as crimes. Legislation to end the 30,000 annual cannabis arrests is eventually expected to also expunge the records of those convicted in the past.

The role of the CFO in the marijuana business

The role of the small business Chief Financial Officer (CFO) is typically described in four distinct functions. I describe my own CFO role as filling five functions in the emerging marijuana industry.

#1

Recordkeeping

The CFO has primary responsibility to assemble, safeguard, manage and store the financial records of the company. This basic but necessary service is best handled by a person focused and experienced on business records. This may sound straightforward, but I find that almost every business faces challenges keeping and managing necessary records.

#2

Internal controls

CFOs add value by designing, monitoring internal controls. This happens to be the area where management tends to have the least experience and so this important function might be otherwise overlooked, leading to financial losses that could have been avoided. Management often underestimates the risk of fraud and misappropriation; the CFO must keep that risk control front and center.

#3

Communication and reporting

The CFO communicates internally to management and to external stakeholders.

A business needs accurate timely data to make good management decisions. The always-changing type of data, the format, timing and the method of delivery are all important components to consider as part of this function. Management may also need to know how the company is doing compared to the competition or benchmarks established by investors. Managers typically want to know the business is doing now compared to earlier periods.

CFOs also oversee duties related to owners, investors and shareholders and are the primary control of risks related to management fraud and disclosing financial information.

Sometimes the CFO must develop forecasts of future performance and utilize industry benchmarking data.

#4

Compliance

Every company has compliance issues to address with government, and the CFO oversees many of them. Filing and paying taxes is obviously one major burden, but not the only compliance requirement. Marijuana businesses face strict non-financial recordkeeping burdons.

#5

Advocate for management and the industry

The modern CFO is often active as an advocate, negotiator and representative of the company in dealing with new potential customers, government regulators, and investors. I often find myself active through industry associations that leverage the power of small independent businesses.

I am pleased to discuss how an experienced part-time CFO can help your business. Please use the chat box below to send a message or the scheduling link on the right to set a time to talk.

Caution with CBD products

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I talked with two local small business owners this weekend who recently started marketing CBD products in their shops. One is a local health food drink maker and the other primarily markets beauty products. Both were completely unaware of the risks they take in selling CBD products. They are considered MRB (marijuana related business) under the law. They didn’t know that they are subject to some of the same harsh law enforcement actions as a street corner drug dealer.

The implications of being raided by law enforcement are scary (think about Eric Garner, the unlicensed cigarette seller killed by police in a takedown raid) and the many whose lives were ruined by overly aggressive marijuana prosecutions with slim and questionable evidence. Not even to mention the cases where false evidence was introduced to cover up an officer’s action who initiated an improper action and arrest. Today’s MRB entrepreneurs like to think “this couldn’t happen to me”. I presume that’s what Eric Garner thought before his fatal encounter with law enforcement.

Then yesterday there was a case reported where police in Maryland arrested and jailed a middle aged business guy for more than a month. He had no criminal background and police later admitted what they thought was an illegal substance was simply a bad lab test result.

So call me paranoid, but I’m concerned that the risk of selling an unapproved product could be worse than the seller imagines.

One otherwise flawless small business had thousands of dollars in merchandise confiscated and their shop left in shambles after a raid during business hours (not to mention the embarrassment and damage to community reputation). Law enforcement is not responsible for financial damages caused by their actions without lengthy, difficult and expensive legal actions. Another young small business owner faces prosecution action by the local health department for introducing a CDB flavored product into his lineup. Either one could possibly lose their insurance, their banking, their business lease, etc.

I say again and again:

Know the law
Know your business position
Be prepared with a risk management plan
Do not expect everyone in government to agree with your position no matter how well legally grounded.

In summary, selling CBD products is not a decision to be taken lightly. DOn;t assume that becasue hemp products are decriminalized where you live that you are ‘in the clear’. I am pleased to discuss the issue with anyone who has concerns.