Raising Private Capital in the Cannabis Industry
By Charles Alovisetti, Elliot Y. Choi, and Sahar Ayinehsazian
Sep 29, 2022
Charles Alovisetti, Elliot Y. Choi, and Sahar Ayinehsazian authored a piece for the Bloomberg Law in September 2020 and now share an update on the challenges and journey of raising private capital in the cannabis industry.
Contributed by Charles Alovisetti, Elliot Y. Choi, and Sahar Ayinehsazian, Vicente Sederberg LLP
Despite its overall upward trajectory, raising private capital in 2022 has become an even greater challenge for the nascent cannabis industry than years past. While some of the recent sluggishness can be attributed to the broader economic environment caused by Covid-19, much of the difficulty surrounding cannabis fundraising predates the recent economic slowdown, finding its roots challenges pervasive in the cannabis industry overall. In short, despite new state markets coming online and growing cultural acceptance of legal cannabis, the cannabis industry's returns has disappointed some investors and made some potential investors hesitant.
Even in the face of a continuing challenging environment, there are proactive steps cannabis companies can take to maximize the chance of a successful raise. First, they must get the basics right, as there is a smaller margin for error in this highly regulated industry. Second, they need to understand capital sources for the cannabis industry and how they differ for plant-touching versus non-plant touching or ancillary businesses. Third, they need to determine the structuring and identify regulatory issues at the outset and make a game plan for how to best address them. Finally, businesses need to anticipate and prepare thorough responses to regulatory questions commonly asked by investors.
Current Environment
Cannabis sales have held up remarkably well in 2020 despite (or possibly even due to) Covid-19, with record months reported recently in several states, including California, Colorado, Illinois, and Oregon. However, recent numbers show declines in sales, including lowering prices on cannabis flower in various mature markets. [Continue Reading on Bloomberg Law]