3 Things You Should Know Before You Invest in a Cannabis Business


3 Things You Should Know Before You Invest in a Cannabis Business

May 19 2017, by Jessica McElfresh in Federal Marijuana Issues, Legal Blog, Marijuana Business, Marijuana Charges, Medical Marijuana

With the passage of Proposition 64, which legalized the adult use of recreational marijuana, California is set to become the nation’s largest legal cannabis market. Experts predict that the legal marijuana industry will eventually add $7 billion to California’s economy and generate $1 billion in tax revenue once the new regulatory framework is in place.

The immense growth potential of the marijuana industry and the expanding support for legalization among the general population has investors lining up. However, the truth is that cannabis businesses face a number of unique challenges that other industries do not.

If you have questions about cannabis businesses, contact McElfresh Law today at (858) 756-7107. Marijuana business attorney Jessica McElfresh has extensive experience helping businesses establish themselves in this growing industry.

1. Is There an Actual Business or Is It Simply an Idea?

This may sound obvious, but you should confirm that the company and their products really exist. Few marijuana businesses are listed on a major exchange, which means that access to publicly available filings can be limited. This factor can make the cannabis industry more susceptible to investment scams.

You’ll want to be cautious about pump-and-dump schemes, which are still common among publically traded marijuana companies. This is when the individuals behind a publicly traded company artificially increase demand and trading volume in a stock to attract an influx of new investors, thereby driving up the price. After the price has jumped, those same individuals will then sell the stock for short-term profits.

2. Do Your Research

You should do your homework before investing in any business, but that is particularly true when it comes to the legal marijuana industry. It takes a significant amount of capital for a cannabis business to get off the ground and withstand the continuously evolving regulatory landscape.

As with any business, you should review the company’s plan to evaluate whether their projected growth is reality-based, how much revenue they are bringing in, and if their business is sustainable. It is important to remember that federal banking regulations make it difficult for cannabis businesses to access traditional financial services, which increases security concerns and can limit productivity.

3. Check Out Management

It is always a good idea to know who you are going into business with and investing in a cannabis business requires a heightened level of due diligence. You’ll want to verify who actually owns and runs the business and perform a background check on each of those individuals.

Whether you are investing in a business that deals directly with marijuana (e.g. dispensary) or is an ancillary operation, such as a real estate investment trust, management should have the experience necessary to successfully overcome the obstacles that can arise in an ever-changing industry.

How a San Diego Cannabis Lawyer Can Help

The marijuana industry in California has undergone numerous reforms in recent years and is now bracing for a possible crackdown by the Justice Department. If you are starting a new cannabis business, operating an existing marijuana dispensary, or weighing your investment options, there is no substitute for knowledgeable legal counsel.

McElfresh Law offers experienced legal guidance to marijuana-related businesses in and around San Diego and has helped countless clients successfully navigate California’s cannabis industry. To learn how we can be of service to your cannabis business, call (858) 756-7107 today.

Free consultation for criminal defense cases only. A fee is required for medical marijuana business consultations.

California marijuana laws change frequently. For updated information, see the following pages: Medicinal Uses of Marijuana and Recreational Marijuana Business