The cannabis industry is suffering through its most challenging period since states began to legalize recreational use back in 2012. Investors are understandably wary of losing their money as cannabis businesses shut down and turn off the grow lights.
The industry is currently dealing with pandemic aftereffects in many state markets: After cannabis was deemed an essential industry and consumer demand skyrocketed during the early stages of the COVID-19 pandemic, a wave of investments significantly expanded supply during 2021 and 2022. Now that sales volume is returning to pre-pandemic norms and growth has slowed, people who jumped into cannabis thinking it would make them rich are simply trying to get their money back.
There is no bankruptcy protection for cannabis businesses due to federal illegality, and fresh capital and/or business loans are difficult to access, so companies face higher rates of failure than in traditional industries. For those who invested in a company that is now struggling, the options for any type of return on investment are limited. With the right cannabis lawyer, however, some positive outcomes can be achieved.
Promissory Notes in Cannabis
Perhaps the best chance of receiving any return on investment from a distressed cannabis company is with promissory notes. Promissory notes are legally binding documents that can be used to secure assets in a company. They are a way of securing an investment to a degree; you might not get everything back, but the notes can be very beneficial.
Whether the business is plant-touching or not, there are assets that the company holds that are of value. If you’re paying close attention to the business and see that it is showing signs of trouble, obtaining promissory notes is critical. Everything from computers to security systems, to expensive extraction machines, to delivery vehicles could be considered. There might not be any cash on hand—and cannabis or derivative products cannot be legally transferred as collateral—so physical items that hold value are sometimes the best options for getting some money back.
Know Your Rights as a Cannabis Stakeholder
Whether you’re a business owner or an investor, a seasoned cannabis lawyer will be able to examine your contracts and other investment documents and inform you of your standing. In doing this, you will have a better understanding of your contingency plans. This is also the first step in preparing for what could end up as a lawsuit against the distressed cannabis company.
Investors should be aware that there could be a significant conflict if there are other investors with different perspectives or opinions on how they plan to get a return on their investment or get some money back. Any valuable assets could cause things to become contentious as the business begins to break down. This is when the assistance of a lawyer becomes essential. Any adversarial scenario among a business’s stakeholders could result in a complete failure to gain any returns.
As one of the top cannabis law firms in Colorado, Cantafio & Song understands the complex nature of the cannabis industry, and how to get the most out of your investment if you are trying to get out of the industry. As a full-service firm, we also assist clients in other areas of law such as criminal defense, estate planning, litigation, real estate, and more. If you have needs in any of these areas, contact Cantafio & Song’s legal team today.