The risk of corruption in state cannabis licensing has once again been highlighted by recent reports that a federal grand jury has subpoenaed at least seven Massachusetts cities, including Boston, for information about contracts between cannabis firms and municipalities. The subpoenas apparently relate to “host community agreements,”  a contract between individual cannabis operators and their host community that is required by state law in Massachusetts.  Host community agreements, and similar arrangements in other states that have legalized cannabis, are well…

Although prosecution of state-legal sales by licensed and compliant cannabis businesses may not be a current priority for federal law enforcement, prosecution of corruption in the industry clearly is. Consider the following, all of which have occurred within the last three months: The indictment of alleged Rudolph Giuliani associates Lev Parnas and Igor Fruman for, among other things, a scheme to make illegal campaign finance donations in connection with a planned recreational marijuana business in Nevada (according to various reports,…

In recent posts, we discussed lessons learned from recent compliance cases in the cannabis industry, and provided a checklist of key due diligence issues. In both articles, we highlighted the importance of independent verification of state cannabis licenses. Unfortunately, it is not always easy to get official information from state cannabis regulators. Information about cannabis licenses is not always public. This is the case in Arizona, where state law prohibits the release of the names of medical cannabis licensees. In…

In a previous post, we discussed lessons drawn from recent compliance challenges in the cannabis industry that highlight some of the consequences that arise without thorough due diligence on cannabis-related business partners (CRB). In this post, we provide a checklist of six key issues to consider when conducting due diligence on partners in the industry. While not intended to be comprehensive, this list is a sound foundation and will help identify areas requiring deeper due diligence. Issue 1: Location of…

The uncertainty of the legal regime governing cannabis makes thorough due diligence on prospective business partners essential for those who want to ensure that they are complying with state law and minimizing their risks of federal investigation. In this two-part series, we first discuss some key compliance lessons from recent events and then offer a checklist for use when conducting due diligence on potential partners. Lesson I: Even “legal” companies sometimes violate state law “It’s o.k. – they’ve got a…