Good morning, good afternoon or good evening. And welcome to Investing in Cannabis Business. Uh, for Quimbee. My name is Bryan Bergman. I'm an attorney in Los Angeles that has been working with cannabis industry operators, investors and ancillary service providers and real estate owners for many, many years now. Uh, thinking about 2015. And I'm happy to be here today to talk to you about investing in cannabis businesses. Um, it's an ongoing and interesting topic, and it's always good to kind of talk about what it looks like directly about these businesses. I would love to start before I get really into the nitty gritty of this, just to kind of give a quick state of the industry, because I think it's important, um, we've seen a lot of ups and downs in the industry over the last five years or so. Um, as you know, legalization started to take a real hold in the late 20 teens and into. And then cannabis got deemed essential in some states during the pandemic and during the pandemic. And so that absolutely saw a real increase in investment for a time there, and some really big deals that were starting to happen. And Canada also went legal during that time, and there was a lot of discussions about potentially doing mergers into Canada or, uh, public offerings and the like, uh, this this topic is going to talk about directly investing into cannabis businesses and what to watch out for. It's not going to be talking about public offerings or things of that nature. These are private offerings we're going to do today. Uh, but what's going on right now is that the industry is in a bit of a tough lull right now. Um, there was a lot of talk in late 2022 when the last, uh, Congress was ending, session was ending, that there was. Bye bye party support for some pretty important changes in federal reforms, including for banking access and for, um, removal of state legal businesses, being responsible for paying taxes pursuant to 280 of the Internal Revenue Code, which is something I'll talk about a little more in this presentation. But essentially what Qad does is prevents most cannabis businesses from deducting the majority of their income that they make, and thus makes their tax rates very unfavorable. Uh, and so with that type of reform that was looking to happen, there was a very good chance that investment was going to really start to take off in this industry, was going to really go to the next phase. Unfortunately, um, the outgoing party at that time, who was still in control, decided that it wanted complete and total, uh, reform, not just piecemeal reform, and so tried to push an omnibus of Thursdays through that both sides of the aisle could not agree on. And everything died at that point. And because of that investment, put investors put their pen down. I guess there's no other way to really put it. And they haven't picked it back up yet. Really. Um, a lot of people are getting bullish that 2024 is going to see a rebound in the industry. Uh, part of that reason is, is that there's been a lot of discussion at the federal level about rescheduling cannabis, um, to schedule three. And if that were to happen, then the banking and tax reform would happen as a matter of course, because it would no longer be a schedule one controlled substance. And so that could lead to some further stuff. And plus the industry is starting to recover from a down cycle. And so because of that, there is some hope for renewed interest in business deals. So it's a good time to be having this seminar because it's a great opportunity to kind of look at where we're going and have some tools in place for how to structure these deals, as hopefully you and your clients are going to see some renewed interest coming up with the new year. Um, so some things that are also going on is that because this rescheduling has not happened yet, is that it's still classified as a schedule one narcotic, and being a schedule one narcotic under the Controlled Substances Act means it's still federally illegal. There's still very stiff penalties for federal, um commerce and interstate, not intrastate commerce that's going on. And the federal government is still treating cannabis as having no medicinal purpose and very easy for abuse and no and likelihood of continued problems and danger such that it's more dangerous than, say, LSD or, um, cocaine and needs to be treated with utmost concern and no, no protections. Um, so because of that, banking is still very difficult for the industry, as I just said. And section 280 of the IRC, uh, Internal Revenue Code for biz businesses from deducting otherwise ordinary business expenses because they're engaged in federally legal activity. Uh 280 was passed in 1982, in response to 1981 court case, which essentially the IRS came out and said, look, we're not here to enforce the laws of our country. We were here to fund our country and collect taxes in doing so. So just because you're running something that might be a illegal business at the federal level, whether it be gambling, prostitution or drug trafficking, as they call it, um, there's still, uh, you still have to pay your taxes, but we're not going to give you any of the deductions, uh, that the Internal Revenue Code affords all businesses. And so with Constitution only constitutionally mandated deductions, the only constitutionally mandated deduction is cost of goods sold. So what that means is like maybe for a cultivator, for instance, that a lot of what their activities are is directly to cost of goods sold. They may be able to get some better deductions, but retailers, manufacturers, distributors and other types of activities don't really get much of any protection and can't really deduct much, um, directly from the plant touching business. And as a result of that, their gross income taxes are almost 70 to 80% effective tax rate. It's it's rough. And when you add on to that the state taxes and the state costs, it becomes a real issue for what they're able to do. And so that's why I started the seminar with a quick discussion of where we are today, because that was the kind of stuff that everybody was hoping was going to get fixed back in 22, and that the fact that it didn't meant that now we're still kind of in this waiting and waiting period. That just really doesn't seem to have an end in sight yet, but can, if the rescheduling does occur or other federal relief and reform comes, that is not trying to do it all as one omnibus package. So we have to look at it today with the cards we're dealt. And that means that we have to look at how these cannabis companies can raise money and get investment in the current structure, which is. One. No safe banking, although there is banking available. Tough. Um, and all the different issues with state by state regulations that have to be followed and disclosure rules. So of course, the first question that we always have to talk about is what exactly are securities and how companies raise money? Well, the security is basically where a passive investor, someone that's not actively engaged in operating the business itself, put money into a business. And there's really two ways you do it equity or debt. When you do equity, you're providing an actual ownership interest. Uh, it provides what kind of rights and profits, distributions or dividends you may be able to get, what sort of voting rights you can have and other rights in the assets and company sales. But again, you're not likely as a equity investor to be participating in day to day control. Um, and there's be some other stuff as well, though, that comes to it and everything else. And then debt security is the note or a loan or some other type of, uh, debt restructuring and payment terms where they're not getting ownership stakes. But we're making some responsible ways to make sure that the company can raise capital still and pay it off over time. Uh, the problem with cannabis is because of the lack of banking and the other concerns that are there. Institutional lending is still rough. Uh, it happened, but it's tough. And, you know, so they have to go to private debt lenders or to other hard money loan lenders still, and or the private investors that are doing it, they're doing it at pretty heavy interest rates still. So it makes it really tough. And there's always a lot of room for if you don't make your payments. Because of a variety of reasons, the company could be in trouble. So most cannabis companies would prefer not to have debt raises, but sometimes they're left with no choice. And then it's a matter of where to get those debt raises from. There are a lot of companies out there that are now focusing specifically on the cannabis industry to provide that debt service, and it is a market that's still somewhat thriving, but the current environment is been slow on any type of raise, and a lot of companies are hunkered down right now. But like I said, I was just out with a client last night who was telling me that they're very the industry is very bullish, that things are starting to turn around and that 2024 is going to be a better year. So hopefully that plays out. Um, like I said at the outset, we're not doing public offerings. We're going to focus on private offerings where you're looking to help, uh, investors or your businesses that you're, um, representing or the investors that are interested in investing into these businesses are doing it on a private offering of some sort, not publicly available. And so what I mean by not publicly available is there's no general solicitations, there's no, uh, actual like, hey, you can just go buy stocks from any sort of trader or anything like that. This is more you have to actually go through and make a separate private deal with the business itself. And so therefore it falls under regulation D of the Securities Act, which requires that any offer or sale of a security has to be registered with them and meet all the requirements for exemptions and requirements for raising money, whether it be getting an accredited investor or friends and family or the otherwise. Um. While they don't have to register their offerings, they must file their form D still with the, uh, with the Edgar, which provides that they're raising money and who they are in some detail. Uh, many companies and most states also have blue sky laws or other corporate laws where they also require registration. It's always interesting to see whether or not cannabis companies actually make those registrations, because they they just don't think about it. I used to always joke and still do that cannabis was considered a gateway drug for a long time, and I think it's now a gateway business for a lot of people. And so it's sometimes interesting and important when you're doing your due diligence to see how sophisticated these companies are and how well they understand their requirements, and that there are potential penalties if you don't make the proper registration with your state, with the SEC. So. They still have to obviously do all this to provide for anti-fraud concerns, especially because you're raising securities and any time you're raising a security for someone giving you money, but they're not involved, you got to make sure that doing things correctly. Um, so company valuations and sale price units become very important. Explaining what you're actually offering, where the money is going to go, what are the risk factors that you're going to have if you make this investment? Yeah, you got to definitely go through to make sure your investors are qualified as accredited investors or have an exemption. Uh, and then obviously, as it shows on this slide, an accredited investor has to have either a net worth of $2,200,000 individual or 300,000 if they're investing as a couple or their officers need to meet these roles or their owners, they have to have more than $1 million in assets other than their home. And again, like I mentioned in passing just a second ago, there are ways to qualify entities, but you have to go through exactly what that qualification requires. And if I sit there and go through just basic securities rules, we're going to get way off track and everything else. But understand that investing in cannabis is just like investing in any other business where you're selling a security, you've got to follow securities laws and regulations at the state and local and federal level. No, Paul, stop. There's. So it's important to understand that this thing is happening. Um, and so when you're doing regulation D, there's typically there's typically three rules that apply. 504 through 506. And as you can see from the screen up here, there are different restrictions and different ways of analyzing which rule the offering is being made and what you're trying to and how many you can raise and with who and how you're offering it. Uh, and there may be some exceptions where some general offerings are being made under rule 504, but as you can see, for 505 and 506, there's no general solicitation. So again, securities are important. You have to understand these rules and make sure that you're setting up the investment. It's not just a matter of just drafting a document and saying, okay, I'm going to sign a membership purchase agreement or a stock purchase agreement or convertible promissory note, and we're good to go. No, you're actually raising securities for your company or helping them do that. And so therefore you actually have to make sure that you're also doing the proper disclosure and giving the proper information to the investors so that they can't claim securities fraud down the line. And and we'll go over that more too. So later on. But there's always different ways, and it's very funny to me whenever I'm talking to people that are newer to the industry, you you start to talk to them about this new industry ish, new ish. It's a newer industry. It's kind of been around now since 2015 and been really building up a lot more since then, and it's on the West Coast. It had been around longer, but now that there's a lot more licensing going on by the states individually and and companies that are properly disclosing everything and such, the industry is here to stay, I believe. And since it's here to stay, there's a lot of new opportunity. And so you sometimes see with people that are new, their eyes get wide when they start to think of the implications of the fact that, like, wait, we're already doing these activities in so many different industries, but nobody's really set it up yet in cannabis fully because of the state by state rules and regulations. So people get really excited when they see the opportunity in cannabis. And there are a lot of opportunities. There's a lot of different ways that you can invest in different businesses. You can directly invest in a flower touching business, which is someone that's actually engaged in the sale or distribution or cultivation or production of cannabis. So you have cultivation, manufacturing, extraction or infusion. Manufacturing extraction or infusion is basically the difference. These are two producer types of activities. Cultivation is exactly what it sounds like. If you grow the plant and you trim the plant and you sell it as a plant based material or as a flower to ingest by smoking or whatever, then that is cultivation. But if you take that plant and after you've harvested it, you do something different to it, maybe you break it down into some oil or you, um, infuse it into some food, or you make a topical or you do what people call dabbing, which is where they make a concentrated substance out of the the cannabinoids, but not the not as much as the flower, um, material or plant material itself. That's all manufacturing extraction and infusion. So it's those are the two types of production activities that happen on the supply side. And a lot of states also require third party distributors or allow for third party distribution to actually move this produced product along the supply chain to either get tested or to be sold through retail. Retail is any type of public sale in my in my slide here, uh, to the public, whether it's to patients, whether it's for adult use, whether it's through delivery, whether it's through storefront, whether it's at an event or at what are now known as lounges, which are essentially, uh, on site places where you can consume in public, which is slowly starting to build up. Right now, those are all retail. Um, and then some businesses may combine or vertically integrate these activities. There's also testing agencies, which are their own licensed types in a lot of states, because the states wanted to make sure for the public safety and welfare that since they're testing for pesticides and they're testing for, um, mold and other bad antigens or whatever, that they don't allow other those license holders to hold licenses and the other activities on the supply side, because they don't want to create a conflict of interest. But testing labs are very important, and they're good businesses to be had. And so there's investment in that as well. There's also what's called industrial hemp or just hemp. Hemp is a little different from cannabis in the sense that even though it's the exact same plant, it still cannabis. The, uh, the colloquially known as the 2018 farm Bill, uh, it's the Agricultural Appropriations Act. It, uh, made a new definition that exempted any cannabis that tested out and qualified in the states where that has the plan to do so is having less than 0.3% THC. Thc is one of the active cannabinoids in cannabis. Um, and that's psychotropic, uh, cannabinoid more than others. You may have heard about delta eight THC, delta nine THC or delta ten or THC and other stuff, but in general, THC delta nine is what was specifically exempted, and that is any type of um, if it has less than 0.3%, because that's the kind of cannabinoid that makes people, uh. Get the euphoric or high feeling, get the munchies, or some of that other stuff that comes with what the federal government deems to be likelihood of abuse. So DBD is another cannabinoid. You've heard very much, a lot right now, and you keep hearing and seeing maybe that they're selling quote unquote, CBD products and gas stations or online or in grocery stores or something. And what that is, is that is a company that is saying that they bought. Hemp less than 0.3% THC from the start. It's always had that. And so because the 2018 farm bill said if you have less than 0.3% delta nine THC, then that's exempted from the Controlled Substances Act. That's not a schedule one substance, and therefore that product does not need to be restricted in the same ways. And so that's why you're seeing a separate market almost for hemp based products and hemp based CBD. Now you can get CBD out of cannabis just like you can get it out of hemp when they're both the same thing. Again, it's the same flowers, same plant, but it's all about how it was tested and how it's qualified under law. So the law collectively says hemp is less than 0.3, and anything above that, or anything derived from anything above that is THC. And then you got to go through state license regulations. So those are the various flower touching businesses you can invest in. There's also a ton of ancillary products and services that are out there. I mean, lawyers are actually ancillary service providers to the hemp industry because they are providing legal services to help them navigate the rules and regulations. Same with account, same with marketing, um, lobbyists, marketing professionals, uh, any type of consumption device or technology solution or equipment that actually goes to the industry but does not actually engage in the actual production and sale of the flower touching business itself are ancillary, and that's obviously going to be a lot safer investment for a lot of people, because now you're not engaged in flower touching activity. So if you're just running a business that is not profiting off the sale or distribution of cannabis, then you don't have to go through all the different regulations and disclosures that you have to for being a state licensed cannabis business, um, or be subject as much to 280 or other issues or banking concerns. But again, if you're still profiting directly from those businesses, there are still some disclosure and other risks. But again, the the risk level is much lower. And then everything that we're talking about today about investment, it all comes down to the risk tolerance levels of the investor and how it's being disclosed by the company. Uh, the other type of industry opportunities are real estate and holding companies and being able to maybe old businesses or, um, products that are being leased back to the cannabis businesses or otherwise. And that's another way to invest and be involved in the industry without directly plant touching. And there's other types of other private investor funds that are out there as well, where they may be doing debt service or other types of loans, where, again, we're not really engaged in the direct flower touching operations, which needs to be licensed and disclosed. And if you are not taking any profits directly from them, they're just paying you for a service. It's kind of a more lower risk opportunity for investment. Um, if, however, you are directly loaning money or you are directly profiting from the business, many states have financial disclosure rules, which I will get to more in a little bit down. And that is something that needs to be analyzed when you are talking about this investment opportunity with your clients. So one of the first ones is real estate. I wasn't one of the first ways you can do it, but it's always one of the more quote unquote safer investments in the industry rather than investing in the business itself. You own the land on where the business is operating. Uh, most states have a requirement that the business is when you get a license, you're getting it for a specific location. And when you get your license to operate these cannabis businesses, there's a lot of requirements that comment you have to put in premise diagrams to show exactly where the limited access areas are going to be, and all the different ways that the premises is going to meet state regulations, and also that the landowner in many states has to, sometimes under penalty of perjury, um, sign a notarized statement that I know there's cannabis activity here, and I know that they're going to be doing that and I'm okay with it. Um, so there's obviously some transparency requirements that some owners may not like. But the good news is, is that they're not direct unless they're taking the profit. They're just leasing. So they don't have a direct plant touching interest whatsoever. So they're not going to be subject to 280 or these rules on banking. They're just they're just going ahead and uh, like leasing land so that they can conduct their business. And there's some perks to that. Um, many jurisdictions, they especially if you go into the West Coast, um, they have, uh, permissive use zoning states in California, for instance. And what that means is that if the zoned area, uh, does not specifically allow for an activity, then unless you get a special permission from your local jurisdiction through a conditional use permit or otherwise, um, you cannot do any sort of you cannot do that type of activity. So if it's a truly residential zoned activity and there's no business exemptions in that residential zoning code, you can't conduct business in that residential zone. Um, and so what a lot of jurisdictions have done is they say, well, we're going to allow them in zone one and M3 and whatever it may be. And these create what are known as green zones. And and what that does is when you have these green zones is now you're in these specialized locations where only certain types of businesses can do that actually can increase your land value. And, uh, that might create another opportunity, another, uh, ecosystems available. Because if you're in a place where a cannabis consumption lounge is available, there's a lot of opportunity for ecosystems. And I'm going to touch on that a little bit more because I'm personally fascinated by that. Uh, many of our businesses and entertainment for out of home adult entertainment of any sort of nature usually has a bar or a restaurant that serves alcohol as the anchor business, and then they have other things around it, um, to help, you know, drive and keep people in the area. Cannabis users are different from, um, from drinkers. And so they have different needs and wants and types of, um, entertainment they may want afterwards. And so there's all sorts of different opportunities for creating business ecosystems that are really intriguing and have nothing to do with the actual cannabis business itself and the businesses that may surround it. So there can be a lot of real perks for real estate investment. Um, because of the fact that it's still federally illegal, uh, landowners still can have concerns that maybe there might be a forfeiture, um, uh, proceeding brought because they're engaging in, um, they're allowing for federally illegal activity to occur. And what forfeiture is for those that don't know, is that it's a powerful tool in criminal enforcement that both states and the federal government have where if they find and arrest somebody or for criminal activity, and they realize that part of a broader activity, they don't want to just, you know, grab the person that did it, they want to dismantle the opportunity for this to happen again. So they may look like, well, okay, if I'm in, if I get arrested while I'm driving a car transporting a bunch of cannabis across state lines, I want to seize that car as a as a prosecutor to make sure that that car is not used again. And any money that was put into bank account or any place that cannabis was stored, I want to go and seize that as well. So they make sure that nobody can go back and start again just because we got one shipment stopped. Um, and so that's what forfeiture is. So if you're going to be leasing to these state legal businesses, but it's still federally illegal, that can create some concerns that the feds may come in and want to take my property away from me. Um, there's also maybe concerns that there's going to be a default because now you're allowing federally illegal activity on your loan. And so the bank may call the note or they may be some issues with refinancing, or it may increase, uh, insurance costs and things like that. So what has happened in the industry is that a lot of landlord leases have with the cannabis businesses have been at massive multipliers over market rate, sometimes as much as 5 or 6%. And the cannabis industry is kind of accepted that initially because they were flush with cash and they didn't think it was, you know, they thought that that was the only way they were going to be able to get a property to get licensed. Uh, but what's been shown is in the last ten years, there hasn't really been a lot, if any, forfeiture actions are really not being. Called as that so it could still happen, but it hasn't really happened. So a lot of these increased rental rates are just affecting and helping the landlord, but nobody else. And a lot of times landlords just asking the tenant to also do all these um, and uh, pay triple net on their lease, which means that they're paying all expenses and utilities and insurance on top of their rent and on top of their build out. And considering this is a newer industry, there's no grandfathered business uses in the building and safety codes. So when a new jurisdiction, uh, starts allowing this type of activity, most of the jurisdictions will say, well, now you need to bring the building up to current code. You can't be grandfathered in under prior codes when the building first went up, because this is new activity that was never previously allowed. So if you're going to do it, it's got to be up to code. So these tenants can be putting in millions of dollars in improvements that benefit the landlord, but that the landlord then doesn't have to pay back in any way, and they get to keep afterwards and resend it. So again, there's some real considerations for allowing it. But there's also do you want a dead tenant that can't continue to pay these really high market, uh, above market rents and all these expenses that they're not even going to make it through their lease terms after a while if they're not making money. And that is something that's been going on. And to me, that's been one of the biggest factors in why the industry is hurting right now is unfair leases that are not being restructured, um, taxation and uh, overregulation and under. Acta for legal product is two of the other big factors. Um, so that's also something that becomes really important. And because there's also a lot of sensitive use buffers, which are basically you can't be within 1000ft of a school federally or 600 or 700 state of California, whatever it may be. Some jurisdictions say you can't be within X number of feet of another dispensary, for instance, or another business. Um, or maybe we don't want you buy a drug and alcohol treatment center or too close to something like that. So we're going to make sure your business is a certain distance away from that. Those are called sensitive use buffers which create limited. Um, inventory for buildings, which is why real estate can be a very powerful, uh, powerful investment consideration. So when we do it, we have to consider, well, what are we looking at when we're doing investment in anything? Uh, each state has different laws. Federal has its own issues, as we've already kind of talked about. And then many states, like, for instance, out here on the West Coast, could have allow the local jurisdictions, the cities or counties to further regulate or ban it outright. So you get into this almost M.C. Escher like, uh. Structure, a maze like. Regulations that with each time you're looking at where this business is operating, you have to understand how is federal and local law and state law going to apply to this jurisdiction, and how is that going to affect the needs for investment? Because like I said before, a lot of states require disclosure of who's making money off the business or who's owning this business. And if you qualify as a quote unquote owner, you have to go through backgrounding and finger check finger fingerprinting checks and such. So it's important, as with any other business, though, it becomes a question of, well, what's the evaluation and how much is the amount of investment, how much am I getting? Or what am I going to be getting from it? How is my relationship with the company going to be? Well, I'm going to wait for it. What kind of liquidity is this business have? These are all just this slide is all about due diligence concerns that you need to consider how the tax treatments are going to come into play, how much risk the investor may or may not be willing to tolerate. And really, when you're looking through all this due diligence, is there enough information to know that this company is being properly and transparently run, that you're going to be safe putting in money into this business? Um, and these are all things that you look at with any investment, obviously. And it's the same thing I did want to highlight for cannabis. So I mentioned a few minutes ago, though, that out of home consumption is another really interesting and new opportunity in cannabis. Um, a lot of the industry so far has been focused on what I call supply chain economics and businesses, which is basically the production and sale of the product to to people and making and investing in those businesses. Well, more and more, we're starting to see out of home consumption being allowed. And if you stop and you think back about it, when a lot of people voted yes for cannabis to be legalized in all other states, I highly doubt that they're like, oh, this is great. Now more people can sell and make money selling this product. Now, they were they've been having their lifestyle. They've always known it's there and they want to be able to do it legally, just like people that are drinking. And they want to be able to do it in a way that their lifestyle can be embraced and out in the open. Um, so out of home consumption is actually good because it creates new opportunities for jobs and ecosystems around those businesses. It's also great for public safety because much like with alcohol, you now know where people are consuming. You now know where it's safe to go and actually get these products. When you think of people like veterans who are trying to get access to cannabis because they don't want to do opioids or something like that for medicinal purposes, and they may be living in section eight housing, which is federally owned housing. They run the risk that if they try to consume cannabis in their home, they could be evicted because they're breaking the law in their own home. Um, and if that were to happen, what are they supposed to do, just go out in the street, go out in an alleyway? It would be much better to have safe and properly regulated, um, locations for consumption. And it also is really good for the brand and cross-selling opportunities because, you know, if you go to an event and there's a brand there and they're offering a product to consume at a concert or sporting event or a comedy show, you're like, oh my God, I had the best time. Well, what was that name of that brand? Oh, I want to go get more of that. I love that experience. So it also gives you the opportunity to work with non-plant touching businesses. Like I said before, you can create an ecosystem. The code for consumption in public has not been cracked as of yet. And what I mean by that is, is that the business model has not really been stabilized. They're still trying to figure it out. If you look at it like an alcohol establishment, like a bar, for instance, people come in for an hour and they're going to they're going to order a few drinks. When they're done with one, they may want another. Um, and that and so the more the bar sells in the hour or money it makes, well, cannabis is different because first off, there's a lot of regulations in many cities and states on the size of how much can be done, how long they have to stay there. Um, but it's also just the exact nature of consuming is very different. Most people, once they consume their good, they don't need to keep consuming, um, they're fine. Like they took their few quote unquote hits. They drank their drink, they ate their edible. Now they're just going to let it sit in and they're good for the next few hours. And so what do you do with them at that point? How do you keep them there? How are you making money? Well, maybe if they're allowed if there's an ecosystem of businesses around, perhaps there's a yoga studio right next door, or perhaps there's a movie theater or a comedy club or a painting facility, or shopping or food or whatever it may be, the idea being that these are completely unrelated, plant touching, non plant touching businesses, that you can create a real ecosystem of business opportunity. The ones that are interested can go in and consume and then go next door or upstairs or wherever it may be, and spend more money and spend more time there, thus increasing public safety. Uh, it's and this is really important, especially post Covid, because everybody is really looking for experiences over more things. Um, people want to go out and do not necessarily buy as much these days. And so we're seeing a lot of that. There's also global tourism issues that are really interesting too. I mean, you think about. The wine industry, how much fun people have going to a vineyard and touring the vineyards and seeing how wine is made and then getting to taste what they just saw. Cannabis could do that as well. There's quote unquote bud and breakfast popping up around the country now where people can go and consume cannabis in their hotels and then stay there and, you know, have it be okay to consume while they're staying at their hotel. There's all sorts of different tourism opportunities. Look at Amsterdam. It's always kind of been known as like, oh, hey, it's pretty cool. I can go and legally consume. There's a lot of opportunity for tourism dollars, uh, looking out here on the West Coast, for instance, in, uh, the late 2020s, we're going to have the both the Olympics and, and throughout most of the state, we're gonna have the World Cup to, uh, the country going to the World Cup as well. So there's going to be a lot of opportunities in these cities where a lot of people are going to be coming in from all over the world to, uh, see these major sporting events and, you know, having the opportunity to go and do tourism events and tours and or, you know, just be able to legally consume cannabis is going to be a whole new business driver. So like I said what is out-of-home consumption? Well, there's. Basically four types. There are the lounges, which are permanent locations which they're just calling them lounges instead of bars. That kind of goes back to a speakeasy idea of, oh, we're going to go come and meet and everything, but they don't want to call it a bar because it's kind of different. Uh, there's the temporary public events where, you know, you can think of it as a, uh, as a it could be it could be the most obvious one, like a music festival where, like, maybe there's a beer garden roped off somewhere in the music festival. Well, maybe there could be a cannabis garden separately roped off. But maybe. What if you were going to. Since we're in December, there's a holiday lights installation that you're doing with your family where you get to walk through this great little area and they've got all these different light structures up. And usually you can find, uh, 1 or 2 beer gardens strategically placed throughout the facility. Well, alcohol is all well and good, but cannabis actually would enhance the user experience for many people, and the light shows would actually be even more fun for them. So you could easily have a temporary event license for something like that. It could even be something as simple as a loop. The door, uh, pop up where wrestlers are in a parking lot and there's a pop up going on, and they want to have a place for you to consume cannabis. Or maybe the Van Gogh immersive art installation that's been going around the country for a few years. Uh, now that basically you get to go and see the entire room turned into Van Gogh painting, what if those that were interested were able to consume in a properly set off location outside that premises before going in? That could be a more of a temporary one. Private events are also things where there's non-public single day events, but there's a whole different set of rules and analysis that needs to be done. And you don't necessarily need a license like you would for the public, uh, facing event. And then there's also people that are doing some sort of consumption out of home. And that's not really the focus of this presentation. So when you have an industry like we're talking about that has so much taxation and so many different market prices and everything that's hurting the business, the business's ability to survive because of the ups and downs of the market and because of the lack of banking access. If you're able to work with Non-plan touching businesses for out of home entertainment and brand building opportunities, you're going to create loyalty and other types of business opportunities where you're working with companies that are not facing these restrictions. There's ways to structure deals that could really allow for a lot more opportunity for profits for these businesses, and that's something to look into. And you may want to actually just invest in the out of home, uh, entertainment opportunity itself. And so as you can see from the very wordy slide, which are my written materials, and you're welcome to look at them any time you want, is this can really help enhance the experiences. And that's what I was just talking about. So there's a lot of opportunity for that. Um, and when you do things like that, you're starting to see this is really starting to take hold. In some states like California and Michigan, for instance, um, there's Coliseum, uh, sporting events, areas where they're actually putting permanent cannabis lounge structures outside in the parking lot before they go into the venue so that they consume before they go in or come out. Um, you can also help drive revenue because let's, let's say you want to buy a building and the building has multiple floors, and you want to put maybe a music venue and a restaurant in this venue, but also have a separately entrance and available lounge so that you can have all these different businesses so you can have the tenant and for the production all being done for just the business as a whole, and then have a cannabis lounge come separately and and rent space. Well, you can do a lot of work for structuring deals in a very creative fashion to sort of offset the concerns of trying to get investment into the property where maybe, perhaps the non-plant touching owner can still make its own private loan to the cannabis business to help them with their build out or with their ties through the through the lease. And so these are tenant improvement. So these are all just different ways that it becomes very unique and creative. And so as I said earlier on, I just feel that out-of-home consumption is one of the best, uh, growth sectors to be looking into for this industry. Not to say that investment isn't very important in the industry itself or the operators as well, because it really is, and we need to see it. But there's other opportunities out there. So how do you buy, how do you invest? Well, you can either directly purchase an ownership interest. You can create a new entity to try and uh, uh, invest in and hold it in. So you're not holding it directly because maybe because you are investing in a federally illegal business, you want to have some further legal layers of protections. Or maybe you want to create a separate entity to buy all the equipment for the cannabis company and lease it back and have different investors in that vehicle. Um, so that you are still making a hard asset that you can call back if need be, but still create revenue from without being directly in the business. Uh, like we mentioned before, loans are always very good ways to go about it. And, um, you can also consider certain different asset investments, such as, like I said, a lease leasing relationship or uh, an ancillary relationship. So there's all different ways that we can look into it. But these are some of the more common ones you usually see when you're talking about. So as I mentioned to you before, when you come to risk averse issues and everything of that nature, one of the things that becomes a major issue is are there financial disclosure interests? Um, for a lot of lawyers on the phone. Um, on this presentation right now, you may also be aware of the Corporate Transparency Act. Uh, the Corporate Transparency Act is going to make what I'm talking about right now kind of almost seem like, uh, nothing. Because starting in 2024 for new businesses and by 2025 for existing qualifying businesses, which is the majority of our, our country, uh, people are going to have to disclose their beneficial owners to the federal government. And, um, that's going to be that's already happening in cannabis. And so these businesses are actually going to have it easier. But when you're investing and because it's still federally illegal, because the states want to avoid, um, the appearance of money laundering or, uh, diversion to drug cartels or the like or organized crime that, um, they need to make sure that if you have a license, that every person that has qualifies has for getting money from it can get disclosed. So, for instance, uh, an owner can be somebody also who may not actually own any, any equity in the business, but is substantially controlling or participating in the cannabis commercial activity, which is also going to be, by the way, a beneficial owner that needs to be disclosed under the Corporate Transparency Act starting next year. Um, so just because you don't own a certain threshold number, if you're still directly engaged in the business, you still have to be disclosed as an owner. And if you're disclosed as an owner, you have to go through background checking in a lot of states, you have to go through fingerprint and criminal checking to make sure that you qualify, and that you're not going to be barred by statute from actually owning this interest in it. But then states don't stop there a lot of the time. Sometimes they also want to know, well, do you have any sort of financial interest at all just because you're not meeting the certain equity requirement? Are you still getting profited? If so, you are also going to have to be disclosed, but you're not going to have to give as much information. I just have to give your address and name and your driver's license, sort of like, so let's give the California model to break this down as an example, because that's where I'm from. If you have more than 20% in the business, unless it's fully as a security or lean, or you're some sort of manager or participating control, um, or anything more than 20% of the profit. Even if you don't have equity, like even if you're just a sales person that's getting over 20% commission of the profits of the business because you're just killing it as a sales person, then you're an owner and you got to go through those background checks. Um, and if you're participating and here's some examples of what it could be to be a participating in control. I mean, you could be talking about a brand, for instance, that they want to white label their brand to a cannabis manufacturer, but then they want to tell the cannabis manufacturer where to distribute it, where to sell it, or, um, they want to tell that manufacturer, um, how to make the cannabis materials, even though they don't have a license to make those certain formulations that they want to do. Well, now, they're probably going to be, um, defined as an owner, even though they don't actually own the business themselves, and they're not even operating that business, but they're still participating in the direction and control of how that cannabis activity is happening. Um, and so, like I said, if that happens, you got to go through much more rigorous background checks. Um. They want to go through to the actual individuals to you don't just go to, oh, uh, XYZ LLC owns this company. I'm done. Now I have to get down as many layers as you need to until you get to the actual individual beneficial owners that owned it. And that's going to be the same thing on the Corporate Transparency Act, by the way. So that's another deal all of itself. If everybody hasn't done that yet, you should if you're helping entities form and or working with businesses. So the difference between an owner and financial interest holder in California is you're getting profits, but it's not meaning that 20% threshold, um, and or maybe 10% or whatever it may be for each state. And so you may be providing a loan, you may be a landlord who says, look, I'm going to cut down your rent rate so that you're not you're I'm not killing you on hitting this arbitrary number of rent every single month. But I want to get like 3% of your sales every month as my additional rent. That's the structure that can certainly be worked out. But now the landlords, the financial interest. Uh, same thing for a consultant who wants equity or is going to get a cut of whatever deal they're putting together or acting as an agent. Um, any of those types of things, they would be financial interest holders. There are exceptions. Um, but in those cases, you're going to have to disclose things, but you're not going to have to do as much. Um, but it could be as much as name, birth date, driver's license, Social Security number, or Ein. And if you're doing that, you're still putting yourself out there and there's public record that you're investing. So when we talk about risk tolerance, as I mentioned before, how does the investor feel about having to make those disclosures? Now when you talk about that from a perspective, there's also exclusions, by the way, when you talk about it from a perspective of a foreign investor, this is still federally illegal. And US Customs and Border, um are saying well look, we're still here saying it's federally illegal. So you may not be allowed to come back into the country if you say that you're a foreign citizen that's engaged in federally illegal activity or your green card or your immigration status may be affected, or your other licenses that you may professionally have here in the United States, even if you're not a foreign citizen. Um, because now you're engaging or investing in federally legal activity may come up. And because it's disclosed, uh, you know, they're not necessarily voluntarily looking all the time and sharing information between agencies, but it's certainly something to be aware of for risk factors. Um, another thing that becomes a concern, especially when you're talking about debt, is, is the license transferrable? Because, for instance, out here on the West Coast, licenses are non-transferable and they're tied to a location. So any time you move to a new location, the local jurisdiction may allow you to move that license over, but the state jurisdiction may say no. Now you have to apply for a new license. What if you're, um, you're trying to loan money to them and you want to be able to foreclose on the debt? If they don't, if they don't, um, if they default. Well, if you do that, then you may not be able to come in and take over the business because you're not an owner or there may be regulations against it. Um, and there could also be some issues about when these disclosures are done. So that really has a lot of important concerns that need to be aware with and be aware of what you're doing when you're doing things. So. With all that said, we're not going to look a little bit more at the time we have remaining into the investment itself and kind of some of the nitty gritty of what comes into these investments. So for starters, you always want to ensure that all your company's organizational documents are complete, everything's executed, all financial statements are up to date and everything else like that. Because no matter what, a sophisticated investor is going to want to see this stuff, and if the company's not ready to go or not able to provide it, that's a major red flag. Um, pitch decks are a very commonly known parlance, and I just don't know the level of sophistication. So I'm kind of breaking things down to a more basic level in this slide so that everybody knows these terms. It's just, you know, it's a PowerPoint slide. It's basically a opening sales ask or a summary of like, this is what I want you to consider. This is what the market looks like. This is the this is the problem I'm looking to solve. This is the amount of money I'm looking to raise. This is why I think it's going to be successful. This is the opportunity that you can see. And those are usually called pitch deck. Um, and so those are how you get investors intrigued. And then once you've got them intrigued, now you've got to make sure that you're giving some sort of disclosures like I talked about before, because of the, uh, securities laws and regulations to, to prevent investor fraud, you got to make sure you're really laying out what the risk factors are, how the money is going to be used, what the purpose of the business. And a lot of times that's done through what's known as a private placement offering memorandum. Sometimes it's directly in the subscription agreement or similar purchase agreement, where they actually may build the risk factors directly into there, but that's not always common. The point being is that whenever you're ready to get to the instrument for the actual investment, there's things that have to go in first. So you you have to still go through all these steps. And these are typically what you're going to see before you get in the paperwork. You're going to be dealing with with your company. Um, so like I mentioned before, private placement memorandum is the very common document, and it could be pretty robust and lengthy. And if you choose to go this route, and it's a good though, because when you do a private placement memorandum, you are making sure that there's one document that you can point to that really lays out the deal. So the investor can't say, well, I didn't know that you didn't tell me that. And so as you can see down here, there's a private a PM, as they're collectively called, we'll have all sorts of disclaimers about what the statements are and what they're being made, how these notices are being given, how they're complying with law, what is going to happen, how is this money going to be used? How much am I raising? How much is the business going to be offering? What are the terms going to be how the funds are going to be used, what is the exact nature of the business and how does management work? Is the investor going to have a say in management or not? Uh, what are the risk factors, which to me is always the most important one is, are the risk factors all laid out as well as possible? Because the more risk factors you can say to them, the more they can say, well, I wasn't aware that this could happen. My money. And that's why investor suitability requirements are so important. If you recall some slides earlier where we're talking about are you a qualified accredited investor? If you're not a qualified accredited investor, then. Regulation D requires, um, that, you know, you're even more careful with your risk analysis. And you also got to make sure that you explain that things can change. And that's what forward looking statements are about. Um, so when you talk about risk factors, which I said is so important, it's good to kind of go through them. You can never guarantee success of any business, of course, but in cannabis, it's especially so because, uh, while on the East Coast there might be limited licenses available. And so therefore a better opportunity of success, that doesn't mean that you're going to get there in a highly regulated industry on the West Coast, where licenses are in abundance and there's not a lot of limitations on it, competition is going to be huge. And so, you know, there's no guarantee here at all. And the fact that we're still federally illegal and the tax ramifications and how profitability is going to be really hurt by two a.t.e, um, and how the different laws could affect this business, which I got to tell you, with everything that's going on in this industry and all the different rules and regulations that are patchwork around the country right now, uh, I believe cannabis to be one of the hardest industries to make money in right now for any industry. So it's not what people have been thinking, like, well, they're just sitting there making money hand over fist and killing it. Most cannabis businesses that I'm aware of are struggling to stay afloat, um, because they have to go through so many more steps and so many more regulatory hurdles and just about any other industry, and then you've got high taxation and high rent rates on top of that, and not necessarily robustly mature, regulated markets in place yet to actually sell their products to. So I like to think there's a lot of hurry up and waiting cannabis businesses. So these are all things that you need to look at as you're and you want to really disclose as much of these factors as you possibly can. Um, as always, especially in cannabis, because it's a newer industry and you have a lot of people that are just thinking they don't have to comply with securities regulations. You've got to make sure you're avoiding fraud and misleading statements, and you're not working with an unregistered broker dealer. A broker dealer is somebody who helps solicit or raise investments in the business or advises on that. And if they don't take the proper steps to be licensed by their state or federally under a theory seven or similar, um, similar license, then you're not really supposed to be working with them and giving them commissions for what they do. I mean, they might be able to consult if they have some interesting experience. But as an attorney, when somebody brings an investment to your client or to your company, uh, you really want to look into that person more themselves and make sure that that's being done correctly. Um, you also just really want to flesh out those risk factors and watch out for overvaluation. I mean, obviously proformas are never accurate, um, when you're giving financial things, but there's it's really crazy when you sit there and you see, for instance, that a single, uh, a single light of a cannabis is expected to, uh, cannabis cultivation. Light is going to give that. They say, oh, yeah, we're going to get 7 or £8 off of this one light every time we harvest, when really maybe one more top. So I mean, you got to look for things like that though. And and avoid other pump and dump techniques, which is where you're like trying to bring somebody in to buy a lot of it with a lot of inflated pricing, and then they sell out or they get their commission and then it crashes and burns. So you got to watch for any type of standard investor risk because especially in cannabis, whereas I joke before, it's now a gateway business. It may be a gateway investment for a lot of people because they think it's the hot new thing and it's sexy, um, to invest in. And if that's the case, well, they may not understand that there's a lot of common investment fraud schemes out there, and the SEC has some great materials on their websites about common investor fraud, um, schemes to look out for. And it's good to look into something like that. You also want to make sure that they're showing that everything is properly documented and proper control and entity independence amongst things, because otherwise, if there's not in the IRS comes auditing. And they said, oh yeah, well, we just formed a management company to run this business and we're just, um, dumping out all our profit into that. So now there's no real taxes. We're just we're just making money in this business because the management company is paying all the expenses. Well, does that the exact same owners, does it have the are they really, like keeping proper, um, independence with like actual agreements in place between them, or are they just running money back and forth between those entities? Because not only could that be creating some alter ego concerns, it could also just mean that the IRS will either disregard the difference or just go ahead and nail them both. Um, so as an investor looking into this, you definitely want to make sure that you're looking at the independence and the proper setup of these, um, of these companies and make sure that you're also not making you serious interest rates on any debts or any nature. So what do you look for? You want to look out for those common red flags you want to watch, uh, be like, well, I've been in this business forever, so, you know, you can trust me. That's kind of affinity fraud. Just because they're saying I've worked with this company before doesn't mean you know what they're doing personally. Um. You really just want to look and make sure that the investor can actually afford to do this and has the proof of funds before you get too deep in the process of taking the investment paper to to get finished and getting that deal finished, or are you really just want to really look at what is being done? You want to see that this company actually knows what's going on, and that they actually know what they're planning to do and how these plans may play into the act. Um, so these are all things that become really important that you have to look for as you're going through this process. Um, so as you're trying to do these things and you're looking through it, there's obviously a lot that goes through it. But the best thing I can say for lawyers on the call is if you've been helping investment or any type of debt raises or any things in other industries, the same rules apply in Canada. The only difference is, is that there's going to be some more specialized rules and regulations that need to be followed, but you should still be treating it just like you would any other security raise. Any other time there's an opportunity comes up. It should still be looked at with a the, you know, very close eye and a fine tooth comb and make sure that all proper debt, um, reps and warranties are in place in the transaction and that the due diligence is really properly being done and look through. Because if you don't do that well, you're not doing your client a you're doing a client a disservice. And beyond that, you're not really giving either side the opportunity to make sure it's a good deal. And while some of these cannabis businesses may not have that right, and they just like to give me the money, it'll work. Look how much money I'm making. How long are they really going to be doing that and are they going to be around? I mean, one of the big things I've seen is because a lot of these operators were making money, maybe as legacy owners before they got license. They just remember the days when they had cash stashed everywhere, and they just figured they could continue to do things like that. But now they're hitting hard times and they have actual accredited, uh, loans or something like that where they have a receiver being threatened or other things like that, or even they're taking cannabis on termed payments to promise to pay it back later, and then they just disappear. What do you do in those situations? So the best thing that you can do is when you're representing your clients is make sure the documentation is solid, make sure the due diligence is done and treated with certainty, even for the smaller amounts. Because especially in a business like this, you got to make sure that all the i's are dotted and the t's are crossed. It's really important. Um, and so for that reason, there's opportunity and I think there's going to be more I know I was a little bit, uh, down about it and kind of negative as far as what's been going on for the last two years. But this is the industry is been going in some cycles like this. And it is common for things like that to happen. There were some real boom times. There's been a little bit of a bust time right now, but I, I do believe the industry is starting to go more towards the upswing again, and especially as more and more out of home consumption opportunities arise. That's a very intriguing market for a lot of different reasons. I briefly touched upon. So I'm a few minutes before the end here. If you want to type any questions into the chat here, I would be more than happy to answer them. And besides that, as I just want to make sure you guys get your full hour. I can also just mention that when you're doing these deals and you're going through the reps and warranties, one of the big things to do if you're buying or selling a company or investing into a company on these reps and warranties, is make sure that disclosure schedules are properly provided and created, because that becomes a real huge issue depending on which side you're representing and the reps and warranties become the only thing you can really rely upon. If something goes wrong down the road after the money's picked up, it did it really be what it says? One example I had recently was I had a company that says I'm taking the building as is, whereas when I'm purchasing this license operation and um, and everything else, and they also made a representation that, yeah, we did everything up to code and everything's good and, and we have no issues. Well, once the buyer got in and took over the building, it turned out there was a ton of mold in the vents and it had never been tested for. And that mold was not. And other certain regulations were not actually followed. So the company saying I followed all laws and regulations of my state, um, when I was cultivating when you bought it, it turned out that the, the buyer decided to say, no, you violated that rep and warranty. And now I don't want to finish this deal, or I'm going to have to offset the purchase price that we agreed on the second closing. And that's an interesting thing to have to try and deal with at that stage, because the lawyers in that deal were lazy as to what exactly that statement meant. Um, and the disclosures were not properly done for the selling company. Um, so those are the types of things to watch out for. Also, you have to be aware, for instance, in California and other states, that if the licenses are non-transferable, well, how are you going to buy or sell your business? You have to sell the entire entity. And if you're going to sell the entire entity, um, and try to acquire things that way, or there's going to be an investment in the whole entity has to go. Well, the due diligence that goes into acquiring an entity with tax liabilities, legal liabilities and otherwise is a lot deeper than maybe an asset purchase might be. And so those are other types of reasons why when investments are looking into this, you want to investors are looking into these types of things. You got to understand well what is my what is my out? What is my vehicle going to be for how I'm going to get repaid if the company is not doing well or otherwise? And what happens if we do have an exit planning for that exit? That becomes very important as well. And so that's also something that you probably want to talk about with your client, whether you are the company you're representing or the investor is what is the exit strategy or what is the goal of this investment, and how are we going to make sure that the paperwork is going to properly address, disclose that, and then create the proper expectations? Because the last thing anybody wants is some litigation down the road, because they didn't really talk about it beforehand. So know who you're marrying. What I like to say make sure you dated first. And with that I my clock shows 12. And so I wanted to say thank you very much for listening. I hope this was informative and helpful. And I've got my information up on the screen. If anybody ever wants to email me or ask me any questions directly, I'm always happy to answer and discuss things. So thanks so much for your time and I hope everybody has a wonderful rest of their day or evening whenever you have.