Attorney Recalls Transition to Cannabis Law, Shares App Suggestions

Ken Wachsberger

Corporate attorney Roma Thurin made the transition to cannabis law through a Thanksgiving transformation:

My son is a caregiver. Once he realized the MMFLA was being signed into law, he said to me after a wonderful Thanksgiving dinner, “Mom, you really need to know and see what I do. I have an opportunity under this new law to become licensed and I can’t do it without you!” My son has a Master’s in Social Work. I thought he had gotten burned out from counseling and started working as a waiter. I had no idea he was in the industry!

The following day, in a state of dismay, she returned to work, where she commiserated with a colleague. The next day her colleague brought to work an issue of Forbes magazine.

On the cover was “Marijuana, the Next Billion Dollar Industry.” She dropped the magazine on my desk, pointed her finger in my face, and said, “You better help that boy!” I got over my misguided views about marijuana and started researching. I read everything I could get my hands on and attended the Marijuana Business Conference & Expo.

Affecting her from another direction was the untimely death from cancer of her colleague. Shortly after, Thurin helped her son and his partner with their project management plan. “So as a mother, friend, believer, and corporate attorney, I knew this was an industry in which my beliefs and personal and professional experiences would be of value.”

Thurin, founder and managing partner of Thurin Law Group, is licensed in Michigan and New York. She’s a member of the State Bar of Michigan Marijuana Law Committee and is working with several Michigan entities to obtain their state licenses to operate as marijuana cultivators, processors, provisioning centers, or chemical testing facilities under the Michigan Medical Marijuana Facilities Licensing Act. She has practiced transactional law with an emphasis on corporate law and business development for a quarter century and found the transition to cannabis law to be smooth.

On January 4, she spoke about corporate structuring and Michigan medical cannabis licensing with members and visitors at Women Grow-Ann Arbor’s January meeting. Sensing that attendees were at a diverse range of phases along the way to licensing, she spoke first to those considering applying for a license:

Learn and understand the industry including all regulations, rules, and laws. Put together a project management plan defining your scope; objectives; resources (skills, financial, people); timetable; and other areas of concern. Build your team and only hire and engage qualified people.

Or else, she warns, you could fall victim to the common pitfalls that her clients have faced when completing their license applications:

Trying to do it themselves. The massive amount of paperwork. Why do I have to submit three years of bank statements and taxes? Not sure of what to disclose. Obtaining copies of criminal records. Disclosing spouse information and/or all investors as interested parties. If you run a multimillion dollar industry you have to know everything. The trouble is in the missed detail. Be honest and disclose. File taxes even if zero. Obtain and disclose all financial statements. Disclose, disclose, and disclose.

Partners and Investors

She urges great caution in selecting business partners because every partner with at least a one percent interest will have to be listed on your application. If they have a criminal background you have to list it.

In addition, you have to consider their roles and be prepared to protect them as well as the business: Who is active and who is passive? Who makes decisions? What happens when one partner leaves or has a disability that prevents her from contributing in a contracted way? You need answers to all those questions upfront. We’re all friends now. It rarely ever ends that way. Get everything in writing.

Further, she adds, know your strengths and weaknesses and choose people whose qualities complement yours. Don’t scrimp on your attorney and accountant:

Include your attorney during these discussions to make sure all are on the same page with making sure that the business structure reconciles with business objectives and projected tax liability. Have your accountant, preferably one with cannabis accounting and auditing experience, work through whatever structure you are considering.

Personally, she prefers the LLC form of corporate structure for its tax flexibility and less-stringent compliance requirements, and because it shields members from personal liability. But:

My exception is for dispensaries/provisioning centers. I still form as LLC but elected to be treated as a corporation (IRS Form 8832—Entity Classification Election). Although all medical marijuana companies are regulated, I believe provisioning centers, as the end-user/customer facing, carry a heavier load regarding taxation, liability, and regulations.

With investors, you have to be even more discerning.

Make sure you have a confidentiality, non-circumvention, and non-disclosure agreement in place prior to sharing. Thereafter, have a private offering memorandum with appropriate disclosures and exhibits included. Don’t promise more in proforma than you know you can deliver.

A Few Issues to Consider

A few issues to consider:

• Do investors want to be hands off or involved? How will they contribute if not with cash?
• You want investors but you also want to retain the right to make decisions.
• Think about what happens ten years from now if a partner wants out of the business.

And warn your investors about all possible risks before telling them the benefits:

You never want to hear from an investor, “You didn’t tell me that.” Whether I am putting together a business plan, pitch deck, operating agreement, or private offering memorandum, I share risk factors related to the investment project: banking difficulties, agricultural risks, insurance, limited operating history, and federal regulations. Investors are very excited about potential large returns on investments, but it is the owner’s responsibility to make sure they understand the inherent risk factors of the cannabis industry and that there are no guarantees regarding their ROI.

She knows of no generic form that a business can use to disclose risk factors but advises against generic forms in any case:

The worst thing is for someone to download a generic operating agreement or any other document off the Internet. Very few transactions are identical to one another. Organization structure, management authorizations, transferability, classes of members, and other considerations are often different. All documents should be drafted on a case-by-case basis with consultation from the client.

Complicated, Confusing, and Intrusive

If it all sounds complicated, that’s because it is: “From what I can glean from my colleagues and accountants from other states, Michigan’s licensing application is very complicated, confusing, and requires more than necessary disclosures and supplemental documents.”

But you’ve got to give it your absolute best shot or risk rejection. “The state doesn’t have enough people to read the influx of license applications they are facing but they’ll use the process to weed out undesirables. Even with all the rules, it’s all subjective.”

“But this is an exciting time for the State of Michigan and Michigan residents in the medical marijuana industry,” she concludes. “Understand the MMFLA and Emergency Rules. Don’t become overwhelmed. Just put together a good team and business structure.”

Ken Wachsberger, editor of Bloom Blog, is an author, editor, and book coach and the founder of Azenphony Press. He is the author of the just-released Ken Wachsberger’s Puns and Word Plays for the Job Seeker.