Well-drafted corporate documents, essential to the success of cannabis and hemp businesses, provide a solid foundation for future growth, a framework to withstand and resolve partner disputes, and protection for shareholders from personal liability.
Solid corporate documentation underpins the success of all types of companies, and is especially crucial to cannabis and hemp businesses, as the commercial, regulatory, and operational environment is exceedingly complex and challenging. Due to the outright conflict between state and federal law and the labyrinth of state and local regulations in this space, experience and perspective are critical.
Over the past decade, all too often clients have come to us later in the business cycle only for us to discover holes in their corporate structures that may present a myriad of issues down the line, from potential shareholder liability for the debts of the company, to missed financing opportunities from investors who backed out of a deal after getting a look at the poorly maintained records.
While it is best to establish a company with strong documentation right from the outset and maintain this trajectory throughout the growth cycle, currently operating companies that have not upheld proper governance practices can still remedy the situation and should ensure their corporate documentation is in good order.
Corporate structure has a direct impact on tax liability and legal liability for shareholders if the company becomes involved in any disputes with third parties, or if there are disputes among partners. Diligent corporate governance practices will only become more important with the growth of the industry, as both potential investors and regulatory agencies will pay more and more attention to corporate governance matters.
Comprised of a cross-disciplinary group of attorneys, our attorneys are skilled in a full range of business-related needs, including:
Corporate contracts establish a company’s relationships with the outside world, and define the rights, risks and opportunities facing a company.
Many operators have traditionally relied on “hand-shake” deals with their suppliers, customers and other third parties along the supply chain. While such deals can initially appear convenient and low-cost, unfortunately they offer little to no legal protection. As the cannabis and hemp industries become more mainstream and deal sizes increase, it is important to document all third-party agreements in binding, written contracts.
Well-drafted contracts provide a level of certainty to operators that allow them to plan for the future and grow their business while limiting the downside. One popular type of contract in the cannabis industry is the management agreement, which gives an unlicensed consulting company authority to manage the operations of a licensed entity. It is important that this agreement is carefully drafted to adequately protect the rights and interests of the licensed entity.
When business relationships are going well, contracts do not seem overly important; but when things take a turn for the worse, it is critical that a business be prepared. A contract not only sets expectations for each party’s actions, but also can protect a business from its counterparty’s misconduct.
Contracts typically include several protective sections, including representations and warranties, where each party promises that certain things are true; indemnification clauses, where a party protects the other from legal liability for bad acts; and an “entire agreement” clause, stating that any previous communications between the parties are superseded by the written contract. Each of these sections, and many others, mitigate risks for contracting parties, provide clarity and stability and enable businesses to conduct operations with confidence.
We have experience drafting the full range of contracts that a cannabis or hemp business may need, including the following: