InvestInMJ Admin

 Nov 11, 2017 at 14:00

Charles Alovisetti is a senior associate and co-chair of the corporate department at Vicente Sederberg LLC, and works with legal cannabis businesses in the U.S.

In this opinion piece, Alovisetti warns such enterprises to be wary of using bitcoin or other cryptocurrencies as a solution to the pot industry's continued difficulty obtaining or keeping bank accounts (a familiar problem for blockchain startups.)

One of the major challenges facing legal marijuana businesses is lack of consistent access to banking services. Many marijuana businesses do have banking accounts, but the sword of Damocles dangles above them, always threatening an unappealable termination of an account.

Enter digital currencies, which promise an end run around a wary financial system. There is a great deal of excitement in the marijuana industry about the possibilities regarding bitcoin and other cryptocurrencies.

But before the cannabis industry gets carried away with images of marijuana businesses sidestepping hostile federal banking regulators, we need to take a hard look at the future of digital currencies.

Alternative prescriptions

One strategy that's been pushed is for cannabis businesses to take an existing digital currency and simply use it as a method of transacting business to avoid the need to rely on banks.

This way, marijuana companies without bank accounts could eliminate the need to operate in cash, instead accepting payment directly from customers or other businesses in digital currency – although converting digital currency into dollars will still require a bank account.

Another possible use of digital currencies would be to develop a new token, often referred to as an app coin, protocol token, or altcoin, specifically for the marijuana industry. Again, the goal would be to reduce or eliminate the use of cash and integrate blockchain technology into the compliance and other needs of marijuana businesses.

Finally, some business offer bitcoin-based payment processing services. These services allow customers to purchase bitcoin via a credit or debit card and then purchase a marijuana product with the recently acquired bitcoin. The store then converts the bitcoin back into dollars. The idea is to provide an alternative to traditional payment processing services and credit card companies that will not work with marijuana businesses.

Harsh realities

However, regulators present a real and present threat to cryptocurrencies as they currently exist; for example, recent Chinese regulatory restrictions have seen the closure of platforms allowing people to buy or sell tokens.

And these threats become even more important for digital currencies servicing marijuana-related businesses ("MRBs" in the parlance of the Financial Crimes Enforcement Network of the U.S. Department of the Treasury, or FinCEN).

As longtime CoinDesk readers will recall, in March 2013, FinCEN published its initial guidance on virtual currencies. The agency defined three categories of participants: users, exchangers and administrators. A user is "a person that obtains virtual currency to purchase goods or services," whereas an exchanger is "a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency" and an administrator is "a person engaged as a business in issuing (putting into circulation) a virtual currency, and who has the authority to redeem (to withdraw from circulation) such virtual currency."

FinCEN concluded that, barring any specific exemption, exchangers and administrators are money service businesses (MSBs) and as such are subject to FinCEN registration and the framework of the Bank Secrecy Act (BSA), which was designed to aid FinCEN's investigations of potential criminal activity.

Subsequent administrative rulings have clarified that FinCEN considers digital currency exchanges, ATM operators, and payment processors to be exchangers within the agency's tripartite framework.

On the marijuana side of the equation, it is important to note that, while marijuana remains illegal federally, the industry in the U.S. exists in its current form because it is tolerated pursuant to federal policy, as set forth in the Cole Memo (put out by the Department of Justice on Aug. 29, 2013).

The Cole Memo states that while marijuana remains illegal federally, federal law enforcement should not consider prosecution of state-legal marijuana businesses if those business do not implicate any of eight enumerated enforcement priorities (e.g. preventing revenue from the sale of marijuana from going to criminal enterprises and preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or illegal activity).

A potent brew

While it is unfair to associate all digital currency use with illicit activity, there is a perception, reinforced by certain bad actors, that digital currencies are being used to launder money, divert revenue to criminal enterprises and traffic illicit drugs. Any risk that a business could be seen as violating the Cole Memo priorities needs to be treated extremely seriously as it could provoke a federal law enforcement action.

While the Cole Memo addressed violations of the Controlled Substances Act (CSA), it was silent as to financial crimes that would inevitably result from the use or banking of proceeds of a federally illegal activity. In response to financial institutions' concerns regarding accepting MRBs as clients, on Feb. 14, 2014, in two memos often referred to as the "Valentine's Day Letters," the Department of Justice and FinCEN each outlined their respective attitudes to money laundering concerns related to the violations of the CSA.

The FinCEN memo contained detailed guidelines on how to provide banking services to an MRB while remaining compliant with the BSA. These guidelines included the obligation to file different types of suspicious activity reports (SARs) in response to activity on the part of an MRB. The new DOJ memo updated the earlier Cole Memo to extend the realm of non-priority violations to include provisions of the money laundering statutes, the unlicensed money remitter statute and the BSA triggered by underlying violations of the CSA.

But the DOJ reiterated that any exercise of discretion regarding its resources was subject to the provision of services to an MRB whose activities do not trigger any of the eight priority factors. The DOJ also noted that following the FinCEN guidance was critical to remaining within the low enforcement priority category of the Cole Memo.

Again, FinCEN has also made it clear BSA compliance obligations also apply to many businesses dealing in digital currencies – exchanges, ATM operators and payment processors are all required to register as MSBs. That means that to comply with the Cole Memo and FinCEN's marijuana policy guidance, any digital currency business that is required to register as an MSB must make the required SAR reports outlined in the Feb. 14, 2014, FinCEN guidance.

Just say no

When it comes to marijuana firms using cryptocurrencies, discretion should remain the better part of valor.

The marijuana industry in the U.S. exists solely due to permissive federal policies that require businesses to follow certain guidelines, including filings SARs with FinCEN. If these guidelines are not being followed to the letter, which is a challenging and sometimes onerous task, a business is no longer within the guidance of the Cole Memo and is at higher risk of facing federal law enforcement action.

And even if these guidelines are religiously adhered to, while FinCEN-compliant use of digital currencies is not explicitly prohibited by federal policy, their use is sometimes linked by law enforcement with money laundering, illicit drug sales and other illegal activities.

As these crimes are listed as prevention priorities in the Cole Memo, digital currency use could potentially provide an excuse for Attorney General Jeff Sessions (no fan of legal marijuana) to crack down on state-legal pot enterprises.

Original Article: https://www.coindesk.com/pipe-dreams-bitcoin-wont-solve-pot-industrys-banking-problem/

The Green Organic Dutchman Holdings Ltd. Increases Financing to $36,000,000 to Accommodate Retail Demand - October 31, 2017

Further to the press release dated October 5th, 2017, The Green Organic Dutchman Holdings Ltd. (the “Company” or “TGOD”) is pleased to announce a further increase to its non-brokered offering (the “Offering”) of 3,636,050 units (“Units”) at the price of $1.65 per Unit, for total aggregate gross cash proceeds of $36,000,112 from both the Offering and the concurrent brokered offering.

The Company will provide investors with an offering memorandum (the “OM”), which will allow non-accredited investors across Canada and international jurisdictions to participate in the Offering.

“From day one we have implemented an inclusive ‘retail first’ approach at TGOD, and this financing is a continuation of that effort. This OM allows non-accredited retail investors the unique opportunity to become shareholders of our Company before our Initial Public Offering,” stated Danny Brody, Vice President of Investor Relations.

The terms of the Offering remain unchanged, with each Unit consisting of one common share of the Company (a "Common Share") and one-half common share purchase warrant of the Company (a "Warrant"). Each whole Warrant is exercisable into one Common Share (the "Warrant Share") at the exercise price of $3.00 per Warrant Share and has an expiry date that is the earlier of (a) 36 months from the date the Common Shares commence trading on a recognized stock exchange (the "Listing Date"), and (b) February 28, 2021. The Company will make all reasonable efforts to ensure the Warrants are listed on the same exchange on which the Common Shares are listed.

The Company intends to use the net proceeds of the Offering to advance the Company’s cannabis facilities in Ontario and Quebec and for general working capital purposes.

Investors looking to learn more about TGOD may visit the Company’s Investor Centre at https://tgod.ca/investor-centre/ or contact the Company at invest@tgod.ca, and patients may now register for the Company’s beta patient program at https://tgod.ca/patients/

Best Regards,

The Green Organic Dutchman Team

T: 1 (905) 304-4201

E: invest@tgod.ca

Admin Notes: Visit The Green Organic Dutchman Holdings Ltd Company Directory Listing on Invest In MJ.

The U.S. distributor of Corona beer is chasing a new type of buzz.

Constellation Brands Inc. (STZ)  has agreed to take a 9.9% stake in Canopy Growth Corp. WEED , a Canadian marijuana company, and plans to work with the grower to develop and market cannabis-infused beverages.

Canopy Growth is the world’s largest publicly traded cannabis company, with a market valuation of 2.2 billion Canadian dollars on the Toronto Stock Exchange. The C$245 million (US$191 million) deal gives Constellation a toehold in an industry that the brewer expects to be legalized nationwide in the U.S. in the coming years.

“We think that it’s highly likely, given what’s happened at the state level,” Rob Sands, chief executive of the Victor, N.Y.-based beer, wine and spirits company, said in an interview. “We’re obviously trying to get first-mover advantage.”

Constellation—flush with cash after posting a 13% increase in beer sales in its latest quarter—is interested in developing drinkable cannabis products that don’t contain alcohol, he said. Products currently on the market in U.S. states where they are legal include buzz-inducing sodas, coffees and fruit elixirs.

A worker trims medical marijuana plants at a facility in Canada, where recreational use is expected to soon be legalized.

Constellation doesn’t plan to sell such a product in the U.S. before marijuana is legalized there nationwide, Mr. Sands said, but could sell it in Canada, where edible and drinkable cannabis products are expected to be legalized by 2019, or other countries where recreational marijuana is permitted.

Independent research firm Euromonitor International estimates that the legal marijuana market in 2018 will be US$7.5 billion in Canada and $10.2 billion in the U.S.

U.S. beer-industry executives have been debating whether legalized marijuana could cannibalize sales of beer, even as other consumers migrate from beer to wine and spirits. Some brewers have experimented with cannabis-infused beers, not containing THC but instead a marijuana flavor.

“Wine and spirits are not sitting still, and marijuana is being legalized in many states,” Heineken USA Chief Executive Ronald den Elzen said at a beer wholesalers conference earlier this month. “We have to act now, and we have to do it together.”

Mr. Sands said he doesn’t see pot as a threat to booze. But if a consumer is going to choose a can of beer, a glass of wine, a shot of liquor or a weed-laced elixir, he wants to be able to offer all four, he said.

An employee with medicinal marijuana plants at Canopy Growth in Smith Falls, Ontario.

“Could it be a threat? Yes, I guess it could be,” he said. “We’re not going to stand around twiddling our thumbs.”

Medical use of marijuana has been legal in Canada since 2001. The country is expected to legalize recreational use, not including edibles, by July 2018, with edible and drinkable products expected to become legal the following year. In the U.S., eight states plus the District of Columbia have legalized marijuana, and more than 20 states have legalized it for medical purposes.

Constellation doesn’t plan to lobby for or against marijuana legalization in the U.S., Mr. Sands said.

Canopy Growth, based in Smiths Falls, Ontario, is ramping up capacity ahead of next summer’s legalization in Canada and said it would use the new capital to expand its production and storage facilities throughout the country.

The deal, expected to close by early November, gives Constellation board-observer status and the option to increase its stake to just under 20%. Canopy Growth CEO Bruce Linton said Constellation’s expertise in alcohol distribution would be helpful for the cannabis company as it determines how to distribute and package recreational cannabis. Canada’s provincial regulators are still considering how to handle the selling of marijuana, he said.

Mr. Linton said he hoped the deal could be the turning point for the nascent industry, signaling to institutional investors “that a cannabis company that fully complies within legal jurisdictions would be the right place to invest."

There are 69 publicly traded cannabis companies listed on Canada’s three main stock markets, representing about C$8 billion in market capitalization. The bulk of the trades in Canada are conducted by retail investors.

Authored By: The Wall Street Journal

Canadian Securities Exchange and OTC Markets Group Announce Strategic Alliance to Attract Foreign Issuers to North America

By Sherri Altshuler and Tyler Brent* from Aird Berlis

The Canadian Securities Exchange (“CSE”) and OTC Markets Group recently announced a strategic alliance to offer a new program for issuers looking to go-public in Canada and have cost-effective access to North American investors. Both the CSE and OTC Markets Group hope to utilize the strategic alliance to introduce foreign companies to the North American capital markets.

The alliance pairs the benefits of public company status in Canada with OTC Markets Group’s secondary market network across the United States. Under the alliance, foreign companies would raise capital through an IPO on the CSE and then broaden their reach to U.S. investors through OTC Markets Group’s dealer network. Securities would then be traded on both the CSE and over-the-counter in the United States, allowing for increased liquidity and access to funding.

Both the CSE and OTC Markets Group have publicly announced their excitement over the alliance, and hope to introduce new and compelling investment opportunities to the North American marketplace. “As a result of our relationship with OTC Markets Group, we expect to offer the most efficient access to North America’s public capital markets for foreign issuers,” said Richard Carleton, Chief Executive Officer of the CSE. “At the same time, with our partners at OTC Markets Group, we will present a series of new and interesting investment opportunities to investors in Canada and the United States.”

We expect the alliance between the CSE and OTC Markets Group will provide companies in the cannabis sector with better access to U.S. investors. As of June 30, 2017, one third of companies listed on the CSE were also quoted on one of the OTC Markets, with the bulk of companies quoted on the OTC Pink (65 companies) or the OTCQB (37 companies).

See related blog post: TSX May delist Canadian Companies With US Cannabis Exposure. 

TSX, TSX-V and CSA Clarify Their Positions on Listed Entities with Ties to U.S. Marijuana Market

By Richard Kimel, Daniel Everall and Tyler Brent*

On October 16, 2017, the Toronto Stock Exchange (“TSX”), the TSX Venture Exchange (together with the TSX, the “Exchanges”) and the Canadian Securities Administrators (the “CSA”) released separate guidance clarifying their positions on the regulation of entities with ties to the U.S. marijuana market.

The Exchanges released identical notices confirming that listed entities are not permitted to engage in the U.S. marijuana market. The Exchanges have always required applicants and listed entities to comply with all laws, rules and regulations applicable to their businesses. The Exchanges’ bulletins reminded that, despite the “Cole Memorandum,” marijuana remains a Schedule I drug, prohibited by the U.S. federal Controlled Substances Act. Therefore, entities that cultivate, distribute or possess marijuana in the U.S. (“Subject Entities”) are considered by the Exchanges to be engaging in illegal activity in contravention of the Exchanges’ policies. Further, the Exchanges suggested that financial transactions involving U.S. marijuana businesses may contravene U.S. money laundering rules. Non-compliance with the Exchanges’ requirements could lead to a delisting. Those following the space should not be surprised with this news, given that it is simply a formalization of the Exchanges’ recent informal positions.

The Exchanges also warned that entities that own Subject Entities either directly, indirectly or in substance are considered to be engaged in the business of U.S. marijuana, and therefore at risk of delisting. Similarly, entities that target Subject Entities with their products or services, or have commercial arrangements with such entities, may also be considered to be in breach of the listing requirements.

The Exchanges announced that they expect to complete reviews of all of their listed entities by the end of the year. The Exchanges expect listed entities to take steps to ensure they are in compliance with their rules, meaning that some companies may need to divest certain U.S. interests or transfer their listing to other exchanges.

The Exchanges’ approach comes in contrast to the CSA requirements, which were clarified by Staff Notice 51-352 (the “Staff Notice”). The CSA considers securities regulation to be primarily disclosure-based. Accordingly, the Staff Notice focused on disclosure requirements for listed entities, which require each entity’s disclosure fairly presents all material facts and risks. The Staff Notice emphasized that the CSA’s disclosure-based approach is premised on the entity complying with U.S. laws at the state level.

The CSA recognized that there is uncertainty associated with operating in the U.S. marijuana industry because the federal government’s policy towards non-enforcement of the federal prohibition (i.e. the “Cole Memorandum”) could change at any time. However, the CSA considered this to be largely a business risk, and barring public interest concerns, not a securities law violation provided adequate disclosure is made to investors. Specific disclosure recommendations were included in the Staff Notice as replicated here in Table 1.

 Cannabis companies applying to be or already listed on the Canadian Securities Exchange (“CSE”) will be relieved by the Staff Notice, as it largely accords with the CSE’s existing position. Consequently, companies with ties to U.S. marijuana can still list publicly in Canada and comply with our securities laws, but should consider friendlier alternatives to the TSX/TSX-V, such as the CSE.

*Tyler Brent is a 2017/2018 articling student at the firm. 

Aird Berlis is a law firm specializing in the cannabis industry.

Yesterday the Marijuana stocks listed on the Toronto Stock Exchange sold off as a result of a bulletin issued by the TMX.   The announcement affected Canadian companies listed on the TSX and was in regards to their “Business Activities Related to Marijuana in the United States.”  TSX provided some clarity of its policy, suggesting that “Issuers with ongoing business activities that violate U.S. federal law regarding marijuana are not complying with the Requirements.” 

Any company with direct or indirect ownership of direct cannabis companies, arrangements with them, providing goods or services to them and any sort of commercial interests is contrary to its policy according to the TSX.

They will take the remainder of the year and review the listed companies that are engaged in direct or ancillary services:

The Exchange notes that if a listed issuer is engaging in activities that are contrary to the Requirements, the Exchange has the discretion to initiate a delisting review under Policy 2.9 of the Manual.

The good thing is that while the selloff in Canadian LPs should be short lived as most LPs have not pursued U.S operations, with the exception of Aphria (TSX: APH) (OTC: APHQF).  They have investments in Arizona (Copperstate Farms) and in Florida, through ownership of and licensing to Liberty Health Sciences (CSE: LHS) (OTC: LHSIF), which is also vying for licenses in Ohio. 

With the exception of a handful of other companies listed on the TSX or TSX Venture most Canadian companies with cannabis business in the United States are listed on the Canadian Securities Exchange (CSE), which has no similar issue.  Any company listed on the TSX could move to the CSE or adopt the OTC in the U.S. as its primary exchange.