What’s next for cannabis?Commercial litigation perspective
Not long ago, after the 2018 Farm Bill was enacted, the news media was flooded with economic reports about the booming cannabis and CBD industries. Everyone will get rich. And quickly.
Fast forward to 2021, and things have changed dramatically. At least in Oregon, selling biomass—especially biomass before the 2020 harvest—is a tough game. Many cannabis producers I know in Oregon have fewer plantations this year than in 2020, and much lower than in 2019. The costs and risks of biomass cultivation generally exceed the rate of return (ROR). Coupled with the uncertain regulatory environment, processing bottlenecks, and consumer demand for cannabis/CBD, it simply doesn’t match the fact that many investors and companies are “full-time” cannabis predicted. It is a difficult industry.
Even the cannabis flower market (e.g. Smokeable) Did not provide investors with promised returns. Planting cannabis alone can be an expensive and risky proposal (drought, fire, male plants, testing). Add in the cost of harvesting, drying, pruning, pruning, and storage—maybe more than $60 per pound—and ROR is not what everyone thinks.
We are dealing with several multi-million dollar marijuana lawsuits in different jurisdictions. A common theme is that everyone thinks they will get rich, but that is not the case. In the past few years, lawyers (like me) who work with cannabis growers, processors, and manufacturers and retailers have experienced many financial disasters. I can count on the number of cases with more than two hands involving millions of dollars (or more) of investment, and the parties are really fighting for scrap. Stories of cannabis wasted in the field, cannabis cannot be processed, cannot be sold, and processing facilities are half built are all too common.
With the collapse and loss of investment, lawsuits related to marijuana have increased significantly. Our cannabis/CBD lawyers have represented various stakeholders in several pending cannabis lawsuits, and I can tell you that it is difficult for anyone who thinks litigation is a way to recoup their investment. Unless you have some kind of guarantee-and have filed a UCC financing statement to complete the lien-or you have taken other measures to protect your investment, you may just spend a lot of money in pursuing a marijuana lawsuit.
To be sure, everything is not doom and pessimism. There are hemp/CBD farmers and companies doing it right and even making a profit. So what is the secret? Well, if I am sure I will become a hemp farmer! But the characteristics that I see that lead to success are not that different from what people find in well-run companies in other industries. They know their cost.They know their business partners, even if the relationship is good, they Use paper anyway To reduce risk and limit exposure. They will not over-expand financially and have developed contingency plans in case of problems. Instead of saving a few dollars and spending more on trial lawyers, they hire a good lawyer to review contracts, company documents, loan agreements, etc. at the beginning of operations.
What’s next? In my opinion, this industry is in the stage of winnowing. Those who have survived these difficult years and are realistic about the potential ROR in the future will continue to operate and make some money. Many people who find themselves upside down will not be able to adjust their direction and will look for any reasonable exit. As with any loss, there are opportunities.