One of the cannabis litigation trends we discussed in a recent webinar was the increasing number of lawsuits alleging some type of fraud by cannabis companies during the capital-raise phase of their businesses. For most businesspeople, raising capital to fund their new business is essential. Just as essential is making sure that you comply with federal and state securities laws. We’ve been writing about the intersection of these issues for several years.
Perhaps the most critical thing for cannabis entrepreneurs to know is that federal law and state counterparts define the term “security” quite broadly. So broadly that nearly any method of raising capital for a business venture falls under the rubric of offering a security that is subject to stringent rules and regulations. As Jonathan Bench helpfully summarizes, “[i]n the cannabis industry, a ‘security’ is any type of financial interest in any business venture for any amount over any period of time, even if that business is not a formally registered company.”
This blog post discusses a recent decision by the Southern District of New York dismissing a securities fraud lawsuit filed against a Canadian company that sought to raise money as part of an international hemp-CBD business plan