The past two years have been a whirlwind for cannabis companies looking to raise capital, going from boom, reaching stratospheric heights, to bust, leaving the industry cash-strapped well before the onset of the coronavirus pandemic. This cycle is the direct result of the myriad of federal, state and local regulatory challenges to doing business and attracting investment in the state-legal cannabis industry. (For purposes of this article, “cannabis” does not include industrial hemp (Cannabis Sativa L. with not more than 0.3% THC)—with industrial hemp no longer a federal controlled substance, most of these issues no longer apply).

As the state-legal industry began to escalate, particularly after California legalized adult use in 2018, the industry turned to a number of non-traditional investment sources and firms to raise capital, since more traditional financial have, for the most part, refused to do business with cannabis. Private equity and venture capital funds were set up to invest specifically in cannabis, but they were funded by risk-tolerant, high net worth individual investors and family offices, since the traditional fund investors (pension funds, insurance companies) would not invest.  More so, US companies looked north to the Canadian Securities Exchange (CSE) to sell equity— unlike U.S. exchanges, and other Canadian exchanges, the CSE will list companies operating in violation of U.S. federal cannabis laws.  Public and private valuations skyrocketed as a result.

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