Cannabis attorneys Alexa Steinberg and Michelle Mabugat shared their insights regarding social equity licenses for cannabis businesses and LACBA’s Pro Bono Program with Los Angeles Lawyer.

Excerpt:

Michelle Mabugat and Alexa Steinberg of the law firm Greenberg Glusker Fields Claman & Machtinger, LLP are corporate and transactional attorneys specializing in cannabis licensing and corporate matters. They note that the updated social equity rules did away with the equity tier system. The DCR now refers to this “tier” system as the “Original Eligibility Verification.” 

Mabugat and Steinberg represent SEIAs and investors. They note that investors can spend between $500,000 to $3 million to start a cannabis business before a license is approved. Moreover, it can take up to four years to turn a profit, depending on the retail location and other factors. They believe that debt expressed in percentages can be code-compliant. For example, a license agreement with a known cannabis brand that requires 10 percent of net revenue for the right to use the brand’s trademark on the retail store’s awning would be legitimate. To help investors avoid a percentage-of-costs dispute with SEIAs, Mabugat and Steinberg also suggest using a fixed monthly dollar amount for normal operating expenses such as management fees. The net proceeds are then divided under the Equity Share profits structure of 51 percent to the SEIA and 49 percent to the investor.

Mabugat and Steinberg believe that fairness and proficiency should govern voting rights and that allowing board members with business experience to make decisions benefits all parties.

Mabugat and Steinberg warn that the cannabis licensing process has unforgiving deadlines.

Resources

• Los Angeles Lawyer