Cannabis Group Co-Chair, Priya Sopori, Featured in L.A. Times Business of Cannabis Roundtable

The cannabis space continues to evolve and has now become a multi-billion-dollar industry. Cannabis Group Co-Chair Priya Sopori shares insights regarding the ins and outs of navigating through a diverse and fast-growing sector. 

The below listed questions were originally produced and published by the L.A. Times B2B Publishing Team. The full roundtable feature can be accessed here.

Q: What qualities are investors looking for when determining which cannabis companies to invest in?

Sopori: Using a calculus that is not so different from investors who are looking to invest in non-cannabis companies, potential cannabis investors are most interested in three qualities: first, companies with control over a strong brand with a devoted consumer following; second, scalability of the brand, the product line and business model; and third, the company has secured all licenses necessary to perform the fundamental functions of its core business and has strictly complied with all regulatory requirements. Investing in a cannabis company is not for the faint of heart. As with any investment, evaluation of risk tolerance is especially important. Because most operators are not in a position to avail themselves of traditional banking services, it is crucial that investors trust all involved parties and conduct thorough diligence before moving forward with any deal.

Q: What are the latest trends you have seen in the cannabis industry in California?

Sopori: Celebrity endorsements have become increasingly popular with varying degrees of success. Products branded by stars – from lifestyle gurus to notorious rappers – have found a place in the market, and the industry will likely see more of these celebrity endorsements going forward. Beyond a mere entertainer or popular “influencer,” Humphrey Bogart is planning to lend his name and iconic image to a cannabis brand, and we are also likely to see well-known athletes offer endorsements as more athletic organizations come to recognize and respect the medicinal qualities of cannabis.

Q: Describe some of the legal and regulatory risks and challenges that are faced by cannabis businesses in 2022.

Sopori: The biggest challenges in 2022 remain substantially the same as in previous years: banking, taxes, and federal law. Because cannabis remains a controlled substance and illegal under federal law, banks that are governed by federal law and federally insured – virtually all large financial institutions – are extremely hesitant to transact business with cannabis companies. Similarly, cannabis businesses must continue to scrupulously avoid the sale and/or transportation of product across state lines, which would violate federal law. Once upon a time, the procurement and maintenance of a dedicated compliance team may have been considered a luxury. However, in today’s climate of frequently changing local and state regulations, it has become a necessity.

Q: What are the most common liability risks you see cannabis businesses facing?

Sopori: Disputes among partners and co-owners are among the most common risks of liability facing cannabis businesses. Oftentimes, a small fledgling business becomes enormously successful and profits increase, but some owners no longer view their original understandings or agreements (if they exist) with the same perspective. Disagreements with respect to shares of the profits or control over the licenses begin to arise. Another common risk involves intellectual property, especially when it comes to the names of cannabis strains. While the historical names of certain strains are immediately recognizable within cannabis culture, those amusing, ironic names may also be associated with candy, cartoons, or other non-cannabis products. The decidedly unamusing consequence can be trademark infringement actions or accusations and lawsuits that contend the entire industry is marketing products to underage consumers.

Q: What advice would you offer California-based cannabis companies who want to expand to other states in 2022?

Sopori: As you might expect when expanding any highly-regulated business, you will likely need three different types of specialists – all of whom have experience in the cannabis industry: attorneys, compliance consultants, and accountants. Do not be pennywise and pound foolish by cutting corners and hoping for the best. Expect qualified specialists to charge accordingly. On the other hand, among these three service providers, chances are that your attorneys will be the most expensive. Do not retain an attorney to provide the services of an accountant. Similarly, a compliance specialist within your jurisdiction will have the time and opportunity to closely monitor and report even the tiniest of revisions in the regulations. Bring those reports to your attorneys whose expertise will be best utilized in helping you determine whether and/or how to adapt to those regulations.