Your Cannabis Business Structure or Transaction: Planning > Doing
“An hour of planning can save ten hours of doing.” Apparently, Dale Carnegie said that. Mr. Carnegie was a 20th century influencer, who, as far as I can tell, never sold any weed. He did make a pile of money selling books and talks on how to be confident, charming, etc. That’s not my cup of tea (the “telling people” part), but I do like his quote. I would add that, as applied to legal matters, an hour of planning can save ten hours of doing, as well as undoing. Sometimes, it’s more than ten hours too.
For the past decade, I’ve taken several calls a week from individuals making a play in the cannabis industry. Some of these callers haven’t yet taken any formal steps; others are partway down the road, amid some episode with legal atmospherics; and a third group is similar to the second group, but dealing with self-inflicted wounds. We’re talking about the third group today.
In many cases, the third group is suffering because they failed to map out a course of action prior to someone doing something “material,” to use a lawyerly term. Or they mapped out a course of action without good advice. As a result, they signed something stupid, when they should not have; or they didn’t sign anything at all, when they should have. Much can go wrong without basic planning or serviceable documents. For better or worse, cleaning up those messes has kept me (and some of the litigators here) plenty busy over the years.
Most business deals are not particularly complex. If they are, you may be doing it wrong. The longer I persist as a lawyer, the more I lean on clients to keep it simple. You want agreements that are strictly necessary, not overbuilt, bespoke, and totally bombproof— or as close as you can get. Before anyone can draft them though, and before taking actions with legal ramifications, it’s critical to reduce things to writing. A roadmap can be helpful here.
A roadmap does not have to be overly long or complex. But it should be global, if that makes sense. It should hit the high notes. It should flesh out the basic structure of the cannabis enterprise, the required contributions of the players, their voting and economic rights, and any unique considerations. Often, would-be partners believe that everyone is on the same page, only to be surprised when either: a) they try to reduce their understandings to a writing, or b) something happens.
A classic example is a situation where a group of people hopes to “partner up”, and each brings disparate resources to the arrangement. One person has money; a second has connections; a third has expertise. They just start “doing things.” The person with money may sign a real estate or license purchase agreement in that person’s name, while intending that the asset become part of the business. The person with connections may register an ill-fitting corporate entity, or miss a critical deadline (easy to do). The person with expertise may just start working, in the expectation of receiving some sort of “salary.” There are so many hazards here.
I prefer working with clients at the outset of an enterprise or transaction. I know I can add value in every case, and I’d rather build a serviceable model than try to fix something— even if the fixing pays better. Yes, there is an up-front cost to working with a bona fide business lawyer or accountant who understands cannabis. Yes, there may be upfront negotiation—and even disagreements—with partners in dialing in terms. But, as Dale Carnegie also apparently said: “fear not those who argue, but those who dodge.” Once again I agree with Mr. Carnegie. Don’t dodge! You’ll pay.
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