STATE AUTHORITIES are targeting underground cannabis retailers in Southern California, serving them tax warrants for unpaid taxes and seizing product and cash.

The California Department of Tax and Fee Administration seized nearly a million dollars in illegal cannabis products that will be destroyed, and around $100,000 in cash that will be applied to tax liabilities.

Under state law, any person who evades or attempts to evade the reporting, assessment or payment of the cultivation tax, the cannabis excise tax, or the sales tax that is supposed to be collected on the sale of cannabis products, can be prosecuted for cannabis and sales tax evasion.

If you are operating a legal cannabis business, you should have nothing to worry about as the raids were on companies that are operating unlicensed and illegally.

Details Matter When Fighting Investor Law suits

The cannabis industry is facing a growing tide of investor and class action lawsuits, largely alleging unfulfilled promises, overly rosy sales projections, a lack of transparency or outright fraud.

These lawsuits can financially cripple a growing enterprise in an already difficult regulatory market amid a pandemic.

Meanwhile, the cost of directors and officers liability insurance that would cover these kinds of legal actions is going through the roof, if it can be even be placed in some cases.

Legal experts say cannabis firms can take steps to reduce their risk by being more transparent detailed when reporting:

• The company’s financials,
• The potential of their products,
• The value of their transactions, and
• Other relevant information.

Transparency and thoroughness are the key to reducing the chances of being sued and also building a strong defense against any litigation that could come.

When a company is selling stock it is required to disclose all relevant risks it faces in advance in its stock offering filing.

That should include the company’s risks, opportunities, weaknesses and strengths, as well as detailed financials.

All of these items should be explored thoroughly so that investors understand everything the company is up against.

In the case of cannabis companies, risks include regulatory issues, dealing with conflicting state and federal laws on cannabis, security risks, and more.

Unfortunately, in the rush to raise funds, some companies take shortcuts and may not be as thorough as they should, particularly if they have a limited budget.

WHY DETAILS MATTER

In 2019, a New York state court threw out a class-action securities case against Sundial Growers mainly because the cannabis grower had spelled out the company’s risk factors ad nauseum over 35 pages in its public stock offering filing.

Continue Being Transparent in All Communications, Filings

Don’t stop

The attention to detail and transparency goes beyond the
initial public offering.

Publicly traded companies also issue quarterly earnings, make regulatory filings, publish news releases and have calls with industry analysts. Investors with a stake in the company will be poring over all of that information, so it should be accurate and forthright.

You should also have in place a process for vetting and checking all public statements and filings for accuracy and thoroughness. 

Get a Quote

If you’re looking for a team of specialists who can help your cannabis business navigate state laws and regulations like this, contact Cannabis Connect today for a free quote.

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