Colorado House Bill 1090 And Limited Due Diligence Oversight In Cannabis

By Chris Woods, founder and CEO Terrapin Care Station.

Colorado House Bill 19-1090 certainly opened the door for increased investment in the cannabis space. Unfortunately, it also appears to be accelerating the homogenization and conglomeration of the state’s cannabis industry, shutting out smaller and mid-sized companies, while allowing larger multi-state operations to shape a national footprint outside of the Centennial State.

By enabling publicly traded corporations, as well as qualified private funds, to become eligible to hold an interest in Colorado cannabis businesses upon Marijuana Enforcement Division approval, the bill effectively allows greater investment flexibility. However, there also appears to be a dangerous downside: a lack of due diligence when looking at acquisitions and investments.

A Dearth Of Due Diligence 

Let’s face it. With banks concerned about federal regulations, cannabis companies are forced to turn to venture-capital investment and deals to raise money. But cannabis stocks remain incredibly volatile, and it can be difficult to unearth the right financial information to know which companies deserve your money. Making matters worse, the fear that this bill would hinder due diligence efforts is already being realized.

After releasing a statewide bulletin acknowledging the Colorado marijuana industry’s desire for swift action that would expand access to capital, the MED began authorizing licensees to enter into nonbinding agreements with publicly traded corporations, institutional investors or other entities found suitable by the MED. Consequently, large publicly traded companies started working to build vertically integrated operations through a string of inorganic growth initiatives levered to Colorado. Indeed, the “wholesaling” of the state’s cannabis industry is underway.

See also: How Texas Can Do What California Won’t: Get Cannabis Regulation Right

Citing limited due diligence, Medicine Man Technologies’ parent company, Schwazze, recently terminated a pair of acquisitions of Colorado marijuana businesses. In an investor release, the company noted that through its “rigorous M&A process,” key business and valuation issues were revealed, forcing the company to no longer pursue the acquisitions. Schwazze should be commended for walking back the deal after acknowledging the troubled financial landscape. But what happens when M&As like …

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