I just lately spoke with a lawyer who was newer to representing hashish purchasers. The lawyer requested me to explain the largest authorized errors I see for hashish companies. Through the years, our hashish legal professionals have seen hashish companies make nearly each mistake within the e-book. As we speak although, I wish to speak about what I believe are among the commonest authorized errors for hashish companies from a company governance and operational standpoint.
Authorized mistake #1 – hiring a hashish lawyer and ignoring their recommendation!
Quite a lot of of us within the hashish trade don’t fairly perceive the position of a hashish lawyer. I wrote in regards to the nature of that position in dealmaking right here for what it’s price. However some of these of us appear to suppose a lawyer’s job is to rubber stamp no matter they wish to do. Perhaps the aim is to have somebody responsible if issues go mistaken, however who is aware of. Companies on the lookout for a authorized rubber stamp will ultimately get upset when it’s not forthcoming. And in lots of instances, these companies might ignore what their legal professionals stated and transfer ahead in any case. Not good!
If a lawyer says “don’t do X” or “in the event you do X then right here’s a laundry listing of unhealthy issues that may occur,” they’re doing it for purpose. If the enterprise goes forward and does the factor and faces penalties, then they not solely could have no one responsible, however their opposite opinion of counsel may make their lives even tougher down the highway. It is a large authorized mistake for hashish companies.
Authorized mistake #2 – handshake hashish offers
We’ve stated it earlier than and don’t really want to elucidate it once more – handshake offers are a giant, enormous authorized mistake for hashish companies. They only shouldn’t be taking place in 2022. Listed here are a few of our previous posts:
Authorized mistake #3 – 50/50 possession of a hashish enterprise
One other quite common authorized mistake that hashish companies — particularly startups — make is 50/50 possession. I wrote a submit about this referred to as “50/50 Hashish Enterprise Possession: A Horrible Concept.” That submit sums the difficulty up utterly. The gist is that in a enterprise that has 50/50 possession, any disunity in decision-making can grind the enterprise to a halt.
There are straightforward methods to repair this like impasse provisions or giving one associate extra of a vote on sure selections. However a variety of companies don’t do that. I’ve had individuals get mad at me for suggesting that they wanted a impasse provision – “hey, we’re greatest mates, we’d by no means combat, we don’t like that you just’re even suggesting this!” That form of stuff. It doesn’t matter how pleasant companions are: if the enterprise is deep within the monetary gap or is having issues, they’ll inevitably cease seeing eye to eye. If two individuals desire a enterprise to fail, that is the best way to do it.
Authorized mistake #4 – unhealthy enterprise “marriages”
Kind of alongside the identical traces as 50/50 ownerships are what I name unhealthy enterprise marriages. These are conditions when individuals with wildly completely different backgrounds and expectations become involved in the identical enterprise or venture. This occurs on a regular basis within the hashish world. The most typical one in all these is when somebody from an old-school trade with plenty of cash will get paired with somebody with a long time of expertise within the hashish trade however no enterprise expertise in a longtime trade the place written contracts, record-keeping, paying taxes, and many others. are the norm.
Quite a lot of the old-school enterprise varieties are initially obsessed with the skilled hashish operators – “hey, this individual is aware of what they’re doing, we’re going to quadruple our funding!” When that doesn’t occur, issues will go south. And if the old-school investor pops their head underneath the hood of the enterprise, that’s when issues can truly blow up.
There are some issues that individuals in these positions can do to guard themselves if they’ve good legal professionals, however they usually don’t concern themselves till it’s too late – one other enormous authorized mistake for hashish companies.