Are you a cannapreneur thinking about starting a cannabusiness? You’ll need to take a few steps and prepare several documents to give your new venture a solid legal foundation.
Articles of Incorporation/Organization
To protect your personal assets from business risks and financial liabilities, you will want to form a legal entity such a corporation or limited liability company by registering the new entity with the Secretary of State of your home state (or another state of your choosing). These days, standard filings in most states can be done online, although there are situations where online filings won’t work, such as when you need to do something nonstandard like including specific indemnity provisions for your board of directors or creation of different classes of stock (common and preferred or voting and non-voting).
Internal Governance Agreements
If you have more than one shareholder or a multi-member LLC, it is dangerous to proceed without both an operating agreement and without an initial set of organizational resolutions. In fact corporation must have bylaws and organizational meeting minutes and resolutions to complete the incorporation process and install the initial officers and directors. The shareholder or operating agreement in particular is going to define the spectrum of voting and economic rights each member has in the company, as well as crucial operational such as what happens when the company requires more capital or when a member endangers the company’s state-issued license. Depending on your business structure, you may need a subscription agreement, offering agreement, non-disclosure and non-compete agreements, voting agreement, proxy agreements, or other documents regarding the rights and responsibilities of the equity owners.
Even if one of the cannabis business owners also owns the real estate being used for the business, you are going to need a cannabis-business specific lease from the property owner to the operating entity for the cannabusiness. A well drafted lease will insulate the property and its owners from liability if the cannabis business fails, or finds itself in litigation. When your business is leasing from a perfect stranger, the lease becomes even more important to outline the basic terms of the landlord-tenant relationship, on everything from your rights to occupy the property, to your rights to make modifications required to obtain a license.
If you have even one employee in your business, having an employee handbook is critical in this highly regulated industry. This is also a good idea where only owners will be working for the business. A good handbook will set forth guidelines and expectations for workers, and perhaps most importantly, it can give a broad array of legal protections to business owners.
If your cannabis business is doing a business transaction with a third party you will want to be sure the terms and conditions of the business relationship is memorialized in writing. Handshake agreements won’t work well in a heavily regulated industry like cannabusiness where the terms of agreements must be subject to regulatory review. Contracts give a broad array of legal protections to the business owners.
When opening a new cannabusiness venture, a cannabis lawyer can be especially helpful to help navigate the many unique issues encountered in the cannabis industry. Our team can help New York cannapreneurs and investors with these industry specific legal issues.