Regulatory Authority in Cannabis

These are unprecedented times in cannabis legalization and regulation. State regulatory agencies have been tasked with the oversight of an industry that remains federally illegal and has been stood up through a veritable patchwork of laws and regulations. Best practices are not easy to adapt when each state takes a different approach to regulation and knowledge transfer has been limited as each agency grapples with an ever-changing marketplace.

Regulators are responsible for providing transparency and compliance within the industry to ensure the health and safety of the public are a top priority. They use the powers of oversight and enforcement to ensure the legal cannabis industry in their  state are operating by the rules. They may also partner with industry, working with licensees and regulatory affairs professionals to identify challenges and create solutions that will improve the marketplace for businesses, investors, and consumers.

Historically, cannabis businesses have been stood up with equity investments from ownership and debt financing through creditors. Access to capital markets has been strained by a number of conditions both within and outside of the cannabis industry. Debt financing will continue to be the predominant source of funding for the cannabis industry to expand and improve on operations. From the regulator’s perspective, there are two key challenges that exist in the debt financing model. First is a lack of transparency into the capital funding the industry, as most agencies do not have the resources or capacity to look into the creditor’s financing the industry. Second, licensees may not avail themselves of bankruptcy protection to reorganize or restructure, resulting in costly receivership that requires a tremendous mount of time and resources by regulatory agencies and state attorneys general offices.

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