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Banking and Restructuring Controlled Substance Act Employment Issues Legislation Meet Blank Rome Mergers and Acquisitions Regulatory Compliance

Turning Over a New Leaf: How Cannabis Receiverships Can Cultivate a Stronger Future

Lauren Medeiros Forster —

It is no secret that the cannabis industry has been on a wild ride lately, especially in mature markets. Many operators are feeling the pressure, and they are not alone. Let us break down the current landscape, why it is tough out there, and how receiverships and distressed sales might actually be a positive move for struggling cannabis companies.

Many developed cannabis markets are facing serious challenges. Inflation and a shaky economy are making it harder for businesses to stay afloat (regardless of industry type), on top of market saturation that has caused cannabis prices to drop, and tight profit margins for businesses in the more established marijuana states. This is compounded with the harsh effects of tax burdens due to 280E—where cannabis companies are unable to deduct otherwise established business expenses from gross income as a result of the federal illegality of cannabis in the United States—and lack of liquidity from inability to access traditional debt financing and institutional equity markets. As a result, many cannabis companies are finding it difficult to pay their debts and keep the lights on. And because cannabis is still federally illegal in the United States, struggling cannabis operators are limited when it comes to utilizing federal bankruptcy mechanisms for relief.

But hope is not lost. Even in tough times, cannabis businesses along with their management, creditors, and investors, have found options to help their companies restructure and move forward. One of those is a state-level receivership.

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ESOPs (Employee Stock Ownership Plans) Mergers and Acquisitions

On-Demand Webinar: Understanding Cannabis Employee Stock Ownership Plans (“ESOPs”)—Key Questions and Practical Insights

Frank A. Segall, Scott H. Moskol and Jason S. Luter—

In a rapidly evolving cannabis industry, business owners are facing mounting challenges, from limited access to capital and 280E tax burdens to succession planning and founder burnout. Could Employee Stock Ownership Plans (“ESOPs”) be the solution?

In this webinar, Blank Rome partners Frank A. Segall, Scott H. Moskol, and Jason S. Luter, along with Symphony Risk’s president TJ Frost and director Corey Tobin, explore how ESOPs work, why they’re particularly well suited for cannabis companies, and what’s involved in executing one successfully.

Whether you are frustrated with 280E, exploring exit strategies, looking to boost employee retention, or simply curious about alternative ownership models, this session offers practical insights and real-world guidance.

Watch the full webinar to learn how ESOPs can help you build a more resilient, tax-efficient, and employee-driven cannabis business:

If you would like more information, please reach out to Blank Rome’s Cannabis or ESOP team.

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ESOPs (Employee Stock Ownership Plans) Mergers and Acquisitions

FAQ: Employee Stock Ownership Plans (“ESOPs”) in the Cannabis Industry

Scott H. Moskol and Jason S. Luter —

Welcome to our latest blog post where we delve into the intricacies of Employee Stock Ownership Plans (“ESOPs”). Scott H. Moskol, a partner and co-chair of the Cannabis practice at Blank Rome, and Jason S. Luter, a partner, chair of the firm’s ESOP practice, and co-chair of the firm’s Dallas office answer frequently asked questions about the benefits and mechanisms of ESOPs, particularly within the context of the cannabis sector.

How long have ESOPs been around?
The first ESOP was established in 1956 by Louis Kelso for Peninsula Newspapers. The concept was formalized in federal law by the Employee Retirement Income Security Act of 1974 (“ERISA”).

Are ESOPs used for any other businesses or just cannabis?
Yes, according to the National Center for Employee Ownership, as of the beginning of 2025, 6,358 ESOP companies exist, collectively employing approximately 10.8 million employees, representing almost 8 percent of the private sector workforce in the United States. Over 50 percent of private ESOP companies are in one of three industry categories: Manufacturing (21 percent), Professional/Sci/Tech Services (19 percent), and Construction (15 percent).

For what size cannabis company does an ESOP make sense?
While around $20 million in minimum gross revenues and a minimum of 15 to 20 employees across a cannabis company’s operations is probably ideal, in certain instances an ESOP for a cannabis company with minimum gross revenues of $5–$10 million can be feasible.

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ESOPs (Employee Stock Ownership Plans) Mergers and Acquisitions

Cannabis ESOPs Provide Solutions for Operators

Scott H. Moskol and Jason S. Luter —

As we enter Q2 of 2025, the cannabis industry has become increasingly pessimistic about the elimination of Section 280E of the Internal Revenue Code, whether via rescheduling or otherwise. Rescheduling appears unlikely in the foreseeable future, and certain members of the Senate have filed a bill that would make 280E continue to apply even if rescheduling were to occur

Cannabis ESOPs (employee stock ownership plans) can provide a structure to avoid 280E, as well as federal and state income tax, entirely.

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Legislation Regulatory Compliance

Continued Momentum for Social Consumption Lounges

Gustav Stickley V —

For a long time, social consumption lounges have been a sort of “White Whale” in the adult-use cannabis industry, murmured about and pursued but rarely spotted. Luckily for us Captain Ahabs, a number of state legislatures have begun taking action on developing a licensing and operational framework for social consumption lounges and cannabis events permitting consumption. The Cannabis Control Commission of Massachusetts issued its proposed rules and licensing structure at the end of 2024 (see Social Consumption Lounges in Massachusetts: Proposed Rules for more information). Most recently at the end of January, Maryland’s house and senate also took action by introducing two complementary bills to establish rules and to regulate the hosting of events permitting cannabis consumption in the Old Line State (Legislation – HB0132 and Legislation – SB0215). Connecticut, New Jersey, and New York have also recently taken steps towards developing and enhancing the social consumption lounge regime in their respective states.

Both Maryland bills remain under review of the respective finance committees, but here is a quick hitter summary on the contents.

  • Initially, the state would accept applications for 15 licenses that would permit the serving of single-serving, infused beverages and edibles sourced from third-party operators.
  • Neither the smoking of cannabis nor the infusion of foods and beverages on-site would be permitted.
  • Licensed locations would provide the Maryland Cannabis Administration at least 60 days advance notice of an event involving cannabis consumption. Therefore, this license type wouldn’t operate as a social consumption lounge, but would permit a location to host a temporary cannabis event where the consumption of cannabis products is permitted.

As you can see, the proposed bills are quite restrictive, but I choose to view progress as is and take solace in the old adage, “Rome wasn’t built in a day.”

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Legislation Regulatory Compliance

MA Cannabis Commission Releases New HCA Resources

Lauren Medeiros Forster —

Last week, the Massachusetts Cannabis Control Commission (“CCC” or the “Commission”) released new resources for navigating the rocky waters of community impact fees (“CIFs”) and host community agreements (“HCAs”). This announcement likely comes in response to the ruminating and yearning for additional guidance by operators and municipalities following the CCC’s release of new regulations and host community agreement template last year. See our prior blog post, “CCC’s Model HCA & Approval Process,” for more information on those regulations and HCA template.

This new release details several new resources available to cannabis businesses and their host communities in Massachusetts. Kimberly Roy, the Commissioner and Chapter 180 Working Group HCA Co-Chair stated, “[t]hese guidance documents are meant to serve as compliance tools to help clarify and streamline the new processes. As we approach the one-year mark in March of the new HCA requirements, the Commission continues to exercise its statutorily given authority to review and approve Host Community Agreements to ensure these contracts are compliant with current law.”

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Controlled Substance Act

Hold Your Horses – Cannabis Rescheduling Hearings Stayed, Pending Appeal

Max M. Borg —

In the latest development in a road to rescheduling cannabis from Schedule I to Schedule III under the Controlled Substances Act (“CSA”), on January 13, 2025, in the Matter of Schedules of Controlled Substances: Proposed Rescheduling of Marijuana, DEA Docket No. 1362 Hearing Docket No. 24-44, Chief Administrative Law Judge (“ALJ”) John Mulrooney cancelled the January 21, 2025 hearing on the merits of the Drug Enforcement Agency’s (“DEA”) proposal to reschedule cannabis from Schedule I to Schedule III.

After a request by two private movants (the “Movants”) to remove the DEA from its role as proponent of the proposed reclassification rule was denied, the Movants filed a motion for the ALJ to reconsider its denial of this request. On January 13, 2025, ALJ Mulrooney (i) denied the motion for reconsideration but (ii) granted leave for the Movants to file an interlocutory appeal on the merits of ALJ Mulrooney’s refusal to remove the DEA as proponent of the reclassification. While this Order opens the door on appeal to potentially enable to a private actor to replace the DEA as proponent of the reclassification, the January 13 Order will surely cause further delay in the process of potential rescheduling, evidenced by ALJ Mulrooney’s ordering the Movants and the Government to provide a joint status update 90 days from the issuance of the Order, and every 90 days thereafter.

For those hoping that cannabis would be reclassified before the Trump administration enters office, this is a major disappointment. For those who have been paying attention, this is no surprise, and more of the same.

In a constantly evolving and [still – very] nascent industry like the cannabis industry, one truth has remained: it is a fools errand to try to predict if, when, and how regulatory changes and developments will occur at the federal level. For years, there have been similar questions floated and discussed amongst advisors, operators, and investors in the cannabis industry: “when will cannabis be legalized?”,“when will the SAFE act pass”, “surely Congress will do something, right?”.

Federal action is largely an issue of legislative and regulatory priorities (or, as we have seen, a lack-thereof). Folks can talk and pontificate all they want, but the reality has remained the same: States (at this point, 39 in total, having already passed laws allowing medical marijuana use) are left to fend for themselves, as are the businesses trying to operate with one (if not two) arms tied behind their back.

When President Biden requested in October 2022 for the U.S. Department of Health and Human Services (“HHS”) to “initiate the administrative process to review expeditiously how marijuana is scheduled under federal law”, there was tepid excitement. Hey – the White House is asking HHS to look into this… progress! Then, in August 2023, HHS issued a recommendation to the DEA that cannabis be reclassified from Schedule I to Schedule III under the CSA. At this point, industry participants started to cautiously buy in – maybe – just maybe – this will be the time something actually happens. After all, for business operators, a reclassification to Schedule III under the CSA, would have potentially huge implications – potentially rendering §280E of the tax code inapplicable to cannabis businesses, opening the door for cannabis businesses to deduct various business expenses like any other businesses complying with their state and local laws. And yet, here we are, almost two and a half years later, and the industry is still hoping for change at the federal level.

For operators and investors alike, the reality is simple. Now is not the time to focus on what could happen – or what we hope will happen – at the federal level. Industry participants must continue to focus on what they control: increasing operational efficiency to achieve and maintain profitability.

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Legislation Regulatory Compliance

Social Consumption Lounges in Massachusetts: Proposed Rules

Gustav Stickley V —

At the formal meeting of the Massachusetts Cannabis Control Commission (the “CCC”) on December 17, 2024, the CCC introduced proposed rules to govern cannabis consumption lounges. It has long been understood that, as the adult use cannabis market matured, the CCC would revisit the sparse regulations governing social consumption lounges and develop a licensure process. 

Below is a summary of the three proposed license types and the draft regulations, which are open for comment from stakeholders until 5 p.m. EST on Thursday, January 23, 2025. Following this initial comment period the proposed regulations will be published to solicit public comment. All capitalized terms used herein shall have the meanings given to them in the proposed Adult-Use Regulations (935 CMR 500.002), which are available here.

License Types

The following licenses will be exclusively available to Social Equity Businesses, Social Equity Program Participants, Certified Economic Empowerment Priority Applicants, Microbusinesses, and Craft Marijuana Cooperatives for an initial period of 60 months, an extension of the current exclusivity period of 36 months.

Read the full client alert on our website.

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Banking and Restructuring Mergers and Acquisitions Regulatory Compliance

November 2024 Transaction Highlights: A Month of Newsworthy Successes

Marc A. Polito —

Our Cannabis Industry Group would like to thank our clients—major cannabis market leaders—for yet another successful month, trusting us to close several notable and newsworthy deals across various practice areas and industries in November 2024. Our team of dedicated attorneys provided strategic counsel on complex transactions, including banking and finance, mergers and acquisitions, workouts and receiverships, and public securities, showcasing our commitment to delivering exceptional results for our clients. These achievements underscore the strong partnerships we have with our clients, as well as our firm’s extensive experience and collaborative approach to navigating intricate legal and business landscapes while servicing major market leaders in the cannabis industry.

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Interviews

Blank Rome State of the Cannabis Industry Panelist Interview Series: Jacques Santucci, Opus Consulting President

Max M. Borg —

We’re looking forward to welcoming experts and industry leaders from across the country to our Eighth Annual State of the Cannabis Industry Conference next month, where we’ll learn from their unique strategic insights, experiences, and expertise on the cannabis industry.

As the conference draws closer, we are featuring a series of interviews with several of our panelists. These conversations will provide a glimpse into their diverse backgrounds and perspectives, and give our readers and conference attendees a preview of the compelling topics we will be showcasing at the conference.

For our latest interview, we sat down with Jacques Santucci, President of Opus Consulting.