Cannabis NAVIGATING OPPORTUNITIES IN AN OPENING MARKET - DLA Piper
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CANNABIS Introduction Cannabis remains a controlled substance in most jurisdictions, but the demand for medicinal, wellbeing and recreational cannabis products and their derivatives is undeniable. The transformative potential of what is emerging, as governments consider the public health and tax benefits, reaches far beyond the simple growing and selling of the plant, as cannabis promises to upend the status quo in a number of industries. Entrenched players in the food DLA Piper’s team covers the range and drink, energy, tobacco and of corporate, intellectual property, pharmaceutical sectors are all trying technology and R&D, employment, to anticipate this growing market. regulatory (importantly, both life Now executives across industries sciences and financial) and litigation as diverse as cosmetics and pet services, and we are acting across food are considering how cannabis every segment of pharmaceutical, is going to reshape their markets, biopharmaceutical, wellness and and if they should acquire, partner medical sectors around the globe. or compete with these new entrants. The practice’s provision of legal services is limited to those clients One thing is clear, they cannot whose conduct is legal in the be ignored and this industry is jurisdiction in question. primed for growth. High-growth industries with the DLA Piper is a leading participant breadth and scope of where in the nascent cannabis industry; cannabis can pervade come with from start-up to private and an enormous regulatory burden. public fundraisings, acquisition Smart firms must have a realistic and post-merger, we are there to plan to deal with the compliance advise and help clients navigate dragnet that inevitably follows uncertain waters. We have from a lack of geographical observed a number of divergent harmonisation. Smarter firms scan streams materialising from the the horizon and plan ahead of it shifting tectonic plates of cannabis and that’s where DLA Piper can help. regulation across the globe. Uncertainty and service gaps are appearing as the forces of innovation and disruption clash with the variant maturity speeds of global regimes. 2
CANNABIS Sources of funding for research and development of cannabis products capital investment or intellectual Due to the heavy regulatory burden and criminal property commercialisation vehicles categorization of cannabis in a number of countries, and joint ventures, through to other sources of funding, including further research on cannabinoids and their therapeutic rounds of private investment or on benefits has been limited to date. the public capital markets. Change is on the horizon, base on the therapeutic benefit Small to medium-sized companies as governments around the world of these products so that we in particular may not have sufficient seek to liberalise their laws and can maximize their potential as funds to break into the market regulations as it relates to cannabis, medicines”. Such research and which can be capital intensive, in order to encourage, amongst product development will no doubt such as covering the costs of other things, more R&D in the require significant funding. the regulatory and licensing sector. For example, research requirements for the sector, and development in the UK of Companies seeking to develop or or developing their business. cannabis-based products is sell cannabis products will need They may wish to seek investment expected to increase significantly to consider how they will fund from private, corporate or following the UK government’s their businesses. Depending on the institutional investors or look to recent announcement. In the development stage of the product, raise capital by way of an initial announcement, the Secretary this can either be through initial public offering (IPO) of equity of State for Health recognised the funding by university research shares on public markets. need to “build a greater research grants and spin-outs, venture 4
WWW.DLAPIPER.COM Venture capital and private equity • Our experience – more than We are a market leader in nurturing emerging growth 3,000 venture capital transactions, companies, seeking access to venture and private totalling over USD40 billion in value since 2006. We are equity growth capital, with 600 lawyers around the consistently ranked among the world who specifically serve entrepreneurs, start-up top five law firms for global venture capital, private equity and companies, funds and other stakeholders. With more M&A by deal volume than 95 offices globally, we are strategically positioned (PitchBook, 2006–2018). to effectively advise and represent investors, CASE STUDY licenced producers, licenced dealers, laboratories, Acreage Holdings We acted for Acreage Holdings, a pharmaceutical companies, service providers, leading U.S. multi-state cannabis start-ups and established businesses on a full range of operator on its USD3.4 billion arrangement with Canopy legal issues relating to the cannabis industry where it is Growth. Canopy Growth received lawful to do so. the option to acquire all of the issued and outstanding shares in Growing your business Why choose us the capital of Acreage Holdings, For today’s emerging growth Emerging growth clients need with a requirement to do so, company to become tomorrow’s more than just advice to help upon a change in United States success story, an organisation their businesses prosper. federal laws to permit the must be prepared to face a host They need a legal services provider general cultivation, distribution of challenges, and few industries committed to serving companies and possession of marijuana. present more complex legal issues at all stages of the corporate life than the fledgling cannabis industry. cycle, from start-up to mature • Our focus – the attentiveness and From protecting intellectual property business. We offer a combination responsiveness of locally qualified and technology to selecting the right of capabilities that enable us to lawyers, combined with the management team, many decisions position companies for success relationships and resources that can have an immediate impact on the including: only a global law firm can offer. fortunes of a company. • Our approach and business And the margin for error can be • Our relationships – a network insight – practical insights to slight in the intensely competitive of established relationships develop entrepreneurs into marketplace and regulatory with angel, venture, institutional leaders of successful businesses, environment. The stakes become and strategic investors within including advice concerning higher as companies look to trade the venture capital and private business problems they across borders. equity community. should anticipate and how to • Our unmatched network – overcome them. Our emerging growth and venture throughout Africa, Asia-Pacific, capital group understands Europe, the Middle East, Canada this environment. Our clients and the United States, compete in high-profile areas we are one of the few firms like high tech, insurtech, fintech with an established corporate and biotech, and now, cannabis. practice that can effectively We assist emerging companies at represent venture capitalists and all stages of development, with a private equity houses investing commitment to helping them build abroad and emerging companies sustainable businesses. “going global”. 5
CANNABIS Growth, strategy and legal advice – how we can help Business growth and information, defining objectives cannabis comes advancements in exit strategy planning of the transaction, identifying and technology in adjacent markets, As companies leave the “seed” reconciling competing interests as the market matures. stage and begin to explore and and driving parties toward mutually test avenues for growth, their beneficial agreements. Comprehensive legal needs change and become more counsel to emerging sophisticated. We help them Intellectual property companies evaluate and prepare expansion and technology We are a full service law firm in every strategies, including partnerships development, jurisdiction we operate. We counsel and joint ventures, mergers and exploitation and companies in areas critical to both acquisitions and, if appropriate, protection their short-term and ongoing public equity investment. Our IP services are particularly success, including the following: important to companies that need domestic and international tax, Innovative business to harness, protect and exploit the corporate, employment, finance, arrangements, including technologies behind their products intellectual property and technology, corporate partnering and services to realise their international trade and transfer and strategic alliances objectives. For example, we provide pricing, regulatory and government Our lawyers help clients IP advice to leading innovators in affairs, litigation, arbitration and formulate research and fast-growing industries such as investigations, projects, energy development agreements, life sciences, IT, digital media and and infrastructure, real estate applying our experience in wireless communications. With and restructuring. evaluating complex technical new innovations surrounding legal 6
WWW.DLAPIPER.COM IPO opportunities – which market to choose Companies looking to raise equity • how to ensure compliance with the equity and debt capital raising are not only presented with regulatory regime (including having transactions. We have built a strong the potential of private capital, the required licences, certificates global platform based on deep but increasingly medicinal cannabis and approvals); industry knowledge in key growth companies have sought to raise sectors, including in the medicinal • how to ensure they are adequately equity via the public markets. cannabis industry, and access to protected against participating in The increased profile provided by an global funding sources through the proceeds of crime; initial public offering (IPO) presents relationships with the business and an opportunity to transform a • how to ensure they have adequate funding communities, including company’s profile. The Toronto brand and intellectual property investment banks, private equity Stock Exchange, the TSX Venture protection; and venture capital providers and Exchange and Canadian Securities hedge funds. • how much money is required to be Exchange have been early movers raised; and in providing a platform for investors to access companies with global • which market(s) to seek admission CASE STUDY ambitions. Elsewhere companies are to trading on. We acted for leading hemp/ eager to understand their ability to CBD company, Charlotte’s Web At DLA Piper, we offer integrated raise capital on the NASDAQ or the Holdings, Inc. in connection with securities advice on complex NYSE in the US, the ASX in Australia their CAD$115 million Initial cross-border transactions to and on the NEX, LSE’s Main Market, Public Offering and Secondary companies as issuers, their key AIM or the Frankfurt Stock Exchange Offering and listing on the stakeholders and management, in Europe. As countries around the Canadian Securities Exchange underwriters, sponsors, and lead world liberalise regulation in relation in August of 2018. Nine months managers on IPOs and a broad range to cannabis, the opportunity to later in May of 2019, of other securities offerings and any raise public capital is an attractive after approval of the Farm Bill associated market compliance. prospect in an industry that in the United States, we advised demands significant capital. the company again on their Companies, underwriters and uplisting to the Toronto Stock placement agents rely on us to There are a number of factors Exchange, increasing their deliver global advice and unmatched that cannabis companies who profile and a reflection of the local, on-the-ground resources are looking to raise money will company’s continued growth. to support public and private need to consider, including: 7
CANNABIS Operating in the regulated cannabis sector The legal issues and considerations for businesses operating in the cannabis sector will vary depending on which aspect(s) of the production cycle they operate within. The following is therefore only a brief summary of some of the issues and considerations in this nascent market: • At each stage in the supply made through the illegal drugs • Companies will need to ensure chain (e.g. supply, cultivation), trade, or indeed holding/ the products being supplied by manufacture and distribution, transferring illegal cannabis them (if applicable) meet any companies will need to ensure itself or indirectly participating minimum required standards they have all of the necessary in the sale of recreational for products of that type. certificates, licences and cannabis in jurisdictions where They should also ensure the approvals. Companies should it is unlawful. For example, a products meet their own internal ensure they have these in place as company processing cannabis standards or market expectations, early as possible. leaf or manufacturing the which may be higher than the medicine needs to be certain of regulatory minimum. • Recreational cannabis is the provenance of its supply and still and will continue to be • Linked to the above, they should disposal of its by products. illegal across a number of also consider whether they jurisdictions. Companies will • Labelling and packaging need relevant quality control need to ensure that they have requirements will need to be certification such as EU-GMP and adequate protections in place complied with at each stage engage appropriate consultants to prevent them incurring any in the production cycle, as will and lawyers to advise. liability under, for example, health and safety requirements • Companies holding or the UK’s Proceeds of Crime Act (particularly relating to the distributing cannabis seeds, 2002, or its drugs legislation. handling and storage of cannabis plants or cannabis- They will need to be certain cannabis or cannabis-related based products will need to that they are not receiving/ products where applicable). ensure they have adequate transferring proceeds of crime 8
WWW.DLAPIPER.COM security and stock control • Brand protection will be RECREATIONAL USE protections in place to ensure important, particularly Use of cannabis in the UK will still that supplies are secure and for companies involved in be strictly limited to medicinal accounted for at all times. developing and marketing new purposes on prescription from cannabis-derived medicinal • Companies involved in a specialist doctor (excluding and wellness products to the distribution of either CBD-derived products). This hospitals/pharmacies and health cannabis or cannabis-derived is limited to activity with the food stores. products will need to ensure definition of cannabis-based they comply with all laws • If a company is developing its products for medicinal use. regarding distribution and good own cannabis-based medicines, In its announcement on manufacturing processes. it should also consider how to 21 September 2018, the UK protect its intellectual property. government made it clear that • If a company is renting it does not intend to legalize premises, it will need to ensure • Relaxation of the drug laws the recreational use that its lease does not prohibit globally to allow the medicinal use of cannabis. it from carrying out its work in of cannabis is an emotive issue relation to medicinal cannabis, which attracts strong opinions e.g. manufacturing or research. on both sides. Companies will Even if the company owns therefore need to consider that its premises, it will need to they may need to deal with ensure its proposed use of the negative press and should ensure site is permitted use from their security arrangements a planning perspective. are sufficient to deal with potential hostility. 9
CANNABIS Relevant cannabis experience A regulated cannabis market could create significant business opportunities and Europe is seen as a key source of funding for medicinal cannabis developers. Both domestic European companies and established companies from countries such as Canada are expected to come to major European financial centres to raise capital and grow their businesses. Canada is the acknowledged leader in the cannabis sector and it is expected to lead globally in this industry. OUR RECENT EXPERIENCE INCLUDES ADVISING: • Acreage Holdings (CSE: ACRG.U) on its USD3.4 billion • CannTrust Holdings’ (TSX: TRST) CAD100 million arrangement with Canopy Growth. bought deal offering of units. • Acreage Holdings on its USD428 million financing • Golden Leaf Holdings’ CAD15 million bought deal and reverse takeover and CSE listing (CSE: ACRG.U). private placement. • Advising ASX listed medicinal cannabis company, • MedReleaf’s CAD132.5 million bought deal offering Althea Group Holdings Ltd (ASX: AGH), on its of units. acquisition of Canadian extraction and contract • Canaccord Genuity, in connection with Aurora manufacturing company Peak Processing Solutions, Cannabis’ (TSX: ACB) USD115 million special together with Althea’s associated AUD30 million warrant offering. capital raising. • Canaccord Genuity, in connection with Golden • Advising an American multinational Leaf Holdings’ (CSE: GLH) USD20.4 million secured biopharmaceutical company on trademark convertible debenture offering. clearances and filings in China, Hong Kong and Macau for new products. • Canaccord Genuity, as lead underwriter, on a private placement for Canaccord Genuity Growth, a special • An Australian medicinal cannabis company in purpose acquisition corporation, in connection with relation to its development and construction of a its proposed acquisition of Columbia Care. cannabis growing and processing facility. • A syndicate of underwriters, led by Canaccord • A boutique retail chain on its own brand CBD Genuity, in connection with a USD40.3 million bought cosmetic line and the legality of its products and their deal private placement of Supreme Pharmaceuticals provenance across Italy, UK, Switzerland and France. Inc.’s (TSXV: FIRE) convertible debentures. • A syndicate of agents led by Canaccord Genuity, in • A syndicate of underwriters, co-led by Canaccord connection with: Genuity and Eight Capital, in connection with • Aurora Cannabis’ (TSX: ACB) USD230 million ABcann Global’s (TSXV: ABCN) USD70 million bought bought deal offering of convertible debentures. deal offering of units and convertible debentures. • CannaRoyalty’s USD32.9 million offering of unsecured convertible debentures. 10
WWW.DLAPIPER.COM • A syndicate of agents, led by Canaccord Genuity and • Charlotte’s Web Holdings (CSE: CWEB) on its PowerOne Capital Markets and including Gravitas USD110 million IPO and CSE listing. Securities in connection with a Sante Veritas • China AgroTech Holdings Limited on the acquisition Therapeutics USD20 million offering. by China Agrotech Holdings Limited, a company listed • A syndicate of underwriters, led by Canaccord on the Main Board of the Hong Kong Stock Exchange, Genuity and including Beacon Securities, Cormark of a company engaged in the planting and sales of Securities, Eight Capital, GMP Securities and PI landscaping seedlings in PRC, with a deal value of Financial, in connection with a USD40.3 million USD129 million. bought deal private placement of Supreme • Representing one of the largest Chinese Pharmaceuticals (TSXV: FIRE) convertible debentures. biotechnology CMOs/CROs in multiple cross-border • A syndicate of underwriters, led by Canaccord transactions, including an in-license of DNA library Genuity and including GMP Securities, PI Financial, screening technology from a top U.S. university and a Eight Capital, Industrial Alliance Securities, joint development and collaboration agreement with Beacon Securities and Mackie Research Capital, a U.S. supplier of API compounds. in connection with Aurora Cannabis (TSX: ACB) • A syndicate of dealers co-led by Cormark Securities USD75 million bought deal and concurrent private and Canaccord Genuity in connection with placement. Growforce Holdings’ USD38 million subscription • A syndicate of agents, led by Canaccord Genuity receipt offering. and including Industrial Alliance Securities, Mackie • A developer of a medicinal cannabis delivery Research Capital and Sprott Capital, in connection device in relation to the regulatory requirements with Maricann Group (CSE: MARI) USD31 million of the Australian market, as well as in relation to secured convertible debenture offering. corporate and tax issues. • A syndicate of agents, co-led by Canaccord Genuity • The Flowr Corporation on trade mark portfolio and GMP Securities in connection with Maricann management, trade mark searching and clearance, Group’s USD37.4 million special warrant offering. trade mark prosecutions and related brand • A syndicate of agents, including Canaccord Genuity enforcement in the Asia-Pacific region. and PI Financial, in connection with ABcann Global’s • A global payment services provider on the legal (TSXV: ABCN) USD15 million convertible debenture framework for the sale and import of cannabis financing, reverse take over and TSX Venture derived products in over 15 jurisdictions in Europe. Exchange listing. 11
CANNABIS • Hanway Associates, a London-based cannabis • Advising Soma Group Limited, a medical research consultancy on all their legal matters, corporate and health foods company, in connection with its seed strategy and expansion plans. capital raise. • Advising Hanway Associates, the cannabis • The Cannabis Company, a developer and supplier consultancy business, on the disposal of their interest of hemp infused FMG and consumable products for in HAPP Holdings Limited to NOBL Group. HAPP humans and pets, in relation to venture capital and Holdings owns the market leading conference series seed investments. Cannabis Europa. • Trulieve Cannabis (CSE: TRUL) on its CAD65 million • HEXO Corp with its dual listing on the NYSE in private placement of subscription receipts, reverse addition to its TSX listing. take over of Schyan Exploration and CSE listing. • High Street Capital Partners on its USD314.2 million • Advising Ultra Hemp Extract, on the regulatory subscription receipt financing, reverse take-over of requirements for importing hemp CBD products Applied Inventions Management and the listing of the (dietary supplements and/or food products) resulting issuer, Acreage Holdings (CSE: ACRG.U), on into New Zealand. the Canadian Securities Exchange. • A US manufacturer of hemp oil on Australian and • Advising a Malaysian biotech company in relation to New Zealand regulatory and import requirements a plantation acquisition in China and in joint venture relating to cannabis products. negotiations with U.S. multinational companies. • Assisting a large US pharmaceutical company in • Materia Ventures on its expansion plans into Europe. relation to a number of internal investigations across various cities in China. • Newstrike Brands (TSX-V: HIP) in a share purchase agreement for interest in Neal Brothers Brands Inc. We are ready to apply our and joint venture agreement. knowledge and experience of • Ping An Good Doctor as special corporate counsel in its initial public offering on the Hong Kong Stock the cannabis sector to help Exchange and pre-IPO restructuring, with the whole companies, investors and company valued at USD7.5 billion. other stakeholders navigate • A producer of medicinal cannabis and cannabis oils on the Australian regulatory regime for cannabis and and operate in the UK and cannabis products, as part of an international project. European markets.
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CANNABIS Our European team To learn more about our capabilities in Europe, please contact one of our team members below. Marco de Morpurgo Dylan Kennett Partner/Global Co-Chair (Life Sciences) Senior Associate, Corporate Intellectual Property & Technology (London) (Rome) +44 20 7796 6159 +39 06 68 880 520 dylan.kennett@dlapiper.com marco.demorpurgo@dlapiper.com Laura Ford Luca Gori Partner, Litigation & Regulatory Partner, Corporate (Birmingham) (London) +44 20 7153 7058 +44 20 7796 6469 laura.ford@dlapiper.com luca.gori@dlapiper.com Ulrik Bangsbo Hansen Dr Roland Maaß Partner, Corporate Partner, Corporate (Copenhagen) (Frankfurt) +45 33 34 00 08 +49 69 271 33 410 ulrik.bangsbo@dlapiper.com roland.maass@dlapiper.com Jan Snogdal Robert Salter Partner, Corporate Partner, Corporate (Aarhus) (London) +45 33 34 08 40 +44 20 7153 7542 jan.snogdal@dk.dlapiper.com rob.salter@dlapiper.com Dr Mathias Schulze Steinen Dr Kokularajah Partner, Corporate Paheenthararajah (Frankfurt) Senior Associate, Intellectual +49 69 271 33 430 Property & Technology (Cologne) mathias.schulze.steinen@ +49 221 277 277 307 dlapiper.com kokularajah.paheenthararajah@ dlapiper.com Rahool Sarjua Guido Kleve Senior Associate, Intellectual Partner, Litigation & Regulatory Property & Technology (Cologne) (London) +49 221 277 277 353 +44 20 7153 7968 guido.kleve@dlapiper.com rahool.sarjua@dlapiper.com 14
WWW.DLAPIPER.COM Our North American team To learn more about our capabilities in North America, please contact one of our team members below. Russel W. Drew Robert Fonn Partner, Corporate Partner, Securities & Corporate (Toronto) Finance (Toronto) +1 416 369 5260 +1 416 369 5280 russel.drew@dlapiper.com robert.fonn@dlapiper.com Noam Goodman Robbie Grossman Partner/Global Co-Chair (Retail) Partner, Corporate Corporate (Toronto) (Toronto) +1 416 862 3361 +1 416 369 5265 noam.goodman@dlapiper.com robbie.grossman@dlapiper.com Sanjay M. Joshi Vaughn MacLellan Partner, Corporate Partner, Securities & Corporate (Toronto) Finance (Toronto) +1 416 369 5287 +1 416 365 3407 sanjay.joshi@dlapiper.com vaughn.maclellan@dlapiper.com Ted Maduri Derek Sigel Partner/Co-Chair, Partner, Securities & Corporate Canadian Corporate Group Finance (Toronto) (Toronto) +1 416 365 3516 +1 416 941 5412 derek.sigel@dlapiper.com ted.maduri@dlapiper.com Trevor Wong-Chor Jarrod Isfeld Partner/Chair Partner, Securities & Canadian Securities & Capital Capital Markets Markets Group (Calgary) +1 403 776 8821 +1 403 698 8711 jarrod.isfeld@dlapiper.com trevor.wong-chor@dlapiper.com Sydney Kert Jamie Mandell Associate, Corporate Associate, Corporate (Toronto) (Toronto) +1 416 941 5393 +1 416 862 3353 sydney.kert@dlapiper.com jamie.mandell@dlapiper.com Nicole Kapos Amy Pressman Counsel, Corporate Partner, Litigation, Arbitration & (Toronto) Investigations (Toronto) +1 416 941 5418 +1 416 369 5293 nicole.kapos@dlapiper.com amy.pressman@dlapiper.com 15
CANNABIS Our North American team cont. Michael Reid Morgan McDonald Partner, Corporate (Vancouver) Counsel, Corporate (Vancouver) +604 643 2933 +604 643 6416 michael.reid@dlapiper.com morgan.mcdonald@dlapiper.com Camilo Martinez Managing Partner (Colombia) +57 1 317 4720 cmartinez@dlapipermb.com
WWW.DLAPIPER.COM Our Asia Pacific team To learn more about our capabilities in the Asia Pacific, please contact one of our team members below. Melinda Upton Chris Mitchell Partner/Global Co-Chair, Intellectual Partner, Corporate Property & Technology (Melbourne) (Sydney) +61 3 9274 5145 +61 2 9286 8209 chris.mitchell@dlapiper.com melinda.upton@dlapiper.com Greg Bodulovic Jessie Buchan Special Counsel, Intellectual Senior Associate, Intellectual Property & Technology Property & Technology (Sydney) (Sydney) +61 2 9286 8218 +61 2 9286 8552 greg.bodulovic@dlapiper.com jessie.buchan@dlapiper.com William (Skip) Fisher Stewart Wang Partner, Intellectual Property & Partner, Corporate Technology (Shanghai) (Shanghai) +86 21 3852 2080 +86 21 3852 2198 stewart.wang@dlapiper.com william.fisher@dlapiper.com Ting Xiao Douglas Mancill Registered Foreign Lawyer, Senior Consultant, Corporate Intellectual Property & Technology (Bangkok) (Shanghai) +6626868559 +86 21 3852 2039 douglas.mancill@dlapiper.com ting.xiao@dlapiper.com Sam Wilson Senior Associate, Corporate (Auckland) +64 9 300 3842 sam.wilson@dlapiper.com 17
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