Managers wishing to invest in cannabis cannot avail themselves of specific corporate structures or contractual language to shield themselves absolutely from potential federal liability. Nevertheless, a manager can take a number of steps to reduce the attendant risks, including conducting rigorous due diligence on underlying businesses and providing robust disclosure in offering documents to investors. This article, the second in a four-part series, analyzes cannabis deal structures, ways managers should diligence investments, disclosures managers should include in offering documents and anti-money laundering concerns. The first article
discussed the legislative, judicial and executive cannabis framework, as well as state legalization and industry growth. The third article
will evaluate how federal illegality affects underlying businesses, as well as residency requirements for investing. The fourth article will assess the international prospects for investing, including in Canada; public perception and valuation issues; and service providers in the space. For more on conducting due diligence in other contexts, see “IMDDA Offers Fund Managers a Blueprint for Conducting Sexual Harassment Due Diligence
” (Aug. 2, 2018); and “Key Considerations for Fund Managers When Selecting and Negotiating With a Cloud Service Provider
” (Sep. 21, 2017).