New Bill Has Cannabis Industry Hopeful Colorado Will Loosen Investment Rules

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January 30, 2019
By Monica Vendituoli – Reporter, Denver Business Journal

“Cannabis industry leaders are hopeful that a bill recently introduced in the Colorado House of Representatives will help make raising money for their businesses easier.

“It’s an incredibly important bill for Colorado,” said ​Chuck Smith​, president of Colorado Leads and CEO of Dixie Brands. “I’m excited our new governor is committed to approving a bill like this and allowing Colorado to remain competitive, and hopefully remain the leader of cannabis in the U.S.”
HB19-1090 was introduced in the Colorado House of Representatives on Jan. 14. It would loosen restrictions around outside investment within the state’s cannabis industry.

The bill is nearly identical to HB 18-1011, which former governor ​John Hickenlooper vetoed last year. The veto caused outrage in the cannabis industry and some businesses threatened to leave the state over it, ​according to previous Denver Business Journal reporting​.

“We were very disappointed,” said ​Bruce Nassau​, chair of the cannabis industry advocacy organization Marijuana Industry Group’s board.
He added that everyone in the industry is rallying around the new version of this bill.

“I’m very hopeful this will go through,” Nassau said.

If passed, the new bill, HB 1090, will allow publicly traded companies to hold cannabis licenses.

“The Colorado market has somewhat suffered because the current restrictions keep investment dollars out of our market and allow for other states to grow more rapidly,” Albert Gutierrez​, CEO of the cannabis pharmaceutical company MedPharm Holdings, said in an email. “This bill is vital to the success of many companies whether they are small or large in scale.” – Richard Batenburg, fund manager and chairman at Cliintel Capital Management Group.

Richard Batenburg​ Jr., chairman of the cannabis investment firm Cliintel Capital Management Group, is most excited about the fact that the bill would also repeal the requirements for passive investors.

“The elimination of background checks and the 15-person limit on out-of-state investors is a substantially significant change that should help the industry access more capital, and potentially cheaper capital as well,” Batenburg said in an email.

Nassau said the new cash this bill could infuse into businesses could help companies improve cannabis products.

“To remain competitive, we have to have money to invest in [research and development],” Nassau said. “R&D is an expensive proposition.”

The bill could lead to consolidation of the industry, said ​John Andrle​, co-owner of the cannabis dispensary company L’Eagle.

“Currently, even underperforming stores can get by or fetch a fair selling price, but the massive influx of money will make profit and loss more drastic — there will be winners and losers,” Andrle said in an email. “The scenery will change for the consumer. As the industry goes ultra corporate, their primary goal is generating profit for shareholders.” He added that cannabis companies will have to work hard to differentiate their products from other companies.

Batenburg said that cannabis companies might be surprised at some of the challenges of going public. “Being public requires a level of corporate governance and regulatory compliance that rivals — perhaps surpasses — the complexity of cannabis regulatory compliance, so compliance duty is accretive,” Batenburg said. “Record-keeping and associated accounting costs alone will come as a shock to many established operators.””

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