It has been a strange few weeks for the industry. MED policies are changing quickly and the obligations for the businesses are ever increasing.
Of particular concern is the newfound zeal in the financial investigation area. PEI investors are experiencing extreme and, in my opinion, unnecessary scrutiny. It is no longer enough to show proof of funds that match the intended investment. Instead, the investors are required to prove the source of all of their money, investments, and other sources of income.
In one case, a client worth several million dollars was required to show the sources of all of the money even though only a few hundred thousand dollars were to be invested and proof of those funds was provided. Wealthy investors typically have many layers of financial intricacy including trusts, investment accounts, rental income and other complex vehicles to diversify their money. This is posing a very significant burden on any anticipated investor.
Next, MED is prohibiting any interim use of money by a potential buyer of a cannabis business. Many of the businesses being sold are in distress and having trouble making rent, payroll and paying their taxes. Traditionally, we have used interim loans to cover the shortfalls so that the asset still exists at the end of the approval process. It is unclear whether any such lending will now be permitted by MED.
Finally, MED has now eliminated face-to-face meetings with the investigators and is requiring all applications be submitted at arm’s length. This is problematic because the investigators often head off issues at the application meeting that would not otherwise be anticipated due to constant rule changes.
The businesses will now be “flying without a net” and it is imperative that great care be used in preparing any application. This works a particular hardship on the less wealthy entrepreneurs who cannot afford the luxury of legal services and were accustomed to working directly with the investigation team on their applications. But, like always, we have to comply first and complain later. We’ll see how this all shakes out.