S02 E03 – Business Development Series EP. 3

Announcer: Information provided on this podcast does not, and is not intended to constitute legal advice. All information, content and materials available on this podcast are for entertainment purposes only. The views and opinions expressed are those of the speakers and do not necessarily reflect the official policy or position of Cultiva Law. Now, without further ado, here are your exquisite esquires, Mio Asami and Fabiola Jimenez.

Fabiola Jimenez: What up, squad?

Mio Asami: What up, squad?

Fabiola Jimenez: You’re back with your favorite girls, Fabi and Mio.

Mio Asami: What’s up, what’s up?

Fabiola Jimenez: All right, so episode three of the business series.

Mio Asami: Welcome.

Fabiola Jimenez: Welcome. Welcome one and all. We have a special guest with us.

Mio Asami: Because we are going to be talking about some shit that we don’t usually talk about.

Fabiola Jimenez: Some complicated shit that is above our pay grade.

Mio Asami: Some niche ass shit.

Fabiola Jimenez: That’s right.

Mio Asami: That’s right.

Fabiola Jimenez: We have Mr. Ken Ford who’s been featured in one of our other podcasts as whale. So, he’s going to be tackling the issues of taxes because I can’t do math.

Mio Asami: But also, again, taxes, niche as fuck, you’ll. You got to get a tax attorney for this shit.

Fabiola Jimenez: For sure, man. For sure.

Mio Asami: Or a CPA that knows their shit, but tax attorneys help too.

Fabiola Jimenez: Yes. So it’s a very niche area, but… So, we’ve covered episode one, was getting your business started episode.

Mio Asami: Formed, yeah.

Fabiola Jimenez: Yeah. Episode two was about your development and your growth.

Mio Asami: Expansion. Hell yeah.

Fabiola Jimenez: Episode three, today is all about when you get your shit tossed and what to do with it.

Mio Asami: Shit’s in a salad.

Fabiola Jimenez: Shit’s in a salad, bro.

Mio Asami: It’s all getting jumbled up.

Fabiola Jimenez: Everyone’s in panic-

Mio Asami: The fuck metaphor am I using? I don’t know.

Fabiola Jimenez: I just saw Training Day, I don’t know. I’m on a different level right now. [crosstalk 00:01:44]. I’m on a different level of gangster right now. Excuse me.

Kenneth Ford: I just want to let you’ll know, she does have all black on right now.

Mio Asami: Except she doesn’t have all black Air Forces.

Fabiola Jimenez: I don’t. I just got pumped.

Mio Asami: She put these on when she’s ready to throw hands.

Fabiola Jimenez: I got steel toe boots.

Kenneth Ford: Mio has the all black Forces.

Fabiola Jimenez: No big deal, no big deal.

Mio Asami: No big deal. NBD, you’ll.

Fabiola Jimenez: NBD, you’ll. So, episode three is what happens when you actually get in trouble, which is really interesting and a lot of people don’t actually think about that perspective when you’re dealing with your business.

Mio Asami: Yeah. And they don’t like to think about it because why would you? Because you want to focus, as an entrepreneur, you want to focus on making your successful business expand and work well and just obtaining more success but you don’t want to think about what other shit’s going to go wrong.

Fabiola Jimenez: 100. For sure. And that’s why it’s unfortunate too is that that’s when people come to us as lawyers is when they’re in a storm of something. Something’s going wrong, they need help, they need assistance, they need support.

Mio Asami: It’s a fucking fire storm, man.

Fabiola Jimenez: Yeah. And so we’re going to talk about today four different topics of some of the most common issues that-

Mio Asami: Face the cannabis business.

Fabiola Jimenez: 100%. So, Washington faces a little bit of a different animal when it comes-

Mio Asami: Oh, wait. Hold on. Do we want to go back to the weekly word?

Fabiola Jimenez: Oh, shit. We’re going to cut that.

Mio Asami: Or we could just keep going.

Fabiola Jimenez: Oh, shit. My bad. All right. All right. Weekly-

Mio Asami: Wait. So, we’re going to rewind [inaudible 00:03:17]. Rewind it back again.

Fabiola Jimenez: [inaudible 00:03:18].

Kenneth Ford: Reverse, reverse.

Mio Asami: Rewind. Our weekly word today.

Fabiola Jimenez: Is litigation.

Mio Asami: Litigacion.

Fabiola Jimenez: Litigacion, which means-

Mio Asami: Which means-

Fabiola Jimenez: Duking it out, yo.

Mio Asami: In court. Duking it out in court. No hands.

Fabiola Jimenez: Not in the streets. That’s something different, Mio.

Mio Asami: Oops.

Fabiola Jimenez: So, litigation is when you’re battling out in court. If it’s the superior court, if it’s in front of the office administration, if it’s in front of the bankruptcy court, federal court, state court-

Mio Asami: Court-

Fabiola Jimenez: Just a court just in general.

Mio Asami: Big word, court. Even arbitration.

Fabiola Jimenez: I was going to say mediation as well. That’s a litigation as well. So, that is our weekly word today. If anyone brings that up to you, call us because shit is not going well, dog. The shit’s not going well. All right. So, we’re going to be discussing four of the most common areas of issues or troublesome areas that we come across.

Fabiola Jimenez: Since Cultiva started out in Washington, and I think Washington has a little bit of a different system, we’re going to talk about what we call AVNs or administrative violation notices, which is a fucking ticket in all sincerity. It’s just a ticket. You got in trouble, you did something wrong.

Mio Asami: You did a booboo.

Fabiola Jimenez: You didn’t follow the WAC, you didn’t follow some LCB policy.

Mio Asami: WAC can be Washington Administrative Code.

Fabiola Jimenez: Sorry. My bad.

Mio Asami: No, you’re good. I’m just trying to be the lay person here. You know what I mean?

Fabiola Jimenez: For sure. I feel oddly superior right now. This is great. So, it’s like you didn’t follow rules, you didn’t follow law, you didn’t follow a reg, something. So, you have one of these faux cops walk around and say, “Hey, here’s your fucking ticket dog. You fucked up. Your sign is wrong, your log-in badges are wrong. That’s been a thing.

Mio Asami: Oh, badge. I thought you’re logging bad jizz.

Fabiola Jimenez: Oh my God, Mio.

Mio Asami: Is that legal? Sorry. Should we cut that out?

Fabiola Jimenez: It’s Tuesday. We keep that talk on Fridays, Mio. Jam it.

Mio Asami: Okay.

Fabiola Jimenez: Close though, very close. The S. But it’s just a ticket. It’s a ticket of something that you did wrong. So, normally those really range from a warning or it could go up to actual license cancellation and kind of everything in between. So, sometimes you can run into a minor issue that’ll cost you a thousand bucks or 2000 bucks. They want you to correct X, Y, and Z. Your cameras are slightly off or they don’t like your signage or your fencing needs to be more fenced or you do something pretty heinous where it’s like, all right, well, I took like a million dollars from this person and I just done shit. I don’t know what happened to (it).

Mio Asami: Or I sold weed illegally-

Fabiola Jimenez: Yeah, in the black market, in the back of a truck. For sure. And all that shit happens. And those administrative violation notices come up and say, you’re shit. You either pay up or put up your license. That’s really kind of how it is. And so right now the most common one that we’ve been seeing on AVNs is actually when people have been losing their locations, which is really interesting, especially given how hot the real estate market is in Seattle. So, we’ve unfortunately been on that end where our clients for some reason have some sort of issue with their license, their location, the landlord sold the building, someone rented out the same space to somebody else.

Fabiola Jimenez: And all of these issues you would think would be kind of minor, but the Washington State Liquor and Cannabis Board really takes location incredibly serious because your license really does have to be tied to a location. So as soon as that tie has been severed, we’re on a whole different of a shit storm and unfortunately it’s an incredibly, incredibly difficult and hard uphill battle for our clients to win just because the LCB is so black and white on it. It’s either you have the right to be on this property with your license or you don’t and-

Mio Asami: And if you don’t, you got to let us know.

Fabiola Jimenez: You got to let us know. The grace period is five days or 20. I think it’s 20 days?

Mio Asami: I thought it was 15.

Fabiola Jimenez: My bad. It’s some stupid ass days, but it’s like days. best some stupid as days, but it’s like days. And so you have to be super on top of it, you have to literally immediately upon you finding out that there’s an issue, you have to go ahead and snitch yourself out. And I say that with all the kindness in my heart. Please do that because that will save you.

Mio Asami: Yeah, it will. That’s another thing, these AVNs they’re not like death sentences. It’s not like once you get one, you are fucked and you have to pay the fine or you have to get your license revoked. There’s a way that you can fight them and that’s what we do. And we do that a lot for our clients. So just know that even if you do, if you’re a cannabis business and you get an AVN, don’t panic, call a lawyer.

Fabiola Jimenez: Call us in particular.

Mio Asami: Or call a lawyer. Up until now, we’ve been talking about Washington AVNs, but really, we operate up and down the coast. They’re called different things in each of the States but these things apply. The issue is the same thing, really, up and down the coast. California will also come down and say, Hey… Because everybody has the rules and this is extremely regulated. So if you operate outside of those, then the State will come out and be like, “Hey you, cut your shit.”

Fabiola Jimenez: Exactly. And not only that, but it’s also really interesting as all these other States open up and do a legalization of the holy grail of what is weed. They’re all taking notes of other States like what’s working, what’s not working. I praise Oregon for being so fucking loosey goosey on their shit. California is too. But when you look at Washington and then Colorado that the markets are so regulated, a lot of other States are looking at that and saying like, okay, this is working out for Colorado, this is working out for Washington, this is not working out for Oregon, this is not working out for California. And they really try to look at other States. And so the idea of AVNs is going cross State lines.

Mio Asami: Yeah, 100%. It’s going to be everywhere. That’s just the nature of the industry. It’s highly regulated. It used to be a controlled substance and now it’s not. So, they’re trying to figure out how to regulate it as a drug

Fabiola Jimenez: Yeah. And the best advice is if an AVN it’s like a speeding ticket, right?

Mio Asami: Yeah, you can fight it.

Fabiola Jimenez: Fight it. Would you rather spend 300 bucks on an attorney that can get it dismissed and worked out or do you want to spend 300 bucks, get it on your license. I’m speaking from experience that I don’t have tickets.

Mio Asami: Yeah. Right. And the penalties get more and more and more severe the more docs you get or whatever.

Fabiola Jimenez: Yeah, for sure. It’s a point system.

Mio Asami: Yeah. You don’t want to pile those points up.

Fabiola Jimenez: 100%.

Mio Asami: So, if you can fight it, you should fight it.

Fabiola Jimenez: Exactly. So, we covered AVNs and covered kind of tickets overall. Just be super aware of it. If you get one, please reach out for help. It’s not the end all be all to your situation and you can definitely rise above or at least come to some sort of compromise with that. So, we’re going to kick it off to our other very, very, very common question and issue is that of taxes. Mr. Ken Ford is our tax guru in this office. He knows a lot. His practice focused on the tax area. So Ken, you want to talk a little bit about taxes, what they are with some of the common issues that you see within the cannabis industry?

Kenneth Ford: Yeah. So, where did it begin and end with the question of taxes. I guess ultimately, I’ll start right here in Washington and just kind of… The tax rate here is 37%, pretty extensive and this is paid at the consumer level. So, if you go in into your dispensaries and you just want to buy some pre-rolls or what have you, you as a buyer, you’re going to be paying this. But-

Mio Asami: Wait. You pay 37% on the way that you buy?

Kenneth Ford: Essentially, yeah.

Mio Asami: That’s insane. But also, it’s not like I buy off the black markets. So, don’t. Actually, don’t. Nevermind. I’m shutting up. Keep going. Please keep going, ken.

Fabiola Jimenez: No one at this table ever. I’m just saying.

Kenneth Ford: As the consumer, as a buyer, you pay the tax. It is ultimately the seller has to collect and remit this tax. And so they have to pay this excise tax monthly on the 20th of every month.

Fabiola Jimenez: Okay.

Kenneth Ford: Yes. And if you don’t, then there’s a 2% penalty per month.

Fabiola Jimenez: Oh, shit.

Mio Asami: Oh, shit.

Kenneth Ford: Yes.

Fabiola Jimenez: Damn, Gina.

Mio Asami: Per month. Per month you’ll. That can be a lot.

Fabiola Jimenez: That can add up real quick depending on what these numbers… Luckily, some of our clients are incredibly successful, so I can imagine what 2% of whatever those crazy numbers are.

Kenneth Ford: Yeah. It can definitely pile up. And it’s per month. So, if you go a few months, add two, four…

Fabiola Jimenez: Can you talk a little bit about what are some tax issues that are slightly different between cannabis businesses and like non-cannabis businesses?

Kenneth Ford: I guess ultimately, this is another additional burden, like you could say the excise tax. So, in addition to that, you still have your regular business and occupational taxes here in Washington. So, if you were selling t-shirts, you were selling Snicker bars, you would still have to collect the retail sales tax here in the State. And so you would have multiple kinds of tax burdens and making sure that you are collecting for them because if not, there will be penalties for this. And so I would say ultimately, because by the time if you don’t do this, you’re going to get your AVN.

Fabiola Jimenez: Mm-hmm (affirmative). For sure.

Mio Asami: Yeah, 100%.

Kenneth Ford: The big thing when I talk to clients is about tax planning and really trying to do this before you’re hit with that tax burden, that tax liability. And this will really come into play federally, and as I segue into the federal tax implications that we deal with. Now, a lot of people in the industry are very familiar with section 280 E and how that disallows cannabis businesses to take the normal business deductions that normal businesses take federally. So for instance, these are just some of the ones that cannabis companies can’t take federally, the deductions that are disallowed, interest paid, bad debts, depreciation, amortization, charitable gifts [inaudible 00:14:28].

Fabiola Jimenez: You mean what? You can’t deduct charitable contributions as a cannabis company?

Kenneth Ford: No.

Fabiola Jimenez: Damn bish. That sucks.

Mio Asami: Wait. That’s even more crazy to me because in… So, that’s at the federal level, right?

Kenneth Ford: Yeah.

Fabiola Jimenez: Right.

Mio Asami: So, that means if there’s a cannabis business in California who has a license in some fuck nowhere city that is requiring them to donate a certain amount to a local high school, they can’t deduct that off their taxes?

Kenneth Ford: No deduction.

Mio Asami: That is insane.

Kenneth Ford: Yeah.

Fabiola Jimenez: Damn.

Mio Asami: Damn Gina, as you say.

Fabiola Jimenez: Damn, Gina.

Mio Asami: Damn, Gina.

Kenneth Ford: When you start thinking about that how it really limits and hinders these businesses in their growth ultimately because essentially if you can’t take these deductions, you’re paying more money to the IRS, which means that there’s less money that you can invest into your company and help it grow and market itself.

Mio Asami: So, question. So, because we actually do also advise our clients to do this. Let’s say our client has one company that holds the license and they buy and sell their weed through that license, but then they also contract with a company that they also own, a management company. Technically if the management company needs to pay taxes, could they deduct or do you think there’s cannabis implications just filter or get pushed through to everything that touches…

Kenneth Ford: Yeah. And that’s why I would say it’s really critical that you tax plan because you want to set up these structures, you want to have these separate entities, you want to create these separate businesses between what you’re doing as cannabis and ultimately another service that you may provide. And I think this is ultimately what you see in the cannabis tax cases that you deal with federally is these issues. And this is when it becomes very, very, very sticky.

Mio Asami: Sticky.

Kenneth Ford: Yeah. Although cannabis businesses they can’t take those deductions, but they can minimize their tax liability, ultimately minimize their taxable income. And what people have been using is their cost of goods sold. So, this is kind of a pre deduction, it’s before you get to your gross incomes and what they’re able to take deductions and ultimately come to your taxable income. To get your gross income, you can reduce it by your cost of goods sold. So, cost of goods sold. And then now you can do that, but now there’s a issue on how much you can and what you can do. So for instance, some people, their rent, their wages or what you might’ve paid to buy the cannabis. These are all kind of things that can be cost of goods sold, but it all depends on if you are a producer or a reseller.

Mio Asami: Okay. So many categories.

Kenneth Ford: You’re right.

Mio Asami: This is why I don’t deal with taxes, you’ll. I mean [inaudible 00:17:45].

Kenneth Ford: Ultimately, the big goal that you want to be, everybody wants to be and tries to consider themselves as a producer because they’re the ones who are able to take the most amount in cost of goods sold.

Mio Asami: I see. Got. Okay.

Fabiola Jimenez: Interesting.

Kenneth Ford: Yeah. So for instance, the IRS they came out. In this when you’re a producer, this allows anything that you construct, build, install, manufacturer, develop, improve, create, raise or grow. So when you’re a producer, anything that goes-

Mio Asami: That’s a lot.

Kenneth Ford: Yeah, that is a lot. So, that could be the people that are right there in the ground dealing with the dirt, picking and growing. Those farmers, you can deduct those wages, those people that was working those fields for you.

Mio Asami: Got it. Okay.

Fabiola Jimenez: I see.

Kenneth Ford: So, you’re a producer. But now if you’re just a reseller, which a lot of dispensaries fall into-

Fabiola Jimenez: For sure.

Mio Asami: Right. Because you’re just buying the packaged product and selling it.

Kenneth Ford: Pretty much only thing that you can reduce your cost of goods sold by is what you paid for that cost. And so how the IRS determines on if you are a producer or reseller is ultimately kind of by ownership. They say in order for you to be a producer, you have to own the product, essentially, from through and through, from top to bottom. Now, you can have contractors, third parties work on some services that you may not necessarily do yourself, but you have to own that product from beginning to end.

Kenneth Ford: Now if you don’t own it, then they don’t care how much you may improve, improvise this product, you can package it, you can trim it, you could test it and make sure that the TAC levels is great, but they’ll be like, “Oh, you didn’t own it? You bought it from somebody else? Guess what you are? A reseller and you can’t take [crosstalk 00:19:50].

Fabiola Jimenez: Damn. Fucking ruthless.

Kenneth Ford: So when you’re going into that, when I say that, they’re looking to see if your owner. They’re going to look at a lot of different things. They’re not going to necessarily just look at the contract language, your operating agreements or what you’re saying, you’re doing and these services. They’re not going to necessarily say what you decided to write down on that piece of paper say, “Hey, I’m an owner,” even though economically and how the transaction looking, they’re going to ultimately do a lot of economic substance tests. They’re going to look and see, oh, okay. You say on this paper that you’re the owner, but really you don’t. When we look at the financials, they actually own it. So, they will look at that test.

Kenneth Ford: In addition to what you’re talking about, separating the businesses. They’re also going to look about, okay, have you separated your business? One does management, one sells the cannabis, the other one does some type of therapy, massage therapy. If you for all of those services you’re only charging one price, the IRS is going to look at it. That’s one unified enterprise, one unified business. And guess what you are? You are a reseller.

Fabiola Jimenez: Damn. Absolutely no fucking mercy, bro. Jesus.

Mio Asami: If the US governments or any governments are going eat for anything, it’s fucking taxes. It’s taxes.

Kenneth Ford: Yeah. I tell everybody, you need your tax attorney to be with you every step of the way, make sure the contract language agrees, make sure the financials agrees. Yeah, exactly. Make sure the legal entity and the separation does so it all points to one direction and it shows the IRS, Hey, I’m a producer, I’m not a reseller. This is how I want to see these.

Fabiola Jimenez: Oh, I see.

Mio Asami: So part of the reason, at least from what I know, the reason that legal tax or whatever is as a field is super niche is because it’s always changing. So, these rules that we’re talking about right now, I don’t know how long they’ve been placed, but is it possible that it will change down the road? I guess anything’s possible to change down the road, right?

Fabiola Jimenez: [inaudible 00:22:11].

Kenneth Ford: Yeah, absolutely. Every time you get a new president, there’s going to be tax changes. Already people are trying to project essentially what Biden and his approach and how he’s going to try to do. And ultimately they do come out with their tax plan and their drafts and proposals. And then-

Mio Asami: But how long does that last? Does that last for the entire term or is it like-

Fabiola Jimenez: They’re just cyclical?

Mio Asami: Is it every year or…

Kenneth Ford: It depends because it’s like statute by statute. [crosstalk 00:22:45]. It’s statute by statute deal may pass ultimately-

Mio Asami: Okay, got it. yeah, that makes sense.

Kenneth Ford: And so they may have some things that sunset later or things they’re okay with, so they don’t mess with, but Biden very well could be like bump anything that Trump has said or any tax laws that he imposed. We’re going to get rid of.

Fabiola Jimenez: Look. We can all talk shit about the IRS, but my [stemi 00:23:13] check is about to come in. So IRS, I love you girl. I love you girl. I love you girl.

Mio Asami: No, fuck the IRS because I didn’t even get my second stemi check. You’ll can suck a dick. I still pay my taxes though. Just making sure you’ll know, I still pay my… FBI, I’m talking into my phone right now. FBI agent listening, I pay my taxes but I didn’t get my second semi check, so pay, please.

Fabiola Jimenez: What the fuck? All right. Awesome. Thanks so much, Ken, for walking us through that. That’s some heavy shit that unfortunately some world truth that we have to just come to terms with. This is the real life and cannabis businesses are businesses and unfortunately they are regulated on a much more fucked up level than any other business and yet they do suffer.

Mio Asami: Which would change if we got federal legalization.

Fabiola Jimenez: For sure.

Kenneth Ford: Yeah, absolutely it would change. True that.

Mio Asami: Just having it being federally illegal just the issues that raises permeates literally every part of the fucking industry.

Fabiola Jimenez: For sure.

Mio Asami: Anyway-

Kenneth Ford: Bankruptcy.

Fabiola Jimenez: And bankruptcy. Yeah, for sure. Definitely.

Mio Asami: Yeah, and bankruptcy. Shit. Did you know?

Fabiola Jimenez: Did you know? Shit went south real quick. It happens to the best of us.

Mio Asami: It’s okay. No shame.

Fabiola Jimenez: I’m sure it does. All right. So, point number three is dealing with internal business disputes. Mio, I’m going to let you head off this one because I think we both deal with a lot of this shit all the time and so not only do you have to deal with a regulatory body issues, you have to deal with federal government issues. But also you have to deal with issues internally within the business.

Mio Asami: Yeah. Let’s be real, there’s not very many people who can afford to start a cannabis business by themselves, they need some investor or some business partner or whoever to go into business with. And if that’s the case then like we said in the last episode, that’s why you want things like operating agreements, that’s why you want things like shareholder agreements and bylaws because that’ll tell you if you’ll decide to get a little spat or if you’ll just start disagreeing on the direction of the company or whatever it is, those documents are supposed to tell you how to resolve those. If you don’t have them, again, you go to default ones and then you might be fucked.

Fabiola Jimenez: For sure.

Mio Asami: For sure. And it happens a lot. What we see a lot is… At least what I see a lot in California is investor comes in and he says, oh, I’ll lend you or I’ll loan you $500,000 and I won’t even take equity and you have to pay it back within three years or whatever the Fuck. But then they put in all this language within the loan documents that say if you default at any point, I can take over your company and that’s how they do it. So, if you missed even one payment, you’re in default and then they’ll fucking try and take over your company and then you start litigation.

Mio Asami: That’s what happens. That’s one of the many things that happened is there was a lot of disputes between people who know how to grow weed, know how to sell weed and the people who just know how to make money and that’s it. And there’s different approaches to how you do business. Completely different perspectives. And then you’re bound to butt heads. I can not talk.

Fabiola Jimenez: Butt butts.

Mio Asami: Butt butts.

Kenneth Ford: Enough butt jokes.

Fabiola Jimenez: What’s happening right now?

Kenneth Ford: South Park, don’t sue me.

Fabiola Jimenez: Not just in California, but that in all walks of life across all States in dealing with cannabis is that you unfortunately, again, you run into people that really have a passion for the plant and really will have a passion for the business and then you have people that are just incredibly business savvy and sneaky and slimy and they’re just in it for themselves. And so you have to be really careful with that because I think a lot of relationships start off with good intentions and literally one email, one bad text, one rinky dick conversation, all of a sudden, I fucking hate. I’m going to sleep with your wife. It’s like, what? That’s not related, bro.

Mio Asami: I’m sorry? And now your ex-husband is found electrocuted on my farm like, what are you even mean?

Fabiola Jimenez: Oh, yes. That one time that that happened. Lifetime is still going to make a movie about that featuring us. We weren’t there.

Mio Asami: We need a goddamn documentary.

Fabiola Jimenez: Weren’t there.

Mio Asami: We didn’t do it because that sounds-

Fabiola Jimenez: That is the epitome of an internal dispute.

Mio Asami: Just saying, we’re so guilty as fuck. But we’re not.

Fabiola Jimenez: Yeah, no, that is the epitome of an internal dispute, someone dies.

Mio Asami: But anyway, that’s what happens. And I want to say, especially with the realm of falling victim to very predatory investors is because cannabis has such a high startup costs in general. Maybe restaurants also might have like predatory investors too, but I just think that part of the reputation of cannabis being get rich quick type of industry plus the idea of you need to have so much money in order to have indoor cultivation operation with the state-of-the-art machinery and all that stuff, is cost a lot of money. It’s more, I think, than a lot of other industries. And so you do as an operator who knows how to grow weed or knows how to sell weed, that’s all you want to do it. You just want to grow and sell. And you’re like, well, I need the money to help me do that. And so then these investors come in and they’re like, Ooh, look at my money. I’m going to flash my wallet at you and then take your two years later once you start making money.

Fabiola Jimenez: Sad but true. True story. Can’t divulge who these people are because client attorney confidentiality, but just know that you know someone that this has happened to for sure. And then finally the last point that we want to talk about… What, Ken?

Kenneth Ford: You’ve bought weed from a store that this has happened to.

Mio Asami: Ooh, I also want to say, another potential partnership issue or internal business issue is you’ll decide on, this is again if you don’t have corporate documents to tell you who has how much within the company, if you don’t specify like, oh me and my partner are split 70/30 versus 50/50 or whatever, Once you all start making money and then the person who was supposedly supposed to have less now is like a trip trip bitch. I thought I had more and now I want 50%, I want half my company back.

Fabiola Jimenez: Mm-hmm (affirmative). Dude, as soon as money starts flowing… When money is being spent, everyone’s like, oh, cool. This is just for the sake of it. Thanks for paying that. Appreciate it. Appreciate it, appreciate it. As soon as profits start rolling in bro, that’s when you have these major issues, that’s when people get greedy, that’s the number one catalyst of why you have issues.

Mio Asami: And it happens to everyone. I’m just going to say that too. We’ve represented both sides where it’s like… Again, it happens to everyone. It happens on the weed-

Fabiola Jimenez: On a small scale, on a big scale. Yeah, it happens from all across-

Mio Asami: Investor side, grower side, what ever the fuck. It happens on both sides.

Fabiola Jimenez: For sure. Now that you have a shit storm on the inside, what do with the shit storm on the outside? What are some of the common issues when it’s B2B businesses? And for us, I think is the non-performance, the breach of contracts, product recalls, failed testing, damaged goods, failure to abide by distribution, manufacturing contracts, failure to abide by licensing contracts. So, you have this now other realm of dealing with business to business and some of those issues and-

Mio Asami: Because again, those are also bound to come up.

Fabiola Jimenez: They really are. And rather it’s someone thinking that you stole their brand or stole their product or-

Mio Asami: Or you sold them bad product.

Fabiola Jimenez: Yeah, you sold them a bad product or if it’s like you stole my X worker and now you have my intellectual property or you stole my business plan. You have all these other issues that come about that are unexpected. With success and growth come these inevitable issues whether it’s out of envy, whether it’s out of spite, it doesn’t really matter. But these issues do come about from a business to business perspective and it is costly.

Mio Asami: Yeah, it is. Sometimes you can resolve it with a simple demand letter and sometimes that’s best case scenario. Worst case scenario, you’ll duke it out all the way to the top, man, all the way to the goddamn top.

Fabiola Jimenez: Some people go to straight up to litigation just for the sake of saying, you-

Mio Asami: Also, that’s another thing. This industry, everybody, everybody, I guarantee you, everybody has the come at me bro type of mentality. If you have any dispute, especially B2B disputes, but also just any disputes in general, most people are just going to say, you know what? Fucking try me. I don’t care. Fucking come at me, try me. And then it gets costly.

Fabiola Jimenez: It gets real costly because-

Mio Asami: We’ll try and talk you down sometimes.

Fabiola Jimenez: And there is a short of litigation. Sometimes it’s like, hey, this is what you can do literally an inch off of going full-blown HAM.

Mio Asami: Yeah full-blow HAM. We got to have 100K down just to fucking fight.

Fabiola Jimenez: But sometimes they can be resolved with a simple like, here’s the demand letter. This is what I want from you. How do we fix it? Because there are different levels of dealing with B2B issues. That’s normally where the mediation arbitration comes in. That’s what we cal the starter litigation situation which is where it’s where it’s a little less formal.

Mio Asami: Especially if your contracts have arbitration clauses in them.

Fabiola Jimenez: Which save you a lot of money. It does save you a lot of money.

Kenneth Ford: That’s why they’re in there because it saves you money.

Fabiola Jimenez: Yeah. Saves you money, saves you time and the decisions are so much more quickly turned around than if you were to go to a full-blown trial. We’ve gone to trial on some matters which two and we’re still dealing with it. And not only that, but people forget that once you go into litigation and you win, you still have to figure out how you’re going to collect on your judgment. Not everyone is going to be liquid, not everyone’s going to have this money. And so there’s so many other kind of considerations that you have to really put some thought into when you’re dealing with any sort of conflicts with other businesses is, I think Mio and I have a little bit more of a collaborative approach when it comes to our clients because we’re on the transactional team and not necessarily on… I mean, we support litigation, but we’re not litigators and we don’t want that.

Fabiola Jimenez: So, you’ll have a very different approach. You’ll have a very different approach when you talk to our litigation team than our team. Transactional is definitely more like, okay, what’s the issue? What’s your end goal? Tell me what your end goal is? You want X or you want Y? Do you want to be compensated? Do you want to be made whole? What’s the real issue?

Kenneth Ford: Let’s start with a demand letter.

Fabiola Jimenez: Yeah, let’s start with a demand letter and then let it escalate.

Kenneth Ford: Transaction will always tell you, let’s start with a demand letter.

Fabiola Jimenez: Litigation’s like, balls out. We’re doing this.

Kenneth Ford: We’re fucking ready to go when you are, bro.

Fabiola Jimenez: We’re going to take the house, we’re going to take the kids. I’m just going to go everywhere. I’m just going to do it.

Mio Asami: Take your crap. Take everything.

Fabiola Jimenez: I’m going to take all your shit.

Mio Asami: Everything.

Kenneth Ford: No, you keep the shit.

Fabiola Jimenez: So, it’s a very different approach. But nonetheless, it’s going be the same running into whatever litigator versus whatever transactional attorney. That’s just a different perspectives that we have. So, we’ve talked about AVNs. We’ talked about tax issues. We talked about internal disputes and we talked about external disputes. Mio, do you want to talk about our strain of choice for tonight?

Mio Asami: Yeah, sure. So like we said, when we have these disputes or just in general…. Honestly I feel like each of the four points that we talked about, AVNs, tax issues, internal disputes, external disputes, you want to fight it, right? You want to fight all of it. You don’t have to fight your taxes but you also want to deduct whatever you can. You want to save yourself some money because don’t let the government take everything from you.

Mio Asami: Our strain of choice today in the spirit of fighting for your rights and fighting for your business is called fighting Buddha. Fighting a mother fucking Buddha. The boot. Anyway. I’ve never had it before so I can’t speak from personal experience, but it’s apparently like an energetics sativa for day trippers. If you want to get done, this is what you want.

Fabiola Jimenez: It provides some mental clarity, motivation.

Mio Asami: Hell yeah. Yeah, motivation, right? Again, come at me bro. Let’s fight this.

Fabiola Jimenez: Which is what you need sometimes to get through the shit. Sometimes I wish people would just let the lawyers hash it out and we’ll just do it.

Mio Asami: Yeah, a little bit.

Fabiola Jimenez: Yeah. But yes. Thanks so much for listening, you’ll. Stay tuned for episode four, our final episode on the business series where we discuss the actual dissolution of your company and some of the issues that arise and some points of interest.

Mio Asami: Or selling it.

Fabiola Jimenez: Yeah, or selling it.

Mio Asami: Your company did real well and you’re like, you know what? I’m ready to leave. I’m going to fucking sell the shit. Good bye.

Fabiola Jimenez: For sure. Bye. So, you’ll find us at Facebook so-called Cultiva Law. You can find me at Fabia@Cultivalaw on Instagram.

Mio Asami: You can find me at… goddammit. At mio@cultivalaw on Instagram as well.

Fabiola Jimenez: She isn’t fighting Buddha in her system. It’s 02:30.

Mio Asami: I’m way too hype you’ll. I’m fucking hype.

Fabiola Jimenez: Ken, where can people reach you at?

Kenneth Ford: At [email protected].

Fabiola Jimenez: Oh, snap.

Mio Asami: Oh, .com. Okay. He’s got his own email. That’s right. Hit him up.

Fabiola Jimenez: It’s real personal, you’ll.

Kenneth Ford: Oh yeah, I’m sorry. I don’t have-

Mio Asami: You guys are in for a treat.

Fabiola Jimenez: You guys are in for a treat. Ken is awesome and he is just a plethora of information on tax issues. So again, if you need some good advice and when you reach out to a tax attorney within the cannabis industry, we definitely recommend reaching out to ken.

Mio Asami: Shameless Blog. Shameless Blog, it’s Cultiva.

Fabiola Jimenez: Shameless Blog. Mio and I are awesome green because they want to talk to us. All right you’ll. Thanks for-

Kenneth Ford: I’ll give you that $5 later.

Mio Asami: We got your shit covered.

Fabiola Jimenez: Yeah my $5 please, ken.

Mio Asami: You come to us so that you don’t have to deal with the shit that just talked about. That’s why-

Fabiola Jimenez: That’s really it. Let’s show some love, You’ll.

Mio Asami: This is a long closing.

Fabiola Jimenez: Very long closing. All right. Thank, you’ll.

Mio Asami: All right thanks.

Fabiola Jimenez: Bye.

Mio Asami: Bye.

Cultiva Law

Disclaimer: The contents of this blog is considered an advertisement under CA law. The information in this blog post (“post”) is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from Cultiva Law, PLLC or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.

Contact Us For A Consultation

Call (888) 896-3313 or fill out the form below: