200 Words on Good Governance and Why it is Needed to Attract Capital

As the legal cannabis industry continues to mature, more opportunities abound to attract outside investors. We have seen just this past week that Washington and Colorado are proposing to allow publicly traded companies to invest in and even own local cannabis businesses.

If you are interested in attracting outside capital infusions to spur serious growth, it is key to establish a solid corporate governance structure. Here are three tenants of such a structure:

First: Independent Directors. Serious investors want to see that you have credible, qualified independent oversight. These directors should have no monetary interest in the profitability of your business, directly or indirectly, and as such, can give you impartial, informed advice as to the best ways to move your business forward, to the benefit of you and your investors. Your directors should have the business experience necessary to give you valuable advice and yes, you can pay them for it, as long as it is a reasonable amount.

Second: An Established Compliance Program. Local laws abound with the “do’s and don’t’s” of your cannabis business. This is the biggest challenge facing all entrepreneurs these days since the exact standards of compliance are a moving target. It is essential to be proactive in adopting an actionable compliance manual that addresses the “knowns” and, in good faith, anticipates the “unknowns”. Always remember that, in compliance, the two things that get you in the most trouble are your friends and haste.

Third: Continuity in Communication. Make sure you are able to give your directors and investors up to date information on an established schedule, preferably quarterly. These communications should include both factual data from the past quarter/year as well as your forecast on upcoming quarters. If you have investors that are private equity funds you can likely count on them to establish this communication schedule on their terms but, regardless of their wants, be sure to give yourself enough time to compile an accurate, up to date account.