Marijuana Business Magazine - March 2018

Despite the precautions, Billingsley acknowledges that G Farma could still be vulnerable to federal interference, even if it fully complies with local and state laws. “The operators have tremendous risk, and you have to be able to build a trusting relationship between them over time, and that trust goes both ways,” Billingsley said. “We like the folks at G Farma, and they like us, and we’ll have a long, profitable future together.” Compliance is Key Operators seeking capital will need to continue emphasizing compliance while educating investors about the risks so they are not ignored or overblown. “Compliance remains the underly- ing basis of our investments. We want strong exceptional management teams who are fully compliant,” said Trauben, whose firm has invested in a total of 11 plant-touching and ancillary companies. “They need to operate above and beyond minimum standards but at maximum ability. To me, that is the underpinnings of a successful company in what will continue to be an extremely highly regulated industry.” “We have a fundamental belief in the long run that the cannabis prohibition will wane and we’ll be able to oper- ate more normally, like alcohol,” said Billingsley, who has invested at least $900,000 in California-based G Farma- Brands since the Cole Memo decision. G Farma has four plant-touching units that sell a range of products – flower, oil extracts and infused bever- ages – as well as non-plant-touching ventures that include consulting, real estate management and media. Written Safeguards Billingsley believes investors like him must continue to take precautions to reduce their exposure to federal interference. In the case of G Farma, he drafted contracts that specify his investments are in G Farma business units that aren’t regulated as a marijuana company, like equipment leasing. “We invest in the portion of G Farma that doesn’t touch the plant, like the equipment.Then we arrange to have an option on anything that is touching the plant,” Billingsley said. “We have to be very careful in the separation of the regulated side of the business and the conduct of normal business.” Calming Nerves Via Education Many canna-centric fund managers, meanwhile, acknowledge that allaying investor worries requires explaining to them that the risk of federal interfer- ence is virtually unchanged. A few days after the Cole Memo news, for example, Brett Finkelstein – managing partner at Phyto Partners, a Boca Raton, Florida-based firm that invests in ancillary companies – emailed investors explaining why he thought the news was nothing to worry about. “We are undeterred by the recent news and more excited than ever about the future of the cannabis industry and our portfolio companies,” wrote Finkel- stein, whose firm closed its first fund to new investors in January and opened a second one the same month. “NOTHING has changed and NOTHING will happen to legally operating cannabis businesses or con- sumers. And NOTHING will happen to our portfolio companies, except that their critical business solutions will become even more important and valu- able to the licensed operators.” The New Normal Jon Trauben is a partner in Altitude Investment Management. Photo illustration by Matthew Staver 70 • Marijuana Business Magazine • March 2018