Marijuana Business Magazine May-June 2019

Marijuana Business Magazine | May-June 2019 100 The subsequent fiduciary duties to shareholders that companies face because of such complex regulations can place an extra burden on cannabis operators, said Charles Alovisetti, a partner and chair of the corporate department at Denver law firm Vicente Sederberg. This becomes even more important when a company is a multistate operator, for example, and must navigate a multitude of regulations that vary by state or municipality. “It is very difficult to follow the rules. There is such a patchwork of them,” Alovisetti said. “The regulators are also learning as they go. Companies are building their legal teams in getting up to speed and, in many ways, they are operating as startups.” Jordan Wellington, vice president of government relations at VS Strategies, an affiliate of Vicente Sederberg, agreed. “Once there is more distance between the top leadership and the facilities, where there is more geographic spread, then there can be less engagement with the day-to-day operations,” he said. These are challenges Christian Hageseth, a Denver-based cannabis entrepreneur, is very aware of. Hageseth is seeking to take a franchise business model public in Canada, One Cannabis, and plans to operate a multistate business once it’s established. “The board of directors will have to help navigate these new and complex issues and find the best options for public accountability and governance,” he said. “We will have to find ways that are compliant with every state regulation as well as federally. It is complex.” Diversity Can Help Industry experts said cannabis companies can mitigate potential corporate governance issues through greater gender and racial diversity within their executive ranks and boards. Men continue to dominate the industry at the leadership and board levels: Among two dozen of the leading publicly traded cannabis companies in Canada, more than 90% of board members are men, according to an analysis by Marijuana Business Daily . (See “Progress on Gender Diversi- ty?” on page 102.) But that trend may be changing, and it makes sense for company executives to embrace such change given the wide variety of cannabis consumers, industry experts agreed. Alovisetti at Vicente Sederberg, for example, said it would make good business sense for public companies to have more women on their boards, given that women are seen as a growing segment within the cannabis consumer base. “You want to have a board of direc- tors that reflects in some way your cus- tomer base,” he said. “At the end of the day, you are selling a product, and you have to get inside a customer’s head.” Jeanette VanderMarel, co-CEO at Toronto-based licensed cultivator 48North, agreed. “I don’t think you can serve your customers well unless you can reflect your customer base. It really is that simple,” she said. “It’s predominately white, old men (in boardrooms). It just doesn’t reflect our customer base.” Improving both gender and racial diversity also will improve the bottom line, VanderMarel added. “There is no way a monoculture, mono-gender board can reflect their community,” she noted. “And my job as CEO of a licensed company is to create shareholder value and create a compa- ny that identifies with its customers.” Samantha Roman, president of Toronto-based Credible Cannabis Consulting, said a diverse board can produce other payoffs, too. “Gender diversity at the board level also helps produce better purchasing and buying decisions,” she said. “Furthermore, it supports development of a broad talent pool at all levels to take advantage of over half of the available workforce.” As the cannabis industry matures, publicly traded companies are coming under more intense scrutiny from regulators, investors and consumers, making corporate governance even more important. It’s a challenge that executives at publicly traded cannabis companies can ill afford to ignore: They risk incurring the wrath of investors and consumers—or landing in legal hot water. To improve corporate government practices, cannabis industry executives can: • Take rigorous steps to ensure strict compliance with state and local regulations, not to mention federal law. • Choose a diverse mix of board members—as well as senior managers—to ensure gender and racial diversity. “You want to have a board of directors that reflects in some way your customer base,” according to one cannabis attorney. • Choose independent board members to ensure objective voices have a say in decisionmaking. • Tap people with considerable corporate experience outside the cannabis industry, such as attorneys who are well versed in securities law and corporate governance issues. They can provide valuable expertise and share their business networks. Samantha Roman Cannabis Corporate Governance Charles Alovisetti Jordan Wellington