SEC Files Subpoena Enforcement Action Against Cannabis Company

SEC Files Subpoena Enforcement Action Against Cannabis Company

On June 4, 2019, the Securities and Exchange Commission (“SEC”) filed a subpoena enforcement action in the U.S. District Court for the Northern District of Illinois against Covalent Collective, a vertically integrated cannabis enterprise, for failure to produce documents in an investigation.

The action relates to an SEC investigation into potential violations of registration provisions of the securities laws by offering unregistered securities, and potential misleading representations to investors and potential investors about the operations, acquisitions, and projected stock price of its related entities.

The SEC seeks a federal court order compelling Covalent Collective to comply with its Chicago Regional office’s subpoena that was served in October 2018. For the press article related to this action, please visit: https://www.sec.gov/litigation/litreleases/2019/lr24489.htm

This is another example of the complexity with cannabis-related business and compliance between state and federal law. It’s imperative to structure investment vehicles for cannabis-related companies so that they are exempt from the registration requirements and public disclosure requirements of the federal securities laws either through private placement or intrastate offerings. Anyone seeking to rely upon these exemptions should seek the advice of counsel to avoid many risks associated with fund raising and the legal cannabis industry.

About Kennyhertz Perry’s Medical Marijuana Practice Group

Kennyhertz Perry advises clients on a wide range of medical marijuana business formation, compliance, and regulatory matters.  Kennyhertz Perry has broad experience assisting clients with business formation and compliance in highly-regulated industries. Kennyhertz Perry partner Braden Perry spent time as a Senior Trial Attorney with the Commodity Futures Trading Commission and is well equipped to assist with the banking and other financial issues related to the medical marijuana industry.

Kennyhertz Perry partner John Kennyhertz is former in-house counsel at a private equity firm, and has structured transactions for very small and very large clients alike. He has substantial experience in highly-regulated industries such as online lending, and industries with rapidly-evolving regulations, such as cryptocurrency. He provides medical marijuana operational and compliance counseling, and offers advice on appropriate modifications of transaction structure and documentation.

Kennyhertz Perry attorney Jon Dedon previously worked in the complex litigation division of an AmLaw 100 law firm. Currently, he advises clients on medical marijuana regulatory and corporate structural matters. His contacts with executives in marijuana businesses in Washington and California prove valuable when advising clients regarding medical marijuana in Missouri.

Kennyhertz Perry’s Ben Tompkins worked as an Assistant U.S. Attorney in Los Angeles and Department of Justice Tax Division Trial Attorney, Mr. Tompkins offers clients a unique depth and breadth of experience in civil and criminal tax matters involving a range of issues, including those involving highly-regulated industry.

Clients also benefit from Kennyhertz Perry’s experience in related areas of law, such as litigation, banking, securities, insurance, tax, and its regular practice before the Missouri administrative agencies and courts. Medical marijuana clients choose Kennyhertz Perry because the firm’s lawyers tailor their advice to the unique issues presented by each matter they handle.

To learn more about Kennyhertz Perry, LLC, please visit kennyhertzperry.com.

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