By: Judith Cassel & Christopher Knight
Wisely choosing your consultant can make all the difference to the success of your dream.
The stories from frustrated would-be cannabis entrepreneurs are all too familiar. We’ve heard them over and over. They dreamed of becoming licensed to join the exciting and rapidly-expanding legal cannabis industry. They assembled a top-notch team of partners, investors, and experts. They did their due diligence. They established a vision for the business that became the foundation for a pro forma and business plan. They identified a favorable business location and secured rights to lease or purchase the property. They hired consultants that promised perfect, winning applications. And that is where it all went very wrong.
Given the time constraints facing applicants and the fact that many applicants have never been involved in large marijuana operations, there is tremendous pressure for applicants to sign quickly with an out-of-state consultant. Unfortunately, choosing the wrong consultant can lead to an application receiving a low score or not being scored at all. There probably will be no chances for a “do-over” if things start going south with the consultant.
Unfortunately, it’s all-too-common for those hopeful cannabis entrepreneurs to be left in a real bind by their consultant, when the application deadline is bearing down on them and their consultant is failing to fulfill the promises that were made to competently and professionally take care of critical aspects of a complicated, multi-faceted, regulatory licensing application. By the time the substandard work starts pouring in, it is too late to engage someone new.
At Cannabis Law Pa., we have seen this scenario playout. We have endured sleepless nights along with our clients and worked around the clock to help them overcome the shortcomings of some incompetent consultants on a tight deadline. And we have reviewed, corrected, re-written and sometimes completely discarded and re-done bad and non-compliant work-product from consultants – and submitted winning applications on their behalf and helped salvage their dream of being among the few to open a legally permitted cannabis business.
We have seen consultants quote exorbitant non-refundable flat fees, payable in advance, for preparing application materials – some as high as $250,000 for a single application. We have seen consultants insist on negotiating an equity share in the business as part of its fee. We have seen those same consultants boldly and confidently promise that they will come through with competent “winning” application narratives. While many consultants do excellent work and fulfilled the promises they make, all too often we have seen others utterly fail to come through with quality product in a timely fashion. In many cases, we have seen consultants provide materials so late as to be useless. Other times we have seen consultants supply narratives that were inconsistent or even in direct contradiction with the specific regulatory requirements of the applicant state. For example, here in our home state of Pennsylvania, where it is currently illegal to dispense smokeable dry-leaf flower, as well as edibles, we have seen numerous instances where a highly-compensated and seemingly well-credentialed consultant provides application materials at the last minute prior to the submission deadline that are full of references to smokeable flower and edibles! In many cases the materials were obviously retreads, cut and pasted from materials created for an entirely different set of regulations from some other state. Believe it or not, we have literally seen written materials provided to our clients with another state referenced throughout the narrative. The consultant failed to even take the time to replace the name of the state for which the materials were originally drafted.
So what can a hopeful applicant do to help ensure that they engage a competent consultant and receive quality materials?
First and foremost, engage competent, experienced legal advisors as early as possible in the process. Your attorneys can assist you in vetting your potential consultants, conduct due diligence on their qualifications, check with their references and prior clients, etc. But most importantly, your attorney can review, negotiate and draft a contract that protects you against this type of negligence.
It will also be important to gain a specific understanding and agreement regarding the consultant’s commitment to your project. Your attorneys can help you include in your negotiations any agreement potentially preventing your consultant from working on any competing applications, or even if not directly in competition with yours, limiting the consultant’s commitment to projects that might distract the consultant from giving appropriate attention to your application.
Once you have narrowed the field and are considering entering into a written agreement, you should rely on your attorneys to review and revise any proposed consulting agreement to ensure that the terms, expectations and remedies are clearly and fairly delineated. The objectivity of your legal counsel in this process can be invaluable, because while you, as the client, may be feeling very at ease with the consultant and confident in their qualifications, a good lawyer will be reviewing a consulting agreement with the expectation that something could go badly, and make sure that your interests and rights are well-protected in a written agreement if and when it does.
In addition, your attorneys can help negotiate a fair and reasonable compensation arrangement with the consultant that ensures that payments are reasonably due upon delivery of compliant materials from the consultant, rather than paying them a majority of their fees on the front-end as some consultants may request. When possible, negotiating for a portion of any fees to be connected to the submission of a winning application will help ensure that the consultant remains committed to providing the highest quality and most timely materials, since they will have a financial stake in the success of the application. Your attorneys can also help you carefully consider and weigh the pros and cons of potentially agreeing to give up a portion of your businesses’ equity as part of your consultant’s compensation.
Taking steps such as these and others that we at Cannabis Law Pa have recommend to our clients will help ensure that you not only tread carefully and deliberatively in the selection of your consultant, but that your expectations are ultimately fulfilled – and that your dream of becoming part of the legal cannabis industry will not be scuttled by an incompetent or irresponsible consultant.