Non-Traditional Businesses Still Need Traditional Due Diligence

Posted Thursday, September 15th, 2016 by Angela Fabek

Chelsey Franks
Vice President, Investigations
Bishops Services

Modern-day culture is constantly evolving. Taboos are dissolving right and left and this is opening up new areas for investment.

A particular uptick can be seen in investments in cannabis-related businesses. As more and more states legalize the sale and usage of marijuana (although it remains illegal at the federal level), investors are seeing a highly-tempting target for their money. In June of 2016, Microsoft became the first major company to announce its participation in the sector. As the BBC reports, “the computer giant partnered with Kind Financial, which helps businesses and government agencies track sales of legalized marijuana.”

The reality is that these types of businesses – while non-traditional in nature – still warrant traditional due diligence. The entity or industry may be new, but the people behind it – who will ultimately be on the receiving end of your money – aren’t. Their backgrounds and character still warrant careful review to ensure that they are trustworthy and have nothing to hide. Particularly in light of the fact that, as the BBC reports, the lack of big players in the space “leaves private funds and ‘mom and pop’ investors” to put up the majority of the funding to help grow these businesses. These types of investors literally can’t afford to put their money in anything less than perfect.

Another investor risk factor – cannabis businesses are also ineligible for federal bankruptcy protection, so if the company fails, investors are more likely to lose their money.

So if you find yourself with the munchies for an investment in marijuana, do your due diligence first, so you don’t get food poisoning later.