Last week it was announced that Former Speaker of the House John Boehner and Former Governor of Massachusetts William Weld would be joining the Board of Directors of a multi-state cannabis company, Acreage Holdings.
First, it’s worth noting the significance of John Boehner–once third-in-line for the US Presidency–taking such a position in a marijuana company. Under California regulations, John Boehner would be considered an owner of the company. If you’re reading the tea leaves, this is as strong an indication as any that those in the know don’t foresee any sort of federal crackdown; instead, they see a path to federal legalization. This was one of a series of encouraging events over the past few weeks, including the McConnell hemp bill, the Schumer decriminalization bill announcement, and the Trump assurance to Cory Gardner that the feds will respect the states’ rights to regulate cannabis. All positive developments, and primarily from the Republican Party that is generally more anti-cannabis.
But returning to the Boehner’s joining the Board at a cannabis company. Why did Acreage want Boehner on its Board? Consider the following possibilities:
- Great Public Relations for Acreage Holdings
- A sign to investors as to the safety of their funds
- Boehner’s connections to, and influence with, government regulators
- Boehner’s connections to, and influence with, capital
- Boehner has served on other corporate boards and thus brings knowledge and vision
- Boehner knows the cannabis business inside and out, as he studied the industry in-depth during his many years casting anti-cannabis votes in Congress
Removing point #6 which is tongue-in-cheek, each of #1-#5 has some validity.
For cannabis companies, what’s the “right blend” to have on the board? Should it be limited to the largest shareholders and investors, or does it make sense to elect outsiders, or well-connected individuals, or public figures? Let’s take a look.
Very Early Stage: Set up Your Board.
As we’ve previously written in “Do You Actually Own Your Cannabis Business?” you must appoint initial directors, adopt bylaws, and issue shares in order to own your business. None of this is overly difficult, and your experience corporate attorney (*ahem*) can do it in little time and expense.
Early Stage: Keep it Simple, Consider a Board of Advisors.
At an early stage, prior to financing rounds, you want your corporation to be straightforward and highly fundable. On the corporate legal side this means a clean slate without variables. Early stage is generally not the time to add non-founder board members or introduce custom proxy voting structures. However, as an alternative, many early-stage companies get benefit from having a “Board of Advisors” composed of experienced and well-connected individuals in the field, that meet regularly to give the company feedback–in a non-binding way–on corporate strategy. These Advisors can also be granted observer status and attend board meetings (although not vote). Further, these advisors can connect the company to potential investors. (Note: Do not state that an Advisor is required to introduce investors, or tie Advisor compensation to “bringing in” investors or investment. That is “Broker-Dealer” activity and engaging unregistered broker-dealers is illegal).
Growth Stage: Get Strategic with your Board.
The right time to look at strategic board members is after a company has received equity investment, has the commensurate investor board member(s) in place, and is focused on scaling and growth-stage. These strategic board member(s) are also the “independent” board member(s) for voting purposes. And they may be compensated (most often in equity) for the service and reimbursed for out-of-pocket expenses. (Note: Founder and investor board members are typically not compensated for their service on the Board, but a strategic / independent board member will typically receive some equity, up to at most ~2%. In my view, this equity should be subject to vesting.).
Strategic board members should fill a need with their skills, experience, and ability to help the company achieve its mission. Within this context one can see why a company like Acreage–as a direct operator cannabis company operating primarily in East Coast states, where there is much more uncertainty on the government level–would consider a former Speaker of the House and east coast Governor, to assist in government relations and ease the fears of investors.
Other cannabis companies could consider board members such as technical experts, medical professionals, sales gurus, or (the safest bet) someone who has previously built a successful company and/or achieved a successful exit that may be on the company’s horizon. The overall board strategy that works for your cannabis company will be unique to your company, and should be developed collaboratively with your officers, board members, and your (*ahem*) excellent corporate lawyers.