Equity Incentives and Cannabis Businesses

A common way to get and retain employees is to issue them options or equity securities like corporate stock. But like with everything else, issuing securities is heavily regulated. Today, we’ll look at a few key issues for cannabis businesses that want to offer equity incentives.

How do cannabis companies offer equity incentives?

There are two common ways that cannabis companies offer equity incentives: First, companies may create an equity incentive plan (or EIP). Second, companies may offer equity incentives via a written contract, such as an employment or consulting agreement. In either case, the company will, if done right, use the plan or contract to detail things like:

Vesting details, such as the timeline of vesting Acceleration provisions (i.e., the circumstances upon which vesting “accelerates” upon certain pre-defined changes of control) Restrictions on transfer of the equity securities or options Company repurchase rights

When employees terminate their relationships with a company, things can often sour quickly. Equity incentive plans or contracts can get incredibly complicated, and we have seen things go south quickly with poorly drafted plans or agreements that did not contemplate common employment issued.

What federal securities laws apply to equity incentives?

Any time equity

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Bud Digest

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