The officers, directors, partners, members and managers of cannabis companies need to understand what constitutes a “security” and how to comply with applicable securities laws. The failure to do so may result in their personal liability for securities fraud. Let’s start with what constitutes a “security.” As my colleague Jonathan Bench recently explained in layperson’s terms:
a ‘security’ is any type of financial interest in any business venture for any amount over any period of time, even if that business is not a formally registered company. The security could be an offer or sale of a straight equity ownership percentage. It could be a simple loan or debt. It could be an option, warrant for future ownership, or a profit-sharing arrangement.”
Jonathan explains this in detail more in the following posts:
As Jonathan explains, this is serious stuff with serious consequences. And Oregon is an especially investor-friendly state.
A good example of this is found in the oft-cited case of Foelker v. Kwake, 279 Or. 379 (1977). The transaction involved a loan by an investor (the plaintiff) made in connection with a new company being started by the defendants. (A common enough occurrence in the marijuana, hemp,