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A Cc CHAPTER IX Cannabis Industry Risk Factors
¢ There is currently a lack of broad interstate reciprocity with respect to cannabis laws.
¢ Even in states where cannabis is legal under state law, local jurisdictions may impose bans or restrictions that materially interfere with or effectively prevent the operation of cannabis busi- nesses within their boundaries.
Risks Related to the Manufacture and Sale of Cannabis Products
¢ Cannabis companies are exposed to various product liability claims associated with human con- sumption of cannabis products, including claims that products cause injury, illness, possible side effects or interactions with other substances, or that products include inadequate instructions for use or warnings concerning health risks.
* Cannabis companies may be subject to product recalls for a variety of reasons, including product defects, such as contamination. Such recalls may result in financial burdens and reputational harm and may subject cannabis companies to increased regulatory scrutiny.
* Consumer perception of cannabis products can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of cannabis. Any unfavorable developments in these areas could have a material adverse effect on the demand for cannabis products in general or on the products or prospects of a particular company.
Risks Related to Early-Stage Cannabis Companies
* Most cannabis companies are in early stages of development and have limited operational his- tory, so it is difficult to accurately predict and forecast their business operations. Many cannabis companies will fail.
¢ The success of many early-stage cannabis companies is premised on receiving and maintaining the licenses, permits and regulatory approvals required for their proposed cannabis activities. Many of such companies will not receive or maintain such licenses, permits and approvals or may be able to do so only at significant expense.
* Cannabis companies’ access to the capital required to grow and to finance ongoing operations involves challenges particular to the industry's uncertain and rapidly evolving legal landscape. Many early-stage companies in the cannabis industry will not be able to obtain the requisite capital or will run out of capital prior to reaching profitability.
° Early-stage cannabis companies may experience unexpected problems in the areas of product development and quality, manufacturing, marketing and general management, which, in some cases, cannot be adequately solved. Companies may also be subject to product pricing and cost pressures and to claims of intellectual property infringement.
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