COVID-19: Risk Factor Disclosures When Raising Money in a Global Pandemic

Given the current disruptions caused by the COVID-19 global pandemic, let’s focus on an immediate challenge confronted by companies actively engaged in fundraising efforts:  The adequacy of risk factor disclosures to prospective investors, especially in light of the impact of the current pandemic.

Cannabis-related businesses that are actively raising capital are strongly encouraged to carefully consider the following key issues:

Risk Factors in a Private Placement Memorandum:  When raising private capital, our cannabis clients typically include a private placement memorandum (“PPM”) in their package of offering documents to investors. A PPM is a securities disclosure document that provides certain necessary information about the company, its business, and the offered securities. From the company’s perspective, PPMs serve a dual purpose: PPMs are intended to act as a protective securities compliance instrument as well as an investor marketing tool. Notably, every PPM should include a risk factors section.

What are Risk Factors? From a company’s risk management perspective, risk factors are probably the most important section of the PPM. Risk factors are intended to disclose to prospective investors the risks that could lead investors to lose all or a portion of their investment. Generally, key categories include disclosures about the … Keep reading

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