While the mergers and acquisitions of plant-touching cannabis companies tend to grab headlines, similar moves among law firms are often ignored by everybody but the most diligent legal industry insiders.
But when the Hoban Law Group was acquired in June by the international law firm Clark Hill, it garnered the attention of not just legal wonks, but the cannabis industry at large. It marked the merger of one of the most prominent cannabis-focused law firms in the world with an Am Law 200 firm in Clark Hill, which features more than 650 attorneys, and symbolized the maturation of cannabis from an outlier of corporate America to an accepted, even coveted, realm of enterprise.
Bob Hoban, the founder of Hoban Law Group and one of the most experienced cannabis attorneys in the country, says he’d entertained merger discussions over the past few years, but the timing was never right. In early 2021, starting with Jazz Pharmaceutical’s $7.6 billion acquisition of GW Pharmaceuticals, he recognized a shift in the industry with increasingly sophisticated operations requiring increasingly sophisticated legal services.
“Every week after that, there’s been some sort of large-scale M&A deal,” he says. “It was a signal to me that I needed to step on the gas because I wasn’t up for the challenge of building it out any longer. I needed to hire more and more experienced lawyers in very specific and sophisticated fields, and that was just too challenging.”
Hoban spoke with almost 50 law firms over the course of about nine months, narrowing the top contenders down to a list of five, before finally selecting Clark Hill.
“Clark Hill is committed to putting a flag in the ground as being a top cannabis industry group in big law,” he says. “And that’s an exciting challenge.”
Along with Sander Zagzebski, who joined Clark Hill in March, from Greenspoon Marder, Hoban will co-lead the firm’s cannabis practice, which he says already includes 30 to 50 attorneys who were frequently working in cannabis.
Hoban and Zagzebski sat down with Marijuana Venture to talk about the merger and what lies ahead for the rapidly evolving cannabis industry.
Marijuana Venture: What does this acquisition mean for Clark Hill and what does it say about how law firms are changing their views on cannabis?
Sander Zagzebski: You’re not going to find somebody who is better connected in the industry then Bob, and you’re not going to find somebody that as a deeper perspective on the industry, both where it’s been and where it’s going. I’ve been in the space for about six years now. Bob’s been doing this stuff for a dozen-plus. Bob was in the industry before guys like me thought it was safe to get in the industry.
When Bob started, I promise you, there wasn’t an Am Law 200 firm that would come within a country mile of cannabis. Now you still probably have only about half the Am Law 200 firms in the game to some degree, and very, very few are trying to do what we’re doing, which is building a multidisciplinary practice group around the industry.
MV: It seems a multidisciplinary approach is becoming more and more necessary in cannabis, as companies grow past the point where one lawyer or a small handful of lawyers can handle their broad legal needs. Have you noticed this acceleration of growth in the past few years?
Bob Hoban: The early firms that serviced the cannabis industry, even before it was truly commercial, they were criminal defense attorneys. When the criminal defense attorneys reached their utility — and I don’t say that in a condescending way, but just in terms of experience — they needed someone with experience in contracts and commercial litigation and other areas. That was the evolution of cannabis becoming more sophisticated and requiring a multidisciplinary approach.
Then you had complex regulations, state by state by state. You had employment issues, you had real estate zoning issues. And now it’s extremely multidisciplinary in the sense that you see nine-figure deals happen on an almost weekly basis in this industry. That’s not something that’s easy for anyone to do without the depth of experience.
SZ: Multidisciplinary is a word big law firms like to throw around, but when it’s done right, it’s a very powerful thing because you can have really good lawyers in their specific discipline, collaborating around the needs of one particular client or one particular industry, and that gives us a better product.
We think U.S. capital markets are going to start to open up even more for the cannabis industry. Deals are becoming more and more sophisticated. You’re starting to see a lot of debt, more in the way of high-yield bonds. These are not the sort of things that the industry would have even thought possible a few years ago.
I was looking at the potential of a hostile takeover in the cannabis space just last week. I don’t think this particular deal is going to go forward, but there isn’t a precedent for that yet. But these things are coming. It’s becoming more like Wall Street and Silicon Valley, and again, that’s where the big firms have the skill sets and the experience to draw from, even if it’s not in the cannabis industry, to do those deals and cases correctly.
MV: What are your thoughts about the future of the cannabis industry and looking ahead at the next six months to a year in this space?
SZ: I think the train is going to continue. In other words, you’re going to see a lot of capital markets work. The deals are going to get more sophisticated. You’re going to see another acceleration toward real estate leasebacks, real estate investment trusts, all the stuff that more mature industries do.
We’re going to see consolidation. There are 200-plus cannabis stocks on the Canadian Securities Exchange. Anybody will tell you that’s too many companies, so we are going to see a lot of those folks combining.
You’re also going to see an acceleration of litigation, a lot more in a way of investor disputes, and we’re going to start seeing insider trading enforcement.
You’re going to see a lot of action still in restructuring, because cannabis companies can’t go bankrupt, as you know, and that creates a whole host of issues for everybody surrounding that company.
And the SAFE Banking Act is going to move the needle significantly. Even without it, you have real banks now that are starting to get into the cannabis space, and banking associations are starting to come together to offer more financial services to the cannabis industry.
BH: The United Nations changed its classification of cannabis in December of 2020. That’s going to take years to implement, but that’s an important signal globally, coupled with the fact that there are dozens of countries that see economic opportunity in legalizing cannabis, at least for export.
And then those countries that started with export-only are now beginning to look at internal distribution — Israel being one of the first. Then you look at places like Colombia, which just changed its law to allow for the exportation of flower.
Mexico is going to legalize cannabis. I’ve worked for the Mexican Senate and I’ve been involved with what’s happening there. When that legislation is passed, it’s going to change the dynamic of cannabis in North America, maybe even push the United States to move more quickly. But it will also serve as an interesting location for the rest of South America, Latin America as a whole, to connect itself to North American cannabis without having to go into the United States, which oftentimes might be too expensive.
There’s a tremendous amount of activity happening around there. But why is that relevant to the United States?
I think it pushes federal policy forward a little bit. When the SAFE Banking Act passes, that will cause people to push cannabis legalization over the finish line. I think people in Washington, D.C., to a certain extent, get a little bit tired of hearing from the industry itself. When there’s other industries that look at profiting from cannabis, like Amazon said, not only are we going to support it, we’re going to actively lobby for it. I think that’s a trend that you’ll see that will sort of push legalization closer to the finish line.
MV: Do you have a piece of advice or a word of wisdom for cannabis entrepreneurs in general?
BH: For me, it’s understanding context, understanding what’s happening around you. Unlike other industries where you can go to a publication or a trade organization that’s been around for 30 years, the information in cannabis is fragmented. So please don’t come into the industry without understanding context.
Also, don’t think that you can build some massive, vertically integrated company from the ground up. Pick one thing and do that really, really well. Raise money based on that and then figure out how to join that with companies that already have at least the bones of a supply chain company or a vertically integrated company.
I think if you follow those two things, at least you’re set up for potential success, because most companies have no understanding of context, which is why we had 500,000 acres of hemp grown a few years ago, 98% of which was never used.
SZ: The one piece of advice I always tell people isn’t just for the cannabis industry, but it’s probably more appropriate in the cannabis industry: solve your easy problems quickly. What I mean by that is that when you have co-founders and you have a dispute, don’t let it linger. It’s never going to get easier as time goes on. The industry is moving fast, and the road is not smooth and it’s not a straight line. So, when you have a little bit of time, try to clean up a lot of that stuff because these larger deals are coming.
These opportunities are here, and the capital is coming. It will be driven more, though, by Wall Street- and Silicon Valley-style investors. And they don’t have a high degree of patience for uncertainty. So the more you can clean up your act, solve your early problems, resolve any disputes you’ve got, the better position you’ll be in for the next big opportunity going forward.
And this isn’t always easy for cannabis companies, or frankly any entrepreneur, to do; they want to focus on the shiny new thing they’ve got in front of them and forget about what’s coming in the rearview mirror.
This interview has been edited for length and clarity.