The Law Office of Shay Aaron Gilmore – Cannabis Lawyer San Francisco
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VENTURE CAPITAL COUNSEL FOR CALIFORNIA CANNABIS AND HEMP COMPANIES

Access to capital is the defining constraint on growth for most cannabis and hemp operators. Because cannabis remains a Schedule I controlled substance under federal law, traditional financial institutions — banks, investment banks, and most institutional venture funds — continue to decline to lend to or invest in plant-touching cannabis businesses. That financing gap forces cannabis and hemp companies to rely on non-traditional capital: private equity funds, family offices, high-net-worth angels, and cannabis-dedicated venture firms. The firm represents startups, growth-stage companies, investors, and funds across the full cannabis and hemp financing lifecycle — from seed and convertible note rounds through Series A and structured equity placements.
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The Unique Legal Landscape of Cannabis Venture Capital

Cannabis investors face risks that do not arise in conventional venture capital. Investors in cannabis businesses face potential exposure under the federal Controlled Substances Act, including theoretical aiding-and-abetting liability, even in fully state-legal markets. Cannabis investment documents must disclose federal illegality risk as a baseline matter of investor disclosure. They must also model returns on a post–Section 280E basis: Section 280E prohibits cannabis businesses from deducting ordinary operating expenses, materially compressing after-tax returns and requiring careful financial modeling.

Licensing obligations layer on top of corporate ones. The DCC requires that every financial interest holder in a cannabis licensee be disclosed and (depending on threshold) approved. Adding investors is not just a corporate transaction — it is a regulatory event. The firm structures cannabis financings with these disclosure obligations timed in advance, sequencing closing, regulatory notification, and operational changes to minimize the risk of a license compliance gap during the round.

Contract enforceability is the third leg. Courts have refused to enforce cannabis investment contracts on federal illegality grounds in multiple jurisdictions. The firm drafts cannabis venture documents with arbitration provisions, California choice-of-law clauses, severability language, and federal-illegality carve-outs designed to insulate the agreement from the objections that have defeated investors elsewhere.

Key Financing Structures for Cannabis and Hemp Companies

Convertible notes and SAFEs are common at seed and pre-seed stages because they defer valuation and DCC disclosure obligations until a qualified financing round. The firm advises on structuring convertible instruments to ensure proper DCC disclosure at the appropriate time and to avoid premature disclosure obligations.

Priced equity rounds — Series A, B, and later stages — require term sheets, preferred stock purchase agreements, investor rights agreements, voting agreements, and rights of first refusal and co-sale agreements. In cannabis, these documents also must address regulatory change risk: what happens to the investment if the DCC revokes or fails to renew a key license, or a regulatory change materially impairs operations. Liquidation preferences, drag-along provisions, and regulatory-change covenants are drafted to address those scenarios.

Hemp financing diligence has shifted materially. The 2025 Continuing Appropriations and Extensions Act narrowed the federal definition of “hemp” and effectively banned most psychoactive hemp-derived cannabinoids by November 12, 2026. Hemp M&A and venture deals now require state-by-state product legality assessment, a compliance plan for transitioning potentially non-compliant SKUs before the effective date, and representations and warranties addressing exposure to the new hemp definition.

How Shay Aaron Gilmore Helps

The firm works with cannabis and hemp companies from early through late-stage funding, connecting stakeholders with financial institutions, private equity funds, and venture capitalists active in cannabis. Investors, funds, and operators receive the legal services needed to close cannabis and hemp financings efficiently and with airtight documentation.

Venture capital counsel services include:

  • Term sheet review and negotiation
  • Convertible note and SAFE drafting
  • Priced equity round documentation (Series A and later)
  • Preferred stock purchase agreements
  • Investor rights, voting, and co-sale agreements
  • DCC financial interest holder disclosure and approval coordination
  • Regulatory change risk analysis
  • Section 280E financial modeling for investor presentations
  • Post-closing investor rights compliance
  • Investor-side representation in cannabis financings

Frequently Asked Questions

Sometimes for very small interests, but most meaningful investments trigger DCC disclosure obligations and often pre-approval. Sequencing matters — closing without proper disclosure can create license compliance exposure for the company.
They can work well when drafted with cannabis-specific provisions — federal illegality disclosures, regulatory change protections, and DCC disclosure mechanics built in. Off-the-shelf SAFE templates are not adequate for cannabis financings.
Substantially. Effective tax rates on cannabis operators can approach 70%, which means investor financial models must be run on a post-280E basis. Pre-tax modeling consistently overstates expected returns.
Yes — on different transactions, after conflict clearance. On any single transaction, the firm represents one side.
Cannabis-focused private equity funds, family offices, high-net-worth angels, cannabis-dedicated venture funds, and a small but growing group of institutional funds with cannabis sleeves. Traditional institutional venture has remained largely on the sidelines

Related Articles

Recent and Expected California Cannabis & Hemp Rulemaking to Govern the Licensed Supply Chains for Years to Come

Shay Gilmore May 13, 2026

California cannabis and hemp operators face five active or anticipated rulemakings in 2026 — covering multipack cannabis goods, pesticide residue testing, cultivation requirements, METRC track-and-trace reform, and AB 8 implementation. California cannabis attorney Shay Aaron Gilmore breaks down each DCC rulemaking proceeding, the AB 8 two-year countdown to hemp-DCC licensing integration, and why administrative law counsel delivers its highest value before any enforcement action begins.

California’s 2026 Cannabis Bills: All Active, All in the Assembly, and a Critical Deadline Approaching

Shay Gilmore May 4, 2026

Every active 2026 California cannabis bill affecting licensed dispensaries and retailers — including AB 2532’s beverage overhaul — is now sitting in the Assembly Appropriations Committee with a hard May 15 deadline. California cannabis attorney Shay Aaron Gilmore breaks down all of the bills, their current status, who’s sponsoring them, and what operators need to do before the window closes. Read the full legislative update at shaygilmorelaw.com.

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Trusted Venture Capital Counsel for Investors and Operators

Capital still sees opportunity in California cannabis and hemp, but every investment sits atop a thicket of regulatory, tax, and enforcement risk. The firm represents both investors and operators in seed, growth, and later‑stage financings, as well as secured lending and structured investments tied to license transfers, real estate, and cash flows.

On the investor side, mandates include diligencing license portfolios and compliance histories, structuring secured and unsecured investments, and negotiating protections tailored to a sector that lacks access to federal bankruptcy courts. The practice has led secured financings for out‑of‑state entrepreneurs funding multi‑store retail development in California, and has acted for landlords and financial creditors in restructurings of distressed manufacturers and cultivators, coordinating interlocking loan, lease, and management agreements.

On the company side, the firm regularly leads capital raises into manufacturers, cultivators, and retailers, from initial investments through unwinds where criminal activity, market deterioration, or regulatory roadblocks have made the original business plan untenable. The focus throughout is on deal structures that satisfy ownership and financial‑interest disclosure rules, anticipate 280E and tax issues, and leave room for eventual exits even in turbulent markets.

The Law Office of Shay Aaron Gilmore represents startups, growth stage companies, investors, and firms in formation, seed round, and in venture capital financing.

When It Comes to Securing Financing, What Challenges Do Those in the Cannabis and Hemp Business Face?

From Shay’s interview for the Master’s series on ReelLawyers.com

When it comes to securing financing in the cannabis and hemp industries, the challenges often stem from legal and regulatory barriers—most notably, the issue of federal illegality. Beyond that, there’s limited access to traditional financing, as many investors remain hesitant due to legal risks and regulatory uncertainties.

Additionally, cannabis businesses that do secure loans often face higher interest rates compared to other industries, largely because of the perceived risks.

 

Related cannabis and hemp business services include:

A complete list of Shay’s recent presentations, white papers, and legal articles is available on the Media page. Shay regularly publishes updates and insights about Venture Capital Counsel on his Cannabis and Hemp Law Blog.

Investor Disclosure and Deal Structuring Under the Cannabis and Hemp Regulatory Divide

Raising capital for a cannabis business in California triggers regulatory disclosure obligations that have no parallel in the hemp industry — and investors and operators who fail to account for those obligations during a funding round risk enforcement action, deal delays, and even license revocation. Under DCC regulations, every person with an aggregate ownership interest of 20% or more — or who manages, directs, or controls the business in any capacity, including board members, officers, and LLC managers — must be disclosed as an “owner” under 4 CCR section 15003 and submit to a full background check before the DCC will process a license application or approve a change in ownership. Investors who fall below the 20% ownership threshold are not exempt: anyone providing a loan, acquiring any equity position, or entitled to receive 10% or more of profits — including through convertible notes, SAFEs, profit-sharing arrangements, or revenue-based financing — must be disclosed as a “financial interest holder” under 4 CCR section 15004. Failure to disclose is classified as a Tier 3 violation under the DCC’s disciplinary guidelines — the most serious category, on par with illegal sales of controlled substances and securing a license by fraud — and can result in license suspension or revocation.

These disclosure requirements fundamentally shape how cannabis investment documents are drafted. Convertible notes and SAFEs must include regulatory cooperation clauses that obligate investors to submit personal information for DCC disclosure when conversion is triggered or when profit-sharing thresholds are crossed. Priced equity rounds must be structured so that investor allocations do not inadvertently push a passive investor above the 20% ownership threshold — which would convert a financial-interest-holder disclosure into a full owner disclosure with background-check requirements. 

Industrial hemp businesses face none of these constraints. Because hemp is regulated by the CDFA rather than the DCC, there are no ownership-percentage disclosure triggers, no financial-interest-holder reporting requirements, and no background-check process for investors. Hemp companies register their “key participants” (sole proprietors, partners, and persons with executive managerial control), but passive investors, lenders, and profit-share participants are not subject to CDFA registration or disclosure. This means that hemp investment rounds can be documented using more conventional venture-capital instruments without the cannabis-specific regulatory overlays — but companies that operate in both the cannabis and hemp markets, or that plan to transition from hemp to cannabis licensing, must ensure that their capitalization tables are structured for the more demanding DCC disclosure regime from the outset. The firm advises investors and operators on structuring seed rounds, convertible financings, and priced equity rounds that satisfy DCC disclosure requirements for cannabis businesses while maintaining flexibility for companies that also hold or intend to pursue CDFA hemp registrations.

Focused on Cannabis and Hemp Industries

The cannabis and hemp industries experience challenges unique to their industries, making it all the more critical for companies and individuals to align with experienced counsel. Most traditional financial institutions continue to not lend to or service cannabis entrepreneurs and enterprises. Helping clients secure capital from non-traditional sources while maintaining airtight legal contracts, The Law Office of Shay Aaron Gilmore assists investors, funds, and operators with the following legal services:

  • Valuation matters
  • Commercial loans
  • Venture capital and business financing arrangements
  • Direct investments
  • Special purpose vehicles
  • Structuring and negotiation of investment documents
Representative matters
  • Acted for an investor in a six‑figure equity and management investment into a licensed manufacturing business on the Central Coast, handling all aspects of the transaction and later guiding the unwinding of the investment after repeated criminal incidents at the facility.
  • Represented a secured creditor financing the development of multiple California cannabis retail locations, negotiating investment documents that balanced the needs of the developer with robust collateral and change‑of‑control protections for the lender.
  • Advised a landlord‑creditor in the financing and restructuring of a San Francisco manufacturing business through a web of leases, promissory notes, and money‑management agreements, navigating complex local regulations while enforcing the client’s rights.
  • Served as regulatory counsel to a creditor taking control of a large cultivation operation in Southern California, designing a transfer‑of‑control path that complied with state licensing rules in the absence of bankruptcy protection.

The cannabis and hemp industries continue to see interest from venture capitalists, and the quantity of such deals will continue to grow. The Law Office of Shay Aaron Gilmore works with  clients from early to late-stage funding, connecting stakeholders with financial institutions, private equity funds, and venture capitalists investing in cannabis industry opportunities. The Law Office of Shay Aaron Gilmore advises startups and investors regarding the following:

Taxation, Banking, and the Investor Economics of Cannabis vs. Hemp The financial case for investing in cannabis versus industrial hemp turns in large part on two federal-law consequences that create starkly different investor economics: Section 280E of the Internal Revenue Code and access to the federal banking system. Under Section 280E, cannabis businesses that “traffic” in a Schedule I controlled substance cannot deduct ordinary and necessary business expenses — only cost of goods sold — which drives effective federal tax rates for plant-touching cannabis operators into the 60–80% range and compresses the returns that investors can realistically expect from equity or debt positions in licensed cannabis companies. In December 2025, President Trump signed an executive order directing the Attorney General to expedite rescheduling marijuana from Schedule I to Schedule III, and if rescheduling is completed as expected in 2026, Section 280E would no longer apply to cannabis businesses — a change that could fundamentally reshape cannabis company valuations, capital structures, and investor returns virtually overnight. Investors and operators who are raising capital or negotiating investment terms now need deal documents that address both the current 280E reality and the possibility of imminent rescheduling, including provisions that reallocate economics, adjust valuation methodologies, and address entity-restructuring options (LLC to S-Corp or C-Corp) that become viable once normalized tax treatment takes effect. Industrial hemp businesses, having been removed from the Controlled Substances Act by the 2018 Farm Bill, are not subject to Section 280E and have always been able to deduct ordinary business expenses at standard rates — giving hemp operators a structural profitability advantage that has made the sector attractive to conventional investors. Hemp companies also have meaningfully better access to the banking system: federal banking regulators issued guidance in 2019 confirming that financial institutions can serve hemp businesses operating in compliance with the Farm Bill, and the SBA has at times made hemp businesses eligible for government-backed loans — although recent SBA policy changes have narrowed that eligibility for businesses selling hemp-derived consumable products that may raise issues under the Federal Food, Drug, and Cosmetic Act. Cannabis businesses, by contrast, remain largely shut out of federally regulated banking, forcing reliance on state-chartered credit unions, private lenders, and private-placement capital raised under SEC Regulation D — typically through Rule 506(b) or 506(c) offerings limited to accredited investors. Even if rescheduling proceeds, banking access for cannabis businesses is not guaranteed and may require additional federal legislation. The firm advises investors and operators on structuring financings that account for these divergent tax and banking realities, including tax-aware deal terms for cannabis investments under the current 280E regime, rescheduling-contingent provisions for deals closing during the transition period, and conventional lending and equity structures for hemp businesses that can access the federal banking system.

The firm provides Venture Capital Counsel to cannabis and hemp investors and operators in:

Explore Our Venture Capital Counsel Services

The Law Office of Shay Aaron Gilmore provides a full range of legal services for cannabis and hemp investors and operators across every stage of the financing lifecycle. Explore each of the practice areas below to learn more.

Cannabis Investment Due Diligence

Regulatory, financial, and structural due diligence before committing to a cannabis investment.

Cannabis Seed & Angel Financing (SAFE Notes & Convertible Notes)

SAFE notes, convertible notes, Regulation D compliance, and DCC ownership planning for early-stage cannabis deals.

Cannabis Venture Capital Term Sheets & Equity Financings

Term sheet negotiation, priced equity rounds, and definitive financing document counsel for cannabis venture rounds.

Hemp Investment & Financing Counsel

Legal counsel for investors and operators in California’s hemp investment and financing market.

Close the Round With the Documentation It Deserves

Cannabis financings are too consequential — and too regulated — to close with conventional venture templates. A scoped review of the round structure and the proposed documents will identify the provisions most likely to create exposure on either side of the deal.

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