ROBS for Cannabis Companies Now Available | Frank Selden Law

ROBS for Cannabis Companies Now Available

Since the US Federal government still considers Cannabis a Schedule 1 drug, cannabis companies allowed by State law experience difficulty opening bank or financial service accounts. In the past, this meant we often could not offer a ROBS setup to someone wanting to start or fund an existing cannabis company. That issue is now solved! We can now offer a ROBS plan for a Cannabis company in any State in which it is legal.

ROBS Basics Don't Change

ROBS arrangements typically involve the following sequential steps:

  1. establish a new corporation or use your existing one
  2. the corporation hires you as an employee
  3. the corporation adopts a 401(k) plan that specifically permits plan participants to direct the investment of their plan accounts into a selection of investment options, including employer stock
  4. the entrepreneur as employee initiates a direct rollover or trustee-to-trustee transfer of retirement funds from another qualified retirement plan into the newly established plan
  5. the entrepreneur as employee then directs the investment of his or her 401(k) plan account to purchase the corporation’s stock at par value
  6. the entrepreneur personally acquires corporate stock in exchange for direct investments into the corporation, assets transferred to the corporation or as reimbursement for start-up costs; and,
  7. the company utilizes the proceeds from the sale of stock to purchase an existing business or to begin a new venture.

For the complete legal structuring of a ROBS setup see this paper.

Our Financial Services Solution

The mutual fund company we work with now allows cannabis companies on their platform. This gives you and all of your employees access to hundreds of mutual funds with your own unique login into their investment system. This platform also allows you to invest into stock in your private corporation with a paper process request.

The plan must invest into the corporation. 401k plans do not allow 60-day rollovers allowed under IRA regulations, so a check made out to cash or to you directly will count as a distribution. The plan must issue a check or wire payable to the corporation. In the past, finding a way to process a check or wire payable to the corporation proved as difficult as finding a financial services company for the plan account. We have strategies for this step as well.

Our TPA Solution

Our plan's third-party administrator (TPA) is on board with this solution. In fact, they created it. If you want a 401k plan for your cannabis company without a ROBS setup, you can connect with them directly. However, if you want to involve your own retirement funds for a new cannabis corporation, or to capitalize an existing one, contact us first as they do not set up ROBS arrangements.

Either way, call or email me and we'll get you moving in the right direction.

 

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