Securities Counsel for Cannabis, Hemp
and CBD Issuers

Cannabis, hemp, and CBD companies operate in a regulatory posture that has no clean analogue elsewhere in the capital markets: state-licensed, federally constrained, and dependent on enforcement discretion that can change without legislation. Every one of those facts is material to an investor, and the SEC has consistently taken the position that federal illegality and its downstream consequences must be disclosed plainly rather than managed with optimistic framing.

The Commission has brought a long series of actions in this sector — trading suspensions, registration cases, and fraud charges arising from license claims, revenue projections, and acquisition announcements that did not hold up. Frederick M. Lehrer, a former attorney in the SEC's Division of Enforcement, counsels issuers on offerings and disclosure in a sector where the staff has already built an enforcement playbook.

Federal Illegality Is a Disclosure Problem Before It Is a Business Problem

Marijuana remains a Schedule I controlled substance under the Controlled Substances Act, and hemp-derived products occupy a narrow and shifting lane created by the 2018 Farm Bill and administered against an FDA posture that has not fully resolved the status of CBD in food, beverage, and supplement channels. Whatever the practical enforcement climate, the legal status is the fact investors are entitled to understand, stated directly rather than softened.

Disclosure that describes a company as operating 'in a legal and rapidly expanding market' without addressing federal status is the archetypal misleading statement in this sector. The consequences of federal illegality are concrete and enumerable: banking access, payment processing, bankruptcy protection unavailability, Section 280E tax treatment, insurance limitations, interstate commerce constraints, landlord and lender forfeiture exposure, and the possibility that a change in federal enforcement posture eliminates the business entirely. Each belongs in the risk factors specifically, not by allusion.

Hemp and CBD issuers face a related but distinct problem: the tendency to describe a product as 'federally legal' without qualifying the FDA and state-level constraints on how it may be marketed and sold. Health and efficacy claims made in marketing frequently migrate into investor materials, where they carry both securities and FDA exposure.

License Status, Revenue Projections, and Acquisition Announcements

The most common fraud pattern the SEC has pursued in this sector involves licensing. A company announces that it has 'secured' a license when it has submitted an application; describes a license held by a third party as if it were the company's; or announces an operating footprint across multiple states based on letters of intent rather than executed and approved transactions. Because state licensing records are public and dated, these claims are unusually easy for the staff to disprove.

Revenue and capacity projections are the second pattern. Statements about square footage under cultivation, projected yield, dispensary throughput, or expected wholesale pricing are forward-looking statements that require a reasonable basis and meaningful cautionary language. Where an issuer's projection assumes regulatory approvals it has not received, that assumption must be disclosed as an assumption.

Acquisition and partnership announcements deserve the same discipline. A non-binding term sheet is not a transaction, and a press release describing it as one is a misleading statement whether or not the deal eventually closes. The timing of such announcements relative to financing activity and insider trading is precisely what enforcement staff reconstructs.

Raising Capital: Reg D, Reg A, and the Practical Constraints

Most capital formation in this sector happens under Regulation D. Rule 506(b) prohibits general solicitation, which is difficult to observe in an industry built on conferences, trade press, and social media promotion — a founder's public fundraising post can destroy the exemption for the entire offering. Rule 506(c) permits general solicitation but requires the issuer to take reasonable steps to verify accredited status, which means real verification, not a checked box.

Regulation A offerings are available and have been qualified for cannabis-adjacent issuers, but the offering circular is reviewed by SEC staff, and the review is not perfunctory. Issuers should expect comments on federal illegality risk factors, on the basis for market-size claims, and on related-party transactions, which are common in this sector because of the way licenses and real estate are frequently held.

Bad actor disqualification under Rule 506(d) deserves specific attention. This sector attracts principals with prior regulatory histories, and a disqualifying event affecting any covered person can eliminate the exemption. The diligence must be done before the offering, and it must be documented.

Listing, Custody, Transfer Agents, and Secondary Market Reality

Plant-touching issuers generally cannot list on the major U.S. exchanges, which pushes them onto the OTC markets and, for some, onto Canadian exchanges. That structural fact has consequences investors need disclosed: thinner liquidity, wider spreads, greater vulnerability to promotional activity, and higher susceptibility to the toxic convertible financing structures that have repeatedly damaged shareholders in this sector.

Custody and clearing constraints are equally material. Some broker-dealers and clearing firms decline to accept plant-touching securities, and some transfer agents will not act. An investor who cannot deposit or clear the shares they purchased has an illiquidity problem that should have been disclosed at the point of sale.

Rule 144 resale analysis in this sector carries additional friction. Shell-company history, custodianship reinstatements, and irregular corporate records are common in OTC cannabis issuers, and each of those facts affects whether a tradability opinion can properly be issued. Counsel who issue those opinions carry personal exposure when the underlying record does not support them.

• Regulation D and Regulation A offering documents for issuers in state-licensed and hemp-derived markets
• Federal illegality and Section 280E risk factor drafting reviewed against SEC comment patterns
• Rule 144 tradability analysis for OTC issuers with shell-company or custodianship history
• Counseling on general solicitation exposure arising from conference and social media promotion
• Enforcement-side perspective from nine years in the SEC's Division of Enforcement

Matters are described generally and without client-identifying detail. Prior results do not guarantee a similar outcome. A full list of representative matters is available on the case list.

Flat-fee arrangements are available for defined-scope Reg D offering document packages and Rule 144 opinions. The next step is a confidential conversation with Frederick M. Lehrer about your facts and timeline — no forms, no intake queue.