Cannabis Lawyer Julie Herzog On M&A Trends, Deals Delayed By Coronavirus: 'A Day-By-Day, Hour-By-Hour Situation'

Dealmaking in the cannabis space will likely cool down as the coronavirus pandemic puts major cities and communities on lockdown.

That's according to Julie Herzog, head of Fortis Law Partners' corporate securities practice.

Expect to see companies either delay deals or remain private for longer than they may have planned to before the COVID-19 crisis fully took hold, the legal pro told Benzinga. 

"Everyone is so focused on taking care of themselves and their own businesses, and investors are a little more risk-averse right now," Herzog said. 

Over the last six years, Herzog has negotiated and closed over 75 transactions valued at more than $1.5 billion.

She spoke with Benzinga about the state of the market, her ever-expanding role as an advisor to pot entrepreneurs, whether social distancing amid the virus outbreak will affect cannabis deliveries and what CEOs can do to help marijuana M&A pass muster with federal regulators.

Benzinga is covering every angle of how the coronavirus affects the financial world. For daily updates, sign up for our coronavirus newsletter.

There have been a number of recent deals in the cannabis space. Edison Nation agreed to buy HMNRTH Nutraceutical's line of CBD products; Harvest inked an $85.8-million deal with Interurban Capital Group Inc.; and Driven Deliveries completed a deal for Budee. Are we seeing an uptick in cannabis M&A in 2020?

That’s difficult to answer because of the significance of the COVID-19 pandemic and its global spread. At the very least, many current deals probably are going to be postponed, and I would expect a short-term slowdown in any current level of dealmaking in the industry. And later, depending on how our economy responds to the virus, we may see deals going through but with changes.

Or, if there is a prolonged downturn, we actually may see more M&A activity because more businesses will need to consolidate to survive. It’s a day-by-day, hour-by-hour situation right now.

You've counseled hundreds of companies from inception through initial public offerings or successful sales. Do you expect privately owned cannabis companies to remain private for longer stretches of time or will they be more likely to explore IPOs and M&A later this year?

I think there definitely are deals out there today that will be canceled, meaning some companies will have no choice but to remain private for longer than they may have planned to before the COVID-19 crisis fully took hold.

Right now, everyone is so focused on taking care of themselves and their own businesses, and investors are a little more risk-averse right now. Depending on how our economy responds to battling COVID-19, other deals may also be canceled for the year if the markets don’t improve.

With more states considering legal cannabis in some form or another in 2020, how has your job changed?

It hasn’t changed so much as it has expanded, especially in the amount of work we undertake for applications. We’re seeing more demand for applications for licenses in all legal-use states. And because many legal-cannabis states eventually revise their laws and regulations, it’s a constantly evolving situation. We’re definitely seeing more requests for help with compliance issues because of states’ rule changes.

In the midst of social distancing, as well as recession scares, do you expect cannabis delivery services to see a boost in business?

I think we’re definitely going to see a greater demand for delivery services in all industries, but I also wouldn’t be surprised if there’s a decline in demand once we get past the current period of public health fears. As for start-ups, this year is going to be a very different one compared to years past. I think it will be different for everyone. Cannabis start-ups also will have to focus on delivery services and changing their business models because of coronavirus health fears. Until now, these kinds of challenges weren’t something that start-ups had to focus on.

The Department of Justice (DOJ) has been using its powers under the HSR Act to issue second requests on pending cannabis deals — delaying transactions for long periods of time. In 2019, the DOJ issued at least seven second requests. What's your advice for cannabis CEOs who are going through such ordeals?

My advice is that cannabis industry CEOs receive counsel from sophisticated HSR Act lawyers who can best predict DOJ responses and whether there is a possible need to divest certain aspects of the business. That has to be built into the transaction documents in the beginning so that all the parties are clear on how they will respond if the DOJ issues a second request.

For example, it would spell out whether the buyer or the seller can back out of the deal, especially if there is a delay in closing it because of DOJ’s request.

Photo courtesy of Fortis Law Partners.

Lee Benzinga Cannabis en Español: 3 Maneras de Compartir Cannabis sin Transmitir el Coronavirus