I'm planning to email Jeff (the manager) the following. What do you think?
Hi, Jeff,
I've been mulling over your cannabis business proposal over the past few weeks. As you know, I've been very serious and passionate about it. But, while the prospect of becoming successful in this business excites me, I can't shake the nagging feeling that I may be overlooking some potential pitfalls.
So, I posted on a couple of online forums recently to get the opinions and insights of other people. Some of these forum members are already in the legal cannabis industry, while others have a background in business, so I value their input.
I was shocked when they almost unanimously advised me to stay away from this business. I was expecting them to encourage me and offer advice on how I can become successful at it. Here are the links:
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After reading all the negative feedback I received on these forums, I came up with a list of questions and concerns that I need answers to in order to proceed with this business. There are serious financial and legal consequences for me if I make a wrong move, so it's critical that I know what I'm getting into.
I had this discussion with my brother, and he is very upset, because he was counting on me to dive into this venture headfirst. He is so upset that we haven't spoken for a week. But, I will be the one taking 100% of the financial and legal risks in this business, not him. It's very easy for him to be gung ho when he has nothing to lose. In fact, I am the only member of our team who has skin in the game, and that's very troubling to me.
Anyway, here are some of the questions and concerns I have:
(1) I am probably prohibited from participating in a cannabis business by my NY state civil service job. But, I can't confirm this with my employer because this will cause him to keep an eye on me. Is there any way around this? What are the chances that my employer will find out that I'm involved in a federally-illegal business in another state?
(2) How are we going to avoid the damage that the 280E tax law will inflict on our profits? How do you know that a CPA can mitigate the damage? Has he done this before? Shouldn't we consult with a CPA before I invest capital into this venture?
(3) How do you know that the DEA won't start enforcing federal law? My assets can get seized and I can go to prison. I don't want to play Russian Roulette with my life.
(4) My 401(k) investment company can drop me because I'm violating federal law.
(5) Jeff, I know that you run a real estate business, but have you ever been in the cannabis business? What qualifies him to run one?
(6) If you and Jay each own 10% of the company, then you will also be owning 10% of the real estate (because when we form a corporation, it owns the property, and you're part of the corporation). This wouldn't be fair, since neither of you have contributed capital for the purchase of the real estate. We need to address this issue.
(7) Will the IRS be auditing me (business and personal) every year because of my involvement in this business? What's are the consequences of this?
(8) Can the feds retroactively seize my assets, even years later, because I was involved with cannabis? When am I out of the woods? Do all my assets become tainted after my involvement with cannabis?
(9) How can my parents contribute money to this business without being legally involved and without tax consequences?
(10) How on earth will I pay Jay and my brother (who have felonies)? In cash? Is this even legal?
(11) What are the financial institutions that will take our money? Also, if these institutions are not federally insured, who insures them?
(12) What happens if and when you and Jay decide to leave the company? I know nothing about running a pot business.
(13) What if cannabis suddenly becomes legal at the federal level, and now our window of opportunity is much narrower?
(14) The compensation structure of our business is very bad. If business is doing poorly, what's to stop you and Jay from jumping ship to a competitor, who will pay you more? You have no incentive to stay during bad times.
(15) What if we lose a crop? We don't have the money to ride the storm out. It seems that we are greatly underestimating the cash reserves we will need to stay afloat in this business.
(16) How low can the price of cannabis conceivably go within a 3-5 year time frame? Can we still prosper with very low prices?
(17) Where is our detailed start-up budget and cost-of-sales projection? We seem to be guesstimating and pulling numbers from our asses. NOT a good way to start a business. We need to be more accurate.
(18) What is our specific strategy for achieving efficient regulatory compliance?
(19) Who will be our customers, and why will they buy from us instead of from other growers? How do we achieve reliable markets and distribution channels?
(20) Assuming we find these reliable markets and distribution channels, how will our clients pay us? In cash?
(21) If you and/or Jay underperform, for whatever reason, I have no ability to change your compensation or terminate our business relationship, if necessary, since you will be part owners of the business.
(22) If our business is in the red, can it make additional capital calls on the owners (with the option of revoking their shares if they don't contribute), or just to those who have contributed capital (my parents and I)?
(23) Where are we going to get insurance for fire, theft, injury/death on property, or if someone that we sold pot to kills someone in a DWI?
(24) Is it true that I will not only be liable for federal taxes (with limited deductions), but also for Massachusetts AND NY state taxes as well (because I'm a resident)?
(25) What if you or Jay, God forbid, get injured or even kidnapped on the property? How liable am I?
Jeff, I understand that we are in a time-sensitive business, but I can't afford to rush into something without knowing what I'm getting into. Therefore, when you have time, could you, please, address the above questions and concerns by email? When you're finished, you can also follow up by calling me at XXX-XXX-XXXX, if you wish to discuss further. I look forward to hearing from you.
Joe