Structuring Inbound Investments

Structuring Inbound Investments

Structuring Inbound Investments – is an in-depth overview of the Federal income tax issues associated with inbound foreign investment to the United States. The subject matter is highly technical but, highly relevant to the current investment climate in the legal cannabis industry in California. Last week, CannaLawBlog had a post by Hilary Bricken, Esq. entitled A Gray Area: Foreign Investment in California’s Cannabis Industry. She observes

In general, foreign direct investment (FDI) refers to any type of cross-border transaction where a company or investor from Country A invests money in a company located in Country B. It generally doesn’t refer to dumping money broadly into stocks and bonds — it is specifically about a concentrated, single-enterprise investment.

FDI exists in several forms. Foreign investors can start a new company and can finance and build it from the ground up. They can participate in a joint venture with U.S. partners. They can wholly or partially acquire a U.S. business. They can also take a lighter touch, where they provide primarily branding and process support while having U.S. parties take on the bulk of the financial risk — the basic franchise model.

She concludes:

For now, with no broad pronouncements apparent, it appears that the federal government is taking a wait-and-see approach to foreign ownership of state cannabis businesses. That means it is up to state cannabis business participants and the states themselves to ensure that foreign owners do not violate federal enforcement priorities — starting with California.

The reality is her article barely scratches the surface of the issues. The Federal tax issues are merely the first layer of issues that need to be considered in structuring an inbound investment. However, they are the critical foundation that may determine the structure of an investment as debt, equity or a hybrid and the choice of legal entity.

We are going to follow this post up with a series of future posts that will explore the issues involved in structuring these types of investments.

If you would like to view a full-sized copy of the outline you can do so here.

Structuring Inbound Investments

Author: abizcannabis

Managing Director & CEO of integrated transactional financial advisory, tax, and technology consulting firm - aBIZinaBOX Inc New York, Chicago, and OaklandCPA.CITP.CISM.CGEIT.CGMAExpertise with: Alt. Investments/Private Equity, Real Estate, Professional Services, CA Cannabis, Tech Start-Ups and Distressed Assets/DebtTechnology Certifications including:Advanced & High Complexity Cloud Integrator AICPA PCPS, CAQ,, IMTA, CITP ISACA CGEIT, CISMState CPA Societies in California, Florida, Illinois, New York and TexasExpertise with Regulatory Compliance - US - HIPAA, FINRA, SEC Rule 17(a)(3)/(4), eDiscovery, FINCEN - EU- EBA, ESMA, EIOPA UK - BoE, PRA, FCA