[420 Girl]

Some limited partners make sure to keep their distance from investments in a handful of controversial or politically touchy industries. Given a recent financing round by Trilogy Partners in a decidedly non-traditional portfolio company, some may consider adding another type of deal to the “don’t touch” list.

Greenway University Inc., which provides classes and certification about medical marijuana distribution, cultivation and dispensary compliance, has received $1 million from Trilogy, as well as $1 million from angel investors. The movement to legalize the use of the drug for health benefits may appeal to many Americans, but it remains to be seen whether LPs will get a sudden need for weed.

For the moment, though, marijuana-related companies aren’t usually a part of the side letters that a single LP will negotiate with a private equity firm that contains some terms that are unique to that particular limited partner, such as a prohibition on certain types of investments.

“I’ve seen pork products and firearms but never weed in side letters,” said one limited partner, who like others spoken to for this article asked to remain unidentified.

A few problematic industries tend to crop up in side letters. Some pension funds, for example, are prohibited by state law, or their investment policy, from doing certain types of investments, such as in the gambling industry. They may negotiate a side letter that will exempt them from having to participate in any of those types of deals that may come in a fund.

Other industries that are considered hands-off by several investors include pornography and tobacco.

“Now that this company is in the news, it may be on some investor’s [side letter] request list,” said an industry lawyer of the Greenway investment. “LPAs [limited partnership agreements], of course, will have some provision that will affirmatively require GPs to comply with law and not make illegal investments or at least not be indemnified for violation of law.”

A fund formation lawyer said that these agreements don’t typically include legal drugs, even though they may include other legal pursuits like gambling, firearms, tobacco and alcohol.

But the legal status of medical marijuana is somewhat hazy. With the approval of New Jersey, whose law is expected to take effect in July, 14 states now recognize a right to use the drug, and an initiative looks poised to be enacted in the District of Columbia, according to Gustavo Escamilla, president and chief executive of Greenway University.

However, medical marijuana remains a violation of federal law.

For his part, Escamilla is trying to rid the industry of any negative associations. “We need to tell people this isn’t just people smoking pot,” he said. “We really want to bring an entirely new professionalism and legitimacy to the industry.”

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