New Cannabis Regulations: Who is an “Owner” and has a “Financial Interest”
As I’ve discussed in prior posts, California’s newly approved Bureau of Cannabis Control (BCC) final regulations contain a significant number of important changes that affect existing and potential new legal cannabis businesses. Delivery is the biggest news, but there are other changes worth discussing, such as additions to the definition of who is an “owner” or has a “financial interest” in a cannabis business.
State licensure under Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) and it’s associated regulations requires disclosure of all owners and all persons with a financial interest in the cannabis business. Each owner must submit to DOJ fingerprinting as well as disclose a very substantial amount of personal information. As expected, negative information in the background of an owner could result in denial of a state license. The level of disclosure for those with a financial interest is lower, only name, birthdate and state issued identification number, but still each person with a financial interest must be included.
Section 5003 of the new BCC regulations contain two important changes to who is an “owner.” First, now anyone entitled to 20% or more of the profit from the business is also considered an owner. Previously, they just had to have 20% or more ownership of the business. Additionally, any entity that is considered an owner, must disclose all controlling parties of that entity, at any owning corporation or partnership level, down to the specific individual. Essentially, the BCC is insisting on full disclosure of all individuals who have ownership or control of a cannabis business. This same rule around multi-level organizations also now applies to financial interest holders.
The moral of the story for these changes is that the requirements for licensing a cannabis business in California are complex and rapidly changing. What might look like a novel corporate structure for investment purposes, or a benefit for your employees, could result in substantially higher licensing overhead and cost. Expert legal advice can help you avoid costly and potentially fatal mistakes.
Nothing in this post constitutes legal advice or representation. Please contact me directly to discuss how these new regulations impact your specific business situation.