In 2020, the Colorado Marijuana Enforcement Division (“MED”) allowed Publicly Traded Corporations to acquire marijuana businesses in the State of Colorado.
At the commencement of the licensed marijuana industry in Colorado, every natural person owner had to be a resident of Colorado for two years. As this industry developed, the rules related to residency became more flexible. Residency requirements dropped to one year for each owner, then only one owner had to have residency. Today, owners do not need to be a Colorado resident rather at least one person with control of the marijuana business must be a resident. Under the prior rules, each owner had to be vetted by the MED, which consisted of a thorough finger-print based background check and investigating the financials of each owner.
With the introduction of Publicly Traded Corporations being allowed ownership, it would not be practical to require background checks on every person who owned a share of stock. For example, Philip Morris International, Inc has over 1.5 billion shares issued and outstanding. Philip Morris could have millions of unique individual shareholders, making it impossible for a regulatory agency, like the MED, to conduct background checks on all owners.
With the change in the rules allowing Publicly Traded Corporations ownership of marijuana businesses, the rules related to ownership, residency, background checks, and other rules had to change to accommodate these companies.
As stated above, an owner is no longer required to be a resident, however, marijuana companies must be in control of its business and have a resident that is in control. One exception to the company running its business is to allow an operator with an Operator’s License (as defined by the MED) to operate the business.
The MED no longer requires background checks on every owner. Owners with less than 10% interest of the business and who do not have control of the business are considered Passive Beneficial Owners. The MED does not need to approve Passive Beneficial Owners as owners, run background checks, or require fingerprints. In addition, a Passive Beneficial Owner is not listed as an owner on the MED’s website.
If a person owner 10% or more of the effective ownership of the marijuana business, or also has control of the business, they are defined as a Controlling Beneficial Owner. Control of the business is when a person is making management level decisions for the business. The MED requires fingerprint-based FBI background checks on all Controlling Beneficial Owners and requires that person to be approved as an owner before granting a marijuana license or allowing that person to become an owner through a change of ownership.
Attorney Clifton Black has been representing legal marijuana businesses since 2009, prior to the regulatory scheme being created by the State of Colorado. Mr. Black’s clients comprise of virtually all marijuana clients, and he has been assisting clients with buying and selling marijuana companies since 2010, including multiple deals with Publicly Traded Corporations. In addition to assisting clients with buying and selling marijuana businesses, the Law Offices of Clifton Black, PC assists clients with creating business entities, licensing, leases, various industry related contracts, allegations of violations and other business matters. If you would like to schedule an appointment, please contact the office at 719-328-1616.