Out of State Ownership 101 for 2017
As you may know, the Colorado legislature approved out of state ownership participation for medical and recreational marijuana business starting in 2017. This sea change was precipitated by the lack of banking and other proper lending. Under the new rules, out of state investors can now receive profit in exchange for investment. The basic parameters are:
• US Citizenship is required for each and every owner;
• At least one of the owners must be a one-year Colorado resident and if even one of the owners is out of state, the ownership group is limited to 15;
• Intellectual property profit based licensing agreements, employee profit sharing and institutional investors are classified as Indirect Beneficial Owners. However, with regard to intellectual property licensing, the fee must be “commercially reasonable.” It is not clear what “commercially reasonable” means, but a conservative approach is advised until MED establishes benchmarks;
• A Qualified Passive Investor is a person who is both passive with respect to the operation of the business and owners less than 5% of the business; and
• All owners, in or out of state, must first be approved by MED. The criteria for approval is not yet clear, but you should expect similar criteria for current ownership including regarding felony convictions and good moral character. Since MED approves people using criminal background checks, this out of state ownership does not contemplate large corporate ownership or ownership by publically traded companies.
The application process begins 1/1/17 and the application is not yet available. It will require a meeting which meetings are currently being scheduled approximately 12 weeks out. Approval will occur within 90 days after the meeting.
I counsel that any agreements for out of state ownership continue to include MED and local approval as contingencies for becoming effective. We have no idea what MED will approve or deny at this point.