Legal Leaf Cannabis Alert - Limitation on Transfer of Ownership of Control of the License

The emergency rules for adult-use cannabis went into effect on July 1, 2023. These rules are slightly different from the previous rules. If you operate a cannabis business or invest in a cannabis business, the new rules may require you to get approval from the Maryland Cannabis Administration (MCA) before taking certain actions.

Previously, an “ownership interest” in a cannabis business was defined as only including a “direct” ownership in the cannabis business. However, the new rules define an “ownership interest” to include both “direct and indirect” ownership in the cannabis business. “Indirect ownership” would include an ownership interest in a legal entity that itself is an investor in a cannabis business.

As a result, the new definition impacts not only operators of a cannabis business, but also investors in a cannabis business, whether their investment is directly in the cannabis business or in a legal entity that holds an interest in a cannabis business.

A cautious reading of this new definition would suggest that if a cannabis business has investors who are organized as legal entities (i.e., LLC or corporation), the investors in that legal entity cannot transfer their ownership until MCA approves the transfer.

Because the prior rules only applied to “direct” ownership, a legal entity that owned an interest in a cannabis business would not be required to seek approval from MMCC (the predecessor to MCA) before making changes to its own capitalization table.

If you have questions about the new rules and transfers of equity ownership, please speak with your Shulman Rogers’ Cannabis Industry Attorney.

To see how this applies, please see below.

1. Are you operating a cannabis business?

If yes, you are unable to transfer ownership prior to July 1, 2028.

If no, proceed to question 2.

2. Are you a direct investor in a cannabis business or an investor in a legal entity that holds an interest in a cannabis business?

If yes, proceed to question 3.

3. Does the cannabis business have publicly traded stock?

If yes, proceed to question 3A.

If no, proceed to question 4.

3A. Is your investment in the publicly traded stock greater than 5%?

If yes, you need (a) approval from the MCA, and (b) to provide a criminal history record and financial information to the MCA before transferring your investment in the cannabis business.

If no, you do not need to seek review and approval by the MCA before transferring your investment in the cannabis business.

4. Does your current investment in the cannabis business, whether directly or through a legal entity, represent more than 5% of the equity of the cannabis business?

If yes, you need (a) approval from the MCA, and (b) to provide a criminal history record and financial information to the MCA before transferring your investment in the cannabis business.

If no, you still need approval from the MCA before transferring your investment in the cannabis business, but you do not need to provide a criminal history or financial information.

ADDITIONAL RESOURCES

In order to seek approval from the MCA, you must submit THIS FORM.
Additional MCA guidance regarding transfers of ownership can be found HERE.
MCA Guidance for existing medical cannabis licensees can be found HERE.

MORE INFORMATION

The contents of this Alert are for informational purposes only and do not constitute legal advice. If you still have questions about this Alert or any other cannabis-related legal issue, please contact your Shulman Rogers’ Cannabis Industry Attorney for more information.

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