Financial – Owner Interest Update

Financial – Owner Interest Update

Financial – Owner Interest Update were made by the Bureau of Cannabis Control to the Proposed Regulations Secs. 5003 and 5004. We have discussed the changes in an earlier post. This is an outline

Financial - Owner Interest Update
Bureau of Cannabis Control

that highlights the provisions.

Financial Interest includes

o Profits Interest > 20%1

§ Employee – Profit Sharing Plan

§ Landlord – Lease

§ Consultant with Service Contract

§ Attorney or CPA acting as an Agent

§ Broker earning a Commission

§ Salesperson earning a Commission

Financial – Owner Interest Update

Owner Interest includes “an individual that assumes responsibility for the license”.2

o Legal Entity with Financial Interest

§ Direct and Indirect Owners of Legal Entity

• “All the way” to individuals

• No minimum interest percentage specified

• No mention of “attribution rules”

§ Tiered Entities – Ownership [profits interest] of at least 20 percent

§ Partners in partnerships

§ Members in limited liability companies[“LLC’s]

• Managing Members

• Non-Member Managers

§ Shareholders in Corporations [exception for < 5% public company

shareholders]

§ Trustees in trusts [??? – beneficiaries]

o Positions of Influence3

§ Chief Executive Officer

§ Board of Directors Member

o Not Required to be Reported

§ Bank or Financial Institution making a Loan [?? Kicker debt, ?? Private Lenders]

§ Interest in a diversified mutual fund, blind trust, or similar instrument;

§ Security interest, lien, or encumbrance on property that will be used by the business [??? – Guarantee or Stop Loss]

Financial – Owner Interest Update

o Prohibited

§ A person holding office in, or employed by, any agency of the State of California or any of its political subdivisions when the duties of such person have to do with the enforcement of the Act or any other penal provisions of law of this State prohibiting or regulating the sale, use, possession, transportation, distribution, testing, manufacturing, or cultivation of cannabis goods.

§ person employed in the State of California Department of Justice as a peace officer, in any district attorney’s office, in any city attorney’s office, in any sheriff’s office, or in any local police department.

§ Neither of the above may have an Ownership Interest, directly or indirectly, in any business to be operated or conducted under a cannabis license.

§ Exception provided for Executor, Administrator, or Guardian

Financial – Owner Interest Update

Required Information

o Financial Interest

§ Name

§ Date of Birth

§ Copy of Government Issued ID

§ ID Number

o Owner Interest

(A) The full name of the owner.

(B) The owner’s title within the applicant entity.

(C) The owner’s date of birth and place of birth.

(D) The owner’s social security number or individual taxpayer identification number.

(E) The owner’s mailing address.

(F) The owner’s telephone number. This may include a number of the owner’s home, business, or mobile telephone.

(G) The owner’s email address.

(H) The owner’s current employer.

(I) The percentage of the ownership interest held in the applicant entity by the owner.

(J) Whether the owner has an ownership or a financial interest as defined in sections 5003 and 5004, respectively, of this division in any other commercial cannabis business licensed under the Act.

(K) A copy of the owner’s government-issued identification. Acceptable forms of identification are a document issued by a federal, state, county, or municipal government that includes the name, date of birth, physical description, and a picture of the person, such as a driver license.

(L) A detailed description of the owner’s convictions. A conviction within the meaning of this section means a plea or verdict of guilty or a conviction following a plea of polo contender. Convictions dismissed under Penal Code section 1203.4 or equivalent non-California law must be disclosed. Convictions dismissed under Health and Safety Code section 11361.8 or equivalent non-California law must be disclosed. Juvenile adjudications and traffic infractions under $300 that did not involve alcohol, dangerous drugs, or controlled substances do not need to be included. For each conviction, the owner shall provide the following:

(i) The date of conviction.

(ii) Dates of incarceration, if applicable.

(iii) Dates of probation, if applicable.

(iv) Dates. of parole, if applicable.

(v) A detailed description of the offense for which the owner was convicted.

(vi) A statement of rehabilitation for each conviction. The statement of rehabilitation is to be written by the owner and may contain evidence that the owner would like the Bureau to consider that demonstrates the owner’s fitness for licensure.

Supporting evidence may be attached to the statement of rehabilitation and may include, but is not limited to, a certificate of rehabilitation under Penal Code section 4852.01, and dated letters of reference from employers, instructors, or professional counselors that contain valid contact information for the individual providing the reference.

(M) If applicable; a detailed description of any suspension of a commercial cannabis license, revocation of a commercial cannabis license, ar sanctions for unlicensed commercial cannabis activity by a licensing authority or local agency against the applicant or a business entity in which the applicant was an owner or officer within the three years immediately preceding the date of the application.

(N) Attestation to the following statement: Under penalty of perjury, I hereby declare that the information contained within and submitted with the application is complete, true, and accurate. I understand that a misrepresentation of fact is cause for rejection of this application, denial of the license, or revocation of a license issued.

• Notice to BCC Required

o One or more Owners leave the business by transferring their ownership interest to the other existing owner(s), the Owner or Owners that are transferring their interest shall provide a signed statement to the Bureau confirming that they have transferred their interest.

o When there is a change in persons with Financial Interest(s) in the commercial cannabis business that does not meet the requirements for a new license application under this section, the licensee shall submit the information required

o Information Reporting Required

§ Any change to contact information from the information provided to the Bureau in the original application.

§ Any change in the name if the licensee is an individual, or any change in legal business name if the licensee is a business entity.

§ Any change in business trade name (DBA) or fictitious business names

§ Any change to financial information including funds, loans, investments, and gifts required in the original application under section 5002(c)(18) of this division.

§ Any change in the bond required under section 5008 of this division.

§ Any change or lapse in insurance coverage required under section 5308 of this division.

§ Licensees may request to add an A-designation or M-designation to their license by sending a notification to the Bureau signed by at least one owner as defined in section 5003 of this division.

§ Microbusiness licensees may add a commercial cannabis activity to their license or remove a commercial cannabis activity from their license if doing so is consistent with the requirement set forth in section 5500(a) of this division that licensees engage in at least three (3) commercial cannabis activities

§ Licenses may not be transferred from one premise to another. Licensees shall not operate out of new premises until they have been issued a new license.

Financial – Owner Interest Update

[1] This provision makes clear that an aggregate ownership of 20 percent could be someone who is entitled to at least 20 percent of the profits regardless of how much of an investment they made into the company.

[2]  An individual who assumes responsibility for the debts of the commercial cannabis business; an individual who is determining how a portion of the cannabis business is run, including non-plant-touching portions of the commercial cannabis business such as branding or marketing; and an individual who is determining what cannabis goods the commercial cannabis business will cultivate, manufacture, distribute, purchase, or sale. The inclusion of these persons as owners is necessary because the Bureau has determined that confusion continued to exist regarding which individuals needed to be disclosed as owners and undergo the background check.

[3 ] Participating in the direction, control, or management.

Financial – Owner Interest Update

Author: abizcannabis

Managing Director & CEO of integrated transactional financial advisory, tax, and technology consulting firm - aBIZinaBOX Inc New York, Chicago, and OaklandCPA.CITP.CISM.CGEIT.CGMAExpertise with: Alt. Investments/Private Equity, Real Estate, Professional Services, CA Cannabis, Tech Start-Ups and Distressed Assets/DebtTechnology Certifications including:Advanced & High Complexity Cloud Integrator AICPA PCPS, CAQ,, IMTA, CITP ISACA CGEIT, CISMState CPA Societies in California, Florida, Illinois, New York and TexasExpertise with Regulatory Compliance - US - HIPAA, FINRA, SEC Rule 17(a)(3)/(4), eDiscovery, FINCEN - EU- EBA, ESMA, EIOPA UK - BoE, PRA, FCA