Financial Interest in a Commercial Cannabis Business
(a) A financial interest means an investment into a commercial cannabis business, a loan provided to a commercial cannabis business, or any other equity interest in a commercial cannabis business except as provided in subsection (c).
(b) The license application shall include the name, birthdate, and government-issued identification type and number for all individuals who have a financial interest in a commercial cannabis business but are not owners as defined in Business and Professions Code section 26001(x1). These individuals shall not be required to submit the information required of owners under section 5002(c)(20).
(c) Notwithstanding subsection (b), the following persons are not required to be listed on an application for licensure under section 5002(c)(19):
(1) A bank or financial institution whose interest constitutes a loan;
(2) Persons whose only financial interest in the commercial cannabis business is through an interest in a diversified mutual fund, blind trust, or similar instrument;
(3) Persons whose only financial interest is a security interest;lien;or encumbrance on property that will be used by the commercial cannabis business; and
(4) Persons who hold a share of stock that is less than 5 percent of the total shares in a publicly traded company.
Proposed Regs. – October 19, 2018
§ 5004. Financial Interest in a Commercial Cannabis Business
Subsection (a) has been amended to remove the last sentence. This was necessary because the rule was repeated in subsection (d)(2). This subsection has also been amended to expand on what “an agreement to receive a portion of the profits” includes. The Bureau received comments and questions regarding this and determined it was necessary to expand on the provision by providing specific examples of agreements to receive a portion of the profits. The subsection now includes the following: an employee who has entered into a profit share plan with the commercial cannabis business; a landlord who has entered into a lease agreement with the commercial cannabis business for a share of the profits; a consultant who is providing services to the commercial cannabis business for a share of the profits; a person acting as an agent, such as an accountant or attorney for the commercial cannabis business for a share of the profits; a broker who is engaging in activities for the commercial cannabis business for a share of the profits, and a salesperson who earns a commission. With the expanded section, applicants will have clear guidance on which individuals need to be disclosed as financial interest holders.
A new subsection (c) has been added. The new subsection clarifies that if an entity has a financial interest in a commercial cannabis business, then all individuals who are owners of that entity shall be considered to have a financial interest in the commercial cannabis business. This subsection has also been amended to provide examples such as all entities in a multi-level ownership structure are included as having a financial interest as well as persons that have a profit-sharing plan, have a lease agreement for a share of the profits, are a consultant providing services for a share of the profits, are acting as an agent and receiving a share of the profits, are a broker receiving a share of the profits, and are a salesperson earning commission. Further clarification is provided by indicating the disclosures must trace back to the actual person holding an interest until only individuals remain. This change was necessary to clarify which individuals need to be identified on the application as financial interest holders when an entity is a financial interest holder. The Bureau has received numerous questions regarding this issue with many applicants not understanding that the intent of this section was to reach the individual owners of an entity that has a financial interest in the commercial cannabis business, thus further clarification was necessary.
Former subsection (c) has been renumbered to subsection (d).
Proposed subsection (c)(15) has been amended to clarify that all business formation documents must be provided to the Bureau to ensure the Bureau can properly evaluate the application. Additionally, the subsection has been amended to include bylaws in the list of business-formation documents that must be provided. This modification was necessary to clarify that the Bureau considers bylaws to be a part of the business-formation documents that must be disclosed with the application. The subsection was also amended to clarify that for a commercial cannabis business held in trust, the applicant shall provide the certificate of trust establishing trustee authority. The subsection previously stated the applicant shall provide a copy of the trust. The amendment clarifies the specific document that must be provided.
Subsection (c)(17) has been amended to include foreign limited liability company to account for this type of business structure. The subsection has also been amended to include a certificate of registration or certificate of status in addition to a certificate of qualification. The Bureau determined that not all foreign business entities would have a certificate of qualification, and thus amended the section to include the other certificates that a foreign corporation is issued by the Secretary of State. This subsection also made a grammatical change which amended “Secretary of State of California” to “California Secretary of State,” and replaced “the” with “a.”
Subsections (c)(19) and (c)(20) have been amended to reflect the appropriate cross-reference to section 5003. This change was necessary to assure that the reader may accurately cross-reference the appropriate language.