§ 5003. Designation of Owner
(a)- All applicants for a commercial cannabis license shall have at a minimum one individual who meets the definition of “owner” under Business and Professions Code section 26001(al) and who will submit the information required of owners under section 5002.
(b) “Owner” means any of the following:
(1) A person with an aggregate ownership interest of 20 percent or more in the person applying for a license or a licensee, unless the interest is solely a security, lien, or encumbrance. ,
(2) The chief executive officer of a nonprofit or other entity.
(3) A member of the board of directors of a nonprofit.
(4) An individual who will be participating in the direction, control, or management of the person applying for a license. An owner who is an individual participating in the direction, control, or management of-the commercial cannabis business includes any of the following:
(A) A general partner of a commercial cannabis business that is organized as a partnership.
(B) Anon-member manager or managing member of a limited liability company of a commercial cannabis business that is organized as a limited liability company.
(C) An officer or director of a commercial cannabis business that is organized as a corporation.
Proposed Regs. – October 19, 2018
Subsection (a) has been amended to clarify that reference to section 5002 is a reference to section 5002 of this division. This change was necessary for clarity and consistency throughout the regulations.
Subsection (b) has been amended to add an additional provision. Former subsection (b)(5) is now subsection (b)(6). New subsection (b)(5) includes as an owner an individual who is entitled to a share of 20 percent of the profits of the commercial cannabis business. The inclusion of this provision is necessary because commercial cannabis businesses are seeking alternative methods to acquire capital to cover business costs due to traditional business loans being unavailable. Because of these nontraditional methods, some commercial cannabis businesses have owners that are entitled to profits but may not consider themselves as falling under the aggregate ownership interest of 20 percent because they did not personally provide that much capital to the startup costs. 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.
New subsection (b)(6) contains those persons who fall under the statutory provision that an owner is an individual who will be participating in the direction, control, or management of the person applying for a license. This subsection has been amended to add additional provisions to part (D). Subsection (b)(6)(D) has been amended to expand on the provision that an owner is any individual who assumes responsibility for the license. The Bureau has expanded this subsection by adding parts (D)(i)-(D)(iv) to provide examples which individuals fall under the owner category of an “individual who assumes responsibility for a license.” The subsection includes the following: an individual who is managing or directing the commercial cannabis business in exchange for a portion of the profits; 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. The amendment aims to protect public health and safety by ensuring that all individuals that are assuming responsibility for a license are accounted for and qualified as owners.
Subsection (c) has been amended to clarify that when an entity has a 20 percent ownership interest in the commercial cannabis business, then all individuals who are owners of that entity shall be considered owners of 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 owners as well as persons that have control of a trust, chief executive officers, members of a board of directors, partners, trustees, and managing or non-member managers of the entity. Further clarification is provided by indicating the disclosures must trace back to the actual person holding an interest until only individuals remain. This modification is necessary to provide clarity to applicants on which individuals will be considered an owner of a commercial cannabis business when an entity owns a portion of the commercial cannabis business. 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 owns a portion of the commercial cannabis business, thus further clarification was necessary. To determine if a person has an aggregate interest of more than 20%, the disclosure of actual individuals with ownership in entities is necessary.