The consequences of selling a cannabis business in California are complicated. How you notify the licensing agency of a change in ownership differs for the Bureau of Cannabis Control, the CalCannabis Cultivation Licensing Division, and the Manufactured Cannabis Safety Branch. Also, depending on the shift in ownership, you may continue under your current license or be forced to apply for a new one.
It’s helpful to talk with a marijuana business lawyer about the proposed sale and what the new and existing owners should prepare for. For help with the sale of a California cannabis business, contact McElfresh Law online or at (858) 756-7107.
California Law Prohibits Transferring Licenses
A cannabis license is issued to a specific person or business, whether it’s a retailer, distributor, cultivator, or manufacturer’s license. As the licensee, you can’t transfer it to a new individual or entity.
But you can sell ownership stakes in your business. If you want to bring on new owners or leave the business, you may need to talk with a lawyer about the best way to move forward.
How Do You Sell a Cannabis Business in California?
The sale of any business is a complex transaction. But with a cannabis license, there are additional layers. Selling a cannabis business in California requires due diligence and a lot of paperwork.
You’ll need your:
- Licensing documents
- Local permits
- Proof of ownership
- Current contracts, leases, and other agreements
- Bookkeeping and accounting records
- Tax records
- Offering memorandum
- Term sheets
A large part of a cannabis business’s value lies in its state license and local permits. Any new owner coming into a marijuana business will want the license and operations to continue without disruption. But a cannabis business change in ownership without proper planning could lead to a license denial and closure.
Proper planning can ensure a smooth transition into a new business entity or structure.
Ownership Changes May Require a New License
While you can’t transfer a license from the Bureau from one person or entity to another, a cannabis business can go through an ownership change. The consequences of that ownership change depend on the specific circumstances.
New Application/New License
In some cases, the Bureau requires you to go through a new license application. If all owners transfer their interest, the business can’t operate under the new ownership structure until it submits a new license application and is approved by the Bureau.
There isn’t a change in ownership when owners leave and transfer their interest to other existing owners. In this situation, the owner(s) transferring their interest must provide a signed statement to the Bureau confirming they’ve transferred their interest to the existing owner(s). The Bureau doesn’t require a new license.
Suppose one or more individuals meet the definition of an owner, and at least one existing owner stays under the new structure. In that case, the new owners must submit the information required under section 5002(c)(20) to the Bureau within 14 calendar days of the ownership change.
The business can operate under the current license. At the same time, the Bureau reviews the new owner(s)’ qualifications, but the new owners can’t exert any control over the current license until approved. The Bureau determines whether you’ll need to apply for a new license.
Cultivation License Ownership Changes
If your business has a cultivation license, you must inform the CalCannabis Cultivation Licensing Division of any ownership changes by filing an amendment within 10 days. You’ll need to tell CalCannabis of a new owner, a change in ownership interests, or the removal of an existing owner. If an owner is leaving or forced out, you’ll have to prepare a statement regarding why.
If the ownership change also changes the business entity type, you’ll have to apply for a new license and pay a new application fee.
Manufacturers License Ownership Changes
The Manufactured Cannabis Safety Branch’s rules for ownership changes differ from the Bureau. Within 10 calendar days of the change in ownership or financial interest, you must notify MCSB through the online system.
The MCSB reviews any new owner’s qualifications. On a case-by-case basis, the MCSB can approve the new owner, deny the addition of a new owner, or place a condition on the license. The MCSB may also have grounds to deny your license.
Ready To Sell a Cannabis Business in CA?
There’s nothing simple about selling or buying a cannabis business in California. A lack of compliance could cause new and existing owners to lose their licenses and shut down operations. This can be expensive and time-consuming. Planning a sale with experienced marijuana business lawyer Jessica McElfresh helps you avoid that possibility.