Unlike some states, in California you cannot buy a state cannabis license from a person or entity that already owns one. Under state law, cannabis business licenses are non-transferable, meaning that they cannot be bought, sold, or leased.
However, there is a way around this. Although you cannot buy a license, you can buy a business that owns a cannabis license. Taking this route is not easy, and requires significant investment and legal planning. For some entrepreneurs, this may be a more attractive option than applying for and possibly failing to receive a new license.
At McElfresh Law, we are focused on providing cannabis entrepreneurs with the legal counsel and protection that will enable their businesses to flourish. Applying for local permits, obtaining a state license, and remaining in compliance once you’ve got your business off the ground can be challenging. But with an experienced California cannabis lawyer you can face these challenges with confidence.
Buying an Existing Cannabis Business
The Bureau of Cannabis Control (BCC) and other state agencies that regulate the industry are wary of cannabis licenses changing hands. They also understand that the purchasing of cannabis businesses has the same practical result as a license transfer, so they’ve several added requirements for the proper transfer of these businesses.
A cannabis business must report to the BCC any change in ownership within 14 days of the transfer of an ownership interest. Once the BCC is alerted, they will vet the new owner to determine if they should be allowed to continue to operate under the existing license. During this vetting process, the cannabis business is not allowed to operate. The BCC does not offer the possibility of pre-vetting prospective owners.
BCC regulations do allow businesses to operate during the vetting process so long as one original owner maintains an ownership interest in the licensed company, LLC, or partnership. In practice, anyone with a 20% or greater equity interest may be considered as an owner. So it’s possible to acquire a cannabis business in stages, allowing one original owner to retain 20% of the company until the BCC approves the new owners, at which time the original owner can transfer their remaining share.
The costs of purchasing an operational cannabis business can be substantial. But at least you and your investors will have the certainty that your business will be licensed, permitted, and in compliance. Many entrepreneurs invest hundreds of thousands–or even millions–of dollars into building a new business and then run into the denial of their state cannabis license. So depending on your resources and risk tolerance, purchasing an existing and licensed business could be a better option.
When purchasing a cannabis business, the success of your investment will depend on whether you performed your due diligence. Some areas you should look into include:
- Accounting books and financial records
- Local permits and zoning issues
- Facilities, equipment, and real estate
- Leadership and staff, including background checks
- Local market and competitors
The process of reviewing all important aspects of the target business can take weeks, and it’s important not to rush it. If you overlook an issue such as a zoning violation, a problematic staff member, or an accounting discrepancy, your investment could prove unwise.
A Cannabis Business Lawyer Can Advise You
Performing due diligence and negotiating beneficial terms to a business acquisition requires the assistance of an experienced and effective legal advisor. At McElfresh Law, we can put your business venture on the path to success by putting our knowledge of the cannabis industry at your service. If you are interested in starting a cannabis business or purchasing an existing one, call us today at (858) 756-7107 or our online contact form to schedule your consultation.