14 Aug Transfers of Ownership & Changes in Cannabis Business Structures
Thinking of buying or selling a marijuana business? There may be more to consider than you initially thought, even down to whether or not you are permitted to transfer or receive transfer of the business license in the first place.
If you are in the market to buy or sell a marijuana business, it is important to know the specific limitations your state imposes on marijuana licenses and licensees’ ability to transfer those licenses. While transfer most often occurs during the purchase and sale of a business entity that holds the license, transferring your license can also take the form of gifting the license to another person or passing the license by will or intestate.
Marijuana licenses cannot be bought, sold, or gifted in the same way that you can transfer other kinds of property. Under the law, marijuana business licenses are attached to the person, rather than to property itself; that can present some interesting complications when it comes time to transfer that license.
Each of the four states where recreational marijuana has been legalized place different restrictions on your ability to transfer a license. Oregon, for example, states clearly that a marijuana business license granted by the state is purely a personal privilege – not property – that may be revoked by the state by law. Oregon law also dictates that a license is not “alienable,” meaning that you cannot buy, sell, gift, or leave the license to a beneficiary through a validly executed will. Additionally, if a license holder dies or goes bankrupt, the Oregon Liquor Control Commission has the right to sell or dispose of any remaining product or determine how the business is run for a reasonable period following the death, insolvency, or bankruptcy of the business.
Colorado, Washington, and Alaska, however, each reserve the right to permit or deny any license transfer subject to the discretion of each jurisdiction, and generally allow certain transfers between people or transfer between locations.
The procedure for transferring a license, however, can be complicated and differs in each state. States can request a wide variety of information concerning the transferees financial and management associations, proof of residency in the state, the interests of other persons involved in the business, as well as tax information, and information about the real property itself such as any deeds, leases, or land contracts pertaining the licensed premises. In most cases, states will also allow the local government with authority over the area where the business is or will be located the opportunity to weigh in on the transfer before final approval is given by the state.
As mentioned above, additional information above and beyond financial details may be required as well. For example, the Washington State Liquor and Cannabis Board requires that the person to whom the license is being transferred must pass a (i) criminal history background check and (ii) regulatory history check, and also provide (iii) proof of residency.
State regulations are not the only things to consider when transferring a marijuana business license, however. Because license transfers usually occur during the purchase and sale of a business entity that holds the license, the purchaser also takes an interest in that company’s finances, history, debts, and liabilities. This means that a license purchaser must take great care in selecting the business and business license that he or she plans to purchase.
While some states allow licensees more flexibility with respect to their ability to transfer their marijuana business license (Washington, for instance, allows transfer to a surviving spouse or domestic partner so long as that spouse or partner passes the requisite background and information checks), there are many considerations that must be taken into account when a license holder proposes to transfer their license; the issues discussed here are only a partial list. It is crucial that a license holder or prospective buyer be familiar with the appropriate state laws and do their due diligence prior to entering into an agreement to purchase or transfer a marijuana business license.
Finally, as a piece of practical advice for any prospective marijuana business license purchasers: license transfer agreements or purchase agreements should include more than a simple price term. For example, it is wise to condition payment on approval to transfer the license by whichever state or locality is authorized to make such a decision. Buyers should never take the risk of paying a licensee thousands of dollars only to find out the license cannot be transferred.