Colorado Issues Guidance on Public Company Ownership Ahead of Rulemaking

The Colorado Department of Revenue announced that it will release proposed rules in early August to implement HB 19-1090, which allows publicly traded companies, and unlimited investors from outside of Colorado, to invest in and own marijuana businesses as of November 1, 2019. Until that time, the state regulator also released guidance on prohibited and permitted capital raising transactions.

House Bill 19-090 repealed the ban on investors in marijuana businesses that are publicly traded companies, as well as the 15 person limit on the number of out-of-state investors. The new law is complex and requires companies to disclose information about controlling beneficial owners, indirect financial interest holders, and affiliates. Colorado’s cannabis regulator must evaluate whether these entities qualify as a suitable license holder.

Below are some key highlights on the guidance provided prohibited and permitted transactions ahead of the November 1, 2019 effective date.

Prohibited Transactions:

  • Licensees may not enter into agreements that would result in a transfer of ownership or trigger the submission of an application to the state as required under HB 19-090 including transactions with public companies or transactions that require disclosures and suitability determinations for passive beneficial owners or indirect financial interest holders. Entities may enter into a letter of intent or other non-binding agreement to engage in a transaction after November 1, 2019. The licensee may not accept a deposit or other form of payment under the agreement.

Permitted Transactions:

  • Licensees may raise capital from passive financial beneficial owners or other indirect financial interest holders that falls below the disclosure and suitability approval limits. Licensees are required to use reasonable care to ensure that the financial beneficial owners and indirect financial interest holders are not prohibited from holding a license. Colorado’s proposed rules outline a process that licensees must use.