The Colorado Department of Revenue released emergency rules on August 1, 2019 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. The state regulator has updated its guidance for cannabis licensees that are seeking to obtain an investment from publicly traded companies or private investment funds before or after November 1, 2019 in Industry-Wide Bulletin 19-05.
House Bill 19-090 repealed the ban on investors in marijuana businesses that are publicly traded companies, as well as the 15 person limit on the number of out-of-state investors.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 with publicly traded companies or qualified public funds ahead of the November 1, 2019 effective date.
Licensees may enter into a binding agreement prior to November 1, 2019 so long as there is not transfer of control. Licensees 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.
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.