Requirements for Owners

Conditions of Ownership and Control

As you might remember from our first lesson on Cannabis License Types and Business, particularly the License Management section, we touched on some of the rules about who can own and control a cannabis business. In this segment, we’re going to review that information because it’s crucial for all cannabis company owners to understand these details thoroughly.

If you want to hold any ownership or are in control of a cannabis business, you need to be at least 21 years old. However, this doesn’t apply to beneficiaries of trusts holding these interests, provided the trustee is over 21 and the ownership doesn’t transfer until the beneficiary’s 21st birthday.

If an owner or controller is convicted or pleads no contest to a crime involving moral turpitude, the Administration has the authority to require them to divest their interest in the business, regardless of whether there’s an ongoing appeal or other legal proceedings.

Let’s also revisit the application process for those looking to hold a significant stake or control in a cannabis business. You’ll need to submit a detailed application that includes personal info, a statement regarding previous cannabis licenses, a background check, additional necessary details for investigation, and an application fee, the amount of which will be determined by the Administration.

The Administration can deny your application if it’s incomplete or if you have a history of legal issues involving moral turpitude.

Regarding transferring your license, remember, it’s not freely transferable. You need to meet specific criteria, pay an application fee, and adhere to a five-year no-transfer period post-licensure, unless exceptions like disability, incapacity, or death apply.

Lastly, we need to steer clear of conflicts of interest. State officers and General Assembly members must avoid ownership roles or employment in cannabis businesses, with specific rules applying to different government roles and situations.

And don’t forget, both new applicants and those transferring a license must undergo a criminal history check.

Disclosure of Ownership or Control

Let’s delve into how you, as a cannabis licensee, need to report your organizational structure to the Administration. This is all about transparency and keeping things orderly.

Each year, by July 1st, you’re required to submit a detailed table that outlines your organization’s structure, who owns it, and who controls it. This isn’t a one-time thing—you also need to update this information within 10 business days whenever there’s a change in ownership interest greater than 5 percent. Plus, the Administration can request this information at any time, so it’s good to keep everything up-to-date.

Now, what exactly needs to be in this table? You’ll include the name of each owner or principal officer and any other person or entity that has control over the business. Detail their roles or positions, if they have one, and specify the percentage of ownership each holds.

It’s also important to specify any significant shareholders—those owning more than 5 percent of voting shares—as well as any groups of relatives who together control more than 10 percent of your voting shares, if you’re aware of these details.

If your business is part of a larger group, owned or controlled fully or partially by another entity, you need to disclose the nature of your relationship with your parent or affiliate company. Include information about each owner, board member, or officer, and anyone else with significant control or management authority over those entities.

Lastly, make sure no individual with ownership or control over your license holds other interests that surpass the limits set by the local Alcoholic Beverages and Cannabis regulations.

Annual Report on Minority Owners and Employees

Let’s talk about an important yearly requirement—the Annual Report on Minority Owners and Employees.

Every year, before August 1st, each of you holding a license or registration needs to submit a specific report. This report focuses on the minority owners and employees within your organization.

The way you’ll submit this report is specified by the Administration, so it’s important to follow their guidelines closely. This report helps track diversity within the industry and ensures transparency about who’s involved in your operations and how your business supports minority participation.

Remember, this is an annual requirement, and staying on top of it not only keeps you compliant but also highlights your commitment to diversity and inclusion within the cannabis industry. Thanks for doing your part to maintain transparency and support diversity!

Mandatory Reporting of Legal Actions

Let’s go over the mandatory reporting of legal actions, an essential compliance task for all licensees. Understanding this will ensure you stay on the right side of the regulations.

First off, this requirement applies to any legal action involving your business, regardless of whether it occurs in Maryland or another jurisdiction.

What to Report

You need to notify the Administration and provide a detailed description within 30 days if any of the following occurs:

The filing of any administrative, civil, or criminal action against your business, or its parent, affiliate, or subsidiary by any government body, private entity, or individual.
The resolution of any such actions, whether it’s through a judgment, final order, consent order, or other negotiated settlement.
Bankruptcy filings by your business, or any significant financial distress events like receivership or assignments for the benefit of creditors.

Additionally, if you or any other individual with more than a 5% ownership or control interest in your business encounters similar legal issues, including bankruptcy or a criminal conviction or plea involving moral turpitude, this too must be reported within 30 days.

How to Report

Once you’re aware of such events through proper legal notifications—like being served in a lawsuit or receiving formal written notice from an administrative agency—you have 14 calendar days to report it to the Administration.

Details to Include

Your report should be thorough, including:

The title and docket number of the case.
The court’s name and location.
Names of all parties involved.
A general description of what the legal action is about.
The outcome, if already determined, such as any judgments or orders.

Prohibited Acts

Let’s dive into some important guidelines regarding prohibited acts for cannabis licensees. Understanding what you can and cannot do with your license is crucial for staying compliant and avoiding legal issues.

Prohibited Transfer Acts

First off, you cannot transfer ownership of your cannabis license if you’re trying to:

Shield the license or its value from any judgment or liability—essentially, using the license as a shield in legal or financial troubles.
Support any action or plan that breaks state, local, or federal laws.

Restrictions on License Ownership

Regarding who can own a license, there are specific prohibitions:

You can’t be a member of the General Assembly.
You can’t be an employee of the Administration overseeing cannabis regulation.
You must avoid any conflict of interest as outlined in the Alcoholic Beverages and Cannabis regulations.

Limits on Multiple or Passive Ownership

If you’re considering holding shares in multiple cannabis licenses, remember:

Any such holdings must be passive, meaning you’re not actively involved in the management or decision-making of the business.
The total ownership interest must be less than 5%, ensuring no single holder has undue control or influence through scattered interests.

Potential Sanctions for Violations

If the Administration finds that an owner has violated these regulations, the consequences can be severe, including:

Fines.
Suspension or revocation of your license.
Being forced to divest your interest in the licensed business.