Oregon cannabis attorneys lawyersWe often work with Oregon cannabis companies that undergo ownership changes either during the licensing process, or shortly after license issuance. In some cases, this happens by design: the company is structured to take on investors, and the offering process overlaps with the state license application. In other cases, an LLC member or a corporate shareholder may depart due to a buyout or disagreement. Whatever the situation, ownership transitions require careful consideration of the state of the license, or pending application.

As with all states that license pot businesses, Oregon has rules around required disclosures before the state will issue a license. The look-see process in Oregon is similar to that for liquor licensing — and both licenses are given by the Oregon Liquor Control Commission (OLCC). In short, Oregon wants to ensure: (1) it is not issuing cannabis licenses to undesirable parties; (2) it can follow the money a cannabis business will generate (or at least try to); and (3) it has satisfied the feds that the state is running a tight ship. The specific disclosure criteria apply not only to license issuance, but to changes, as well.

Compared to other states, Oregon is straightforward when it comes to changing the ownership structure of a cannabis licensee– at least in the minds of us attorneys, and at least under the most recently adopted version of the Oregon rules. Here are two key rules to note:

  • OAR 845-025-1160(4) provides that “[a] licensee that proposes to change its corporate structure, ownership structure or change who has a financial interest in the business must submit a form prescribed by the Commission… prior to making such a change.”
  • OAR 845-025-1160(4)(d) provides that “[i]f a licensee has a change in ownership that is 51% or greater, a new application must be submitted in accordance with OAR 845-025-1030.

Let’s take them one at a time. Read literally, OAR 845-025-1160(4) requires any licensed cannabis business to notify the OLCC before making an ownership change. This would include a business bringing on a minority investor, given the broad definition of “financial interest” elsewhere under the rules. That said, OLCC policy is not to read this rule as written in every case. Instead, if a licensed cannabis business wishes to add a party who does not rise to the level of an “applicant,” it may do so prior to alerting the OLCC. For guidance on who must be listed as an “applicant,” start here.

When the rules around “financial interests,” “applicants” and changes in ownership were revised again in January, we had several Oregon cannabis clients undergoing structural changes. Our lawyers worked with the OLCC to gain an understanding of the new rules and policies in the context of these changes, but we cannot say whether the agency’s policies will remain flexible on the timing of disclosure of non-applicant ownership changes. That is the story today, however, and we are pleased that the OLCC has taken this pragmatic approach.

With respect to OAR 845-025-1160(4)(d) and ownership shake-ups of 51% or more, there is no wiggle room in the “new application” criterion. We have written before that you cannot sell an Oregon license: instead, the OLCC works with the new applicant and the outgoing licensee concurrently. Assuming the incoming party is eligible for licensure, the OLCC arranges with the departing licensee to surrender its papers on the day the new license issues.

Ultimately, we do not recommend that an applicant or licensee make changes of any type to its ownership structure without first alerting the OLCC and we strongly recommend our clients run these changes by us first as well. This ensures the proper steps are taken so as to avoid violating some internal company agreement or governing law and it also ensures that the company paperwork is properly executed, whether it’s a buy-sell agreement, admission agreement, or other species of contract.

Finally, we recommend that thoughtful consideration be given to business structure and composition before applying for licensure. It may be tempting to acquire your cannabis business license as quickly as possible and then sort out your ownership issues on the back end, but this approach creates headaches that may be difficult or even impossible to cure. It’s good to understand Oregon’s change-in-ownership rules, but it’s better not to have to use them.