As long as marijuana remains illegal under the Controlled Substances Act, there will be those uncomfortable with marijuana businesses, no matter how professional or (state) law-abiding they may be. This stigma is unfortunate, since it may be deterring serious, experienced entrepreneurs from getting into the game. This may be particularly true downstate, which has a deserved reputation for its conservatism.
A number of people I’ve spoken with in the six months since HB0001 was signed have expressed their real concerns that their family, friends, or business associates from their other “legitimate” business endeavors would not condone their participating in a marijuana business, medical or otherwise.
So the question arises — can you be a silent parter in a marijuana business? In Illinois at least, the answer is probably not.
Or at least not without running afoul of the proposed regulations from the Department of Agriculture (governing cultivation centers) and Department of Financial and Professional Regulation (governing dispensaries). Both agencies require disclosure of the ownership structure, breakdowns of ownership percentage, and information on profit/loss sharing and other forms of compensation or return on investment. Both agencies require full disclosure of any direct or indirect “backer.”
The Department of Financial and Professional Regulations broadly defines a “backer” as follows:
“Dispensing organization backer” means any person or entity with a direct or indirect financial interest in the dispensing organization, but does not include a person or entity who holds an interest that does not exceed one per cent of the total ownership or interest rights in the dispensing organization and the person does not participate directly or indirectly in the control, management or operation of the dispensing organization.
Even the smallest financial interest must be disclosed:
“Financial interest” means any actual or future right to ownership, investment or compensation arrangement with another person, either directly or indirectly, through business, investment, or spouse, parent or child in the dispensing organization. Financial ownership does not include ownership of investment securities in a publicly-held corporation that is traded on a national exchange or over-the-counter market, provided the investment securities held by the person, the person’s spouse, parent or child, in the aggregate, do not exceed one per cent ownership in the dispensing organization.
The Department of Agriculture did not provide its own definition of financial interest, but based on the way Ag and DFPR’s rules on financial disclosure mirror one another, it’s a safe bet that Ag views “financial interest” similarly. Although the proposed regulations do not expressly require applicants disclose the individual members or shareholders of an entity backer, I’m willing to bet that information will be required.
Still, it is important to remember that (as far as we know right now) the public will not be privy to the entire contents of an application to obtain a cultivator’s permit or dispensary registration. Certainly the application will be shared among the state agencies dealing with MMJ businesses (including the Department of Revenue, and maybe even the Secretary of State, to the extent any involved entities must be checked up on). But if you are content on trying to make it a little harder for a member of the public to trace your involvement, that might be accomplished through multiple layers of incorporation. Remember — the principles of a corporation or LLC are listed on the SOS’s website, but ownership structure is not disclosed. So, if you buy into an entity (without becoming the president or the secretary, who are listed on the SOS website) that then backs a medical cannabis business, you could fly under the public’s radar.
Based on the broad definitions of “backer” and “financial interest” though, this won’t work with the state.