As you may recall from an earlier blog post entitled “Mechanisms for Out-of-State Ownership in Colorado,” January 1, 2017 marked a monumental change for cannabis business ownership requirements. Now, any U.S. citizen may apply to take an ownership interest in a cannabis business (subject to a criminal background check and other ownership qualifications). However, until recently, the state had not promulgated any rules or policies to facilitate out of state ownership of a Colorado cannabis business.
Over the last few weeks, the Colorado Marijuana Enforcement Division (the “MED”) has provided guidance to prospective out of state cannabis business owners. For any prospective business owner with less than one year of Colorado residency, the MED requires a “pre-suitability” review. The pre-suitability review is necessary for new business license applicants as well as applicants seeking to add their names to an existing business (i.e. change of ownership applicants). Prior to submitting a new business application or a change of ownership application to the MED, all prospective owners must either be a Colorado resident for at least one year, or go through the pre-suitability review. The MED has refused to schedule appointments for new businesses or changes of ownership until each prospective owner has completed the pre-suitability review. The MED has not provided any information on how long the Pre-Suitability review will take, but we expect a 30-60 day review process.
The pre-suitability application closely resembles the associated key application, which has long been a requirement for cannabis business owners. The application requires:
- A completed application
- Disposition records for any criminal charge or arrest in the last 10 years
- For change of ownership – a purchase agreement showing the applicant’s interest in the cannabis business
- A color copy of the applicant’s driver’s license
- A fee of $5,000.00 for each pre-suitability applicant
- Fingerprint cards and a fingerprint verification form, which is included in the application
Pre-suitability is a revolving process. The application review rollout has been anything but smooth. We have a direct line of communication with the MED and will update with any changes. For now, it’s worth a look at your business’s current ownership and lending structures to see if a pre-suitability application fits your business plan. We have successfully guided clients through the pre-suitability review and can help you decide if pre-suitability is right for you.