Selling a facility license in Missouri? Department says not so fast

The Department released a guidance letter addressing a longstanding concern regarding Missouri cannabis businesses and the 10% change in ownership rule, license transfers, and multiple licenses being awarded at one location to licensees on Friday.

Addressing the 10% change in ownership, Article XIV states that cannabis businesses in the state must be majority-owned by Missouri residents. The department requires any entities wanting to change 10% or more of their ownership to submit an application for change and obtain approval from the department before doing so.

The guidance letter says, “the ownership expressed in the application is what matters for beginning the 10% change calculation, as the primary purpose of the 10% cutoff is to designate a point at which the licensee should come to the Department for verification that changes made do not affect the licensee’s eligibility for licensure. The Department will not accept arguments that the only changes relevant to calculating the percent change are changes made after an entity was licensed.”

Both economic and voter interest percentages will be accounted for in the request to change ownership, just as they were upon the initial application process.

“Also, the calculation of changes in ownership should not be done solely for changes resulting from adding new owners. In other words, if the changes are only made within existing owners as interests shift between them, the calculation should be done, and it should also be done if the changes are made because new owners are brought in.”

The Department will be looking for ownership changes as a whole, not whether an individual’s ownership percentage shifts. “The Department will be looking for what percent of the whole has changed hands between individuals…If the amount of economic interest change is different than the amount of voting interest change, the Department will expect to see an application for change if either the change in economic interest or the change in voting interest is greater than 10%.”

   

The letter addressed the multiple instances where license transfer was thought to have taken place. There have been supposed cases of awarded licenses attempting to sell their license and complete a license transfer. The letter states “By rule, each licensee must be operating within a year of receiving its license. Furthermore, upon renewal, a licensee must be able to show how it has made a good faith effort to follow through on the assurances it made in its application. Perhaps most importantly, a large part of the application scoring system was focused on the leadership teams of the applicants, as well as the unique business models proposed by those individuals. Therefore, licensees should not expect the Department to look favorably on a request to transfer a license if it is clear the licensee has never been invested in or capable of implementing its proposals.” In short, “if a licensee is already aware at this point in implementation that they will not be able to fulfill the proposals on which they were scored, the licensee should seriously consider surrendering its license. To persist in seeking a transfer of license, under those circumstances, is likely just delaying a revocation of license while conditionally denied applicants are anxiously waiting for their opportunity to step in.”

In response to multiple licenses for the same business venture being awarded at one location, “the Department will expect that licensee to surrender the excess licenses unless the licensee can explain how the original proposal requires the extra licenses.” The Department acknowledges the fact that there are valid reasons for an entity to submit applications for multiple licenses being awarded at one facility and the mere act of applying for that was never prohibited.

“However, applications were scored based on particular proposals, and one proposal can only be implemented one time. While this issue will certainly be raised during the minimum standards verification process, the Department encourages licensees with excess licenses as described here to either reach out to the Department to arrange for surrender or to explain why the multiple licenses are necessary to implement the original proposal.”

Read the full guidance letter below.