ByGarrett Graff, Associate Attorney atHoban Law Group
Coming early 2019, the window for opportunity to invest in Colorado’s marijuana industry may be forced wide open. That is, if Governor Hickenlooper does not exercise his veto power first.
Ever since Colorado first regulated marijuana years ago, regulators approached requirements for owners rather restrictively, at first allowing only 2-year Colorado residents to qualify; but, intrastate resources can only build this industry so much. In 2016, recognizing both the demand and need for additional investment to fuel the growth of this budding industry, Colorado’s legislature enacted Senate Bill 40 (SB 40). SB 40 sought to relax the minimum requirements for qualification for ownership as well as providing for other meaningful pathways to a variety of business relationships with marijuana businesses not previously authorized.
However, implementation of SB 40 fell far short of expectations. The legislation thankfully allowed for some non-Colorado residents to own portions of marijuana businesses, but arbitrarily mandated that no more than 15 individuals could comprise an ownership group of any marijuana business. Numerous other designations (such as Qualified Institutional Investor, Operator and hosts of others) were created by SB 40, but were unrealistic for typical business practices to the extent that few, if any, have used these designations. And, importantly, as Canada geared up to allow for publicly traded cannabis companies primed to invest in the U.S. marijuana industry, SB 40 prohibited ownership of Colorado marijuana businesses by publicly traded companies. Numerous Canadian companies sought to dive into the Colorado marijuana market in 2017, only to find out they were not welcome.
Finally, to help ensure Colorado remains at the forefront of cannabis regulation, Colorado legislators passed House Bill 1011 (HB 1011) during the 2018 legislative session. HB 1011 seeks to affirmatively allow publicly traded companies – akin to the gaming industry – to become owners of Colorado marijuana businesses, thus allowing local marijuana businesses to access much-needed capital. The bill also removes the 15-person limit on ownership groups and relaxes registration requirements on mere passive investors holding less than 5% equity.
The industry now anxiously awaits June 9, 2018, when Governor Hickenlooper must either veto the bill, or otherwise HB 1011 will become law. If not vetoed, Colorado’s Marijuana Enforcement Division will engage in a rulemaking process this fall to implement HB 1011, anticipated to become effective early 2019.
Those interested in considering opportunities to invest in Colorado cannabis opportunities are encouraged to discuss with an attorney to more fully understand the opportunities, and any related requirements, factors, risks and other considerations.
Garrett Graffis an Associate Attorney at Hoban Law Group. He specializes in representation of both the marijuana and industrial hemp industries. For these clients, and others, his practice involves corporate and transactional law, real estate law, regulatory/compliance law, FDA/FTC compliance, intellectual property law, and civil and commercial litigation. He can be reached at[email protected].
