A bill has been introduced in Colorado that would allow for some significant changes to the cannabis business industry in the state, allowing for increased opportunities for investment in marijuana businesses in the state. The bill, HB18-1101, “Concerning Measures to Allow Greater Investment Flexibility in Marijuana Businesses,” was introduced January 10, 2018, and was sponsored by Representative Dan Pabon (Democrat – District 4) and Senators Tim Neville (Republican – Golden) and Cheri Jahn (Independent – Wheat Ridge).
The bill focuses on financial issues surrounding investment in marijuana businesses and aims to allow greater flexibility, including: repealing existing provisions that prohibit publicly traded entities from holding a marijuana license; repealing existing provisions that limit the number of out-of-state direct beneficial owners to 15 persons; repealing existing provisions that required limited passive investors to go through a background check; and redefining the terms “direct beneficial interest” and “permitted economic interest” to change the requirements for shareholders for disclosure and background investigations by limiting the disclosure process to only those shareholders who own more than 5% of the shares of stock in a marijuana business. The bill also states that rules must be “substantively identical” to those used by the gaming commission for ownership by and licensing of publicly traded companies when the marijuana state licensing authority (the MED, or Marijuana Enforcement Division) adopts rules related to ownership by and licensing of publicly traded companies.
The most substantial of the changes proposed in HB18-1101 would allow corporations to hold a marijuana business license in Colorado, as well as providing for greater out-of-state investment, allowing for corporations to invest in cannabis businesses within Colorado. Currently, the number of out-of-state owners is limited, and the process for obtaining licensing for out-of-state investors is complicated and expensive. Colorado would continue to conduct thorough background checks and investigations of any investors in a cannabis company who hold more than 5% of the shares in that company, but would ease restrictions on investors who own less than that amount.
This bill comes as Colorado faces stiff competition for investment money in cannabis businesses, and would not be the first time that the state has eased restrictions in place relating to ownership. SB 40, which was passed in 2016, lessened the residency requirements for license holders from two years to one year, and allowed out-of-state investors to take ownership roles in licensed entities, but capped the number of investors to fifteen natural persons if any of them were out-of-state. That bill, SB 40, also allowed “indirect beneficial interest owners” to own up to 30% of a cannabis company so long as they met the requirements established by the MED.
Representative Dan Pabon told Westword: “We’ve seen many entrepreneurs and businesses grow and prosper here in Colorado. With the advent of California and Oregon and other states coming online, there’s much more competition for capital investment and financial resources. … We didn’t want Colorado to be left behind in any way.”