In California, there are several different license types for commercial cannabis businesses.
California Cannabis Business License Types
- For those with a green thumb, there are licenses for cultivating mature, flowering plants and nurseries that focus on cannabis genetics, research and development, and immature plants.
- Manufacturing licenses allow for production of edibles, beverages, concentrates, and more.
- Distribution licenses are for those interested in logistics, quality control and assurance, and transportation.
- Testing licenses help with regulatory compliance of the industry.
- Storefront Retail and Delivery licenses for those interested in consumer sales.
- And, finally, cannabis event organizer licenses for those who like to organize big occasions like cannabis cups, fairs, workshops, and other affairs at which cannabis might be sold.
Once you have figured out which type of commercial cannabis license you want and have secured initial capital, there are two primary ways to acquire a cannabis license in California.
You can apply directly for the cannabis license of your choice (in a permissible location), or you can purchase one from a current operator.
Purchasing a Cannabis Business in California
Stage 1: Research Your Options.
It is no secret that opening your own marijuana/cannabis business is a significant investment of time, money, and other resources.
That means you want to find the right business model for your goals.
It’s crucial to initially think about your target market and brand. Where is the best site location for your interests? Rural, suburban, or urban? How is traffic (both vehicular and foot!) in the area and how will it impact your cannabis business operations? What’s the distance between your ideal location and other vendors and partners you may want to work with? Where’s your competition located?
Now, let’s say you have compiled a list of cities and/or counties that meet your criteria.
Before you start checking out potential licensees for sale, it is also a good idea to understand the regulatory environment. This is when having an experienced, knowledgeable California cannabis attorney on your side is crucial. While some cities and counties are increasingly cannabis-friendly, others are not. Some municipalities ban certain licenses outright or require licensees and applicants to jump through a multitude of regulatory hoops before they can operate.
You will want to go into the transaction knowing as much as possible about the type of sociopolitical environment you are potentially getting into.
Once you know what area you want to have your business located, there are plenty of commercial real estate brokers who advertise the sale of commercial cannabis businesses. Check their local inventories and see if anything piques your interest.
Stage 2: Interview Potential Sellers.
Like any major purchase, you will want to be well informed of the benefits and drawbacks of acquiring and holding the cannabis license the other party is selling.
- Ask the Seller why they are selling and if they are continuing to operate in other areas.
- Have they ever had any issues with the local regulatory authorities?
- Ask if they have ever had any compliance or enforcement issues at this Project Site and/or with this license?
- What has their gross revenue been like for the past few years?
- What is their relationship with the landlord and surrounding community like?
- How many other parties are interested in acquiring the license?
- Check to see if the license is registered as a social equity business, which may limit the ownership.
The more knowledge you acquire during your research and negotiation phase beforehand will only help to ensure you are best prepared in the event you do acquire and take over ownership of the license.
Stage 3: Get Your Paperwork in Order.
You’ve found the perfect place and a potential seller, have the capital, and are ready to go.
Now you will need cogent, legal contracts to lay out the transaction’s details and ensure the cannabis license purchase becomes a legal reality. We usually recommend executing a Letter Of Intent (“LOI”) or Memorandum Of Understanding (“MOU”) as the initial step. Having an experienced California cannabis attorney draft the contracts and corporate transactional documents will help avoid pitfalls as you work through any necessary legal agreements.
Additionally, as part of the Due Diligence and ownership transfer process, you will also need to start preparing documents to submit to the state regulator (the “Department of Cannabis Control”), which includes:
- Business Formation and Organizational Documents
- Financial Information
- Physical Assets
- Real Estate Information, i.e. Lease or Deed
- Licenses and Regulatory Permits
- Environmental Issues, if any – including those involving the California Environmental Quality Act (CEQA)
- Insurance Coverage
- Pending or Threatened Litigation, if applicable
To access more information about comprehensive Due Diligence checklists, including details regarding the necessary business formation documents,including articles of incorporation, operating agreements, and/or bylaws, producing a compliant premises diagram, you are wanting to make ownership changes, sign up for our Manzuri Law newsletter and send us an email requesting a copy of your Due Diligence checklist!
Stage 4: Determine What the Ownership Transfer Will Look Like.
You and the existing owner will need to determine if the cannabis business will continue to stay open and operate during the ownership transfer, or if you are okay with stopping all operations until the cannabis license transfer is complete. California allows for either to happen, however there are various critical regulatory requirements to consider for both.
Stage 5: Fulfill State and Local Requirements.
Once the purchase transaction is complete and the contracts are executed, you will need to notify both the state and local authorities that an ownership transfer has occurred, providing corresponding paperwork with all of the details of the transfer.
California requires notification be given to the state within 14 calendar days of such a change; local jurisdictions each have their own requirements so be sure to check in with the local regulator.
The state will also require personal information about each new owner of the business, and a recent LiveScan fingerprint to complete a DOJ/FBI background check, and paperwork confirming the ownership transfer.
The state will also require each owner to set up an online account through its licensing portal. Again, local requirements vary but typically align closely with those of the state.
Be aware, however, the DCC analyst that is assigned to your file may periodically request more, updated information. To be sure that your license application is reviewed in a timely manner, it is essential that you respond to any regulatory requests as quickly as possible. Working with our experienced cannabis attorneys will allow you to focus on the business while we seamlessly track your license modification information and persistently move the transfer along.
California Cannabis Business Ownership Transfers
As mentioned above, during an ownership transfer California law allows for compliant cannabis businesses to continue operating so long as one of the existing owners remains an owner on the license under the “new” or “proposed” business ownership structure.
However, if all of the owners will be transferring their ownership interest at once, then the business must fully stop operating while the state regulator reviews the complete license application. This will require review of the information showing the new proposed ownership structure, the new owners’ criminal history and financial disclosures, and the proposed business details. You must then wait for the DCC’s approval, then pay all application and license fees prior to opening your doors for business once again.
If you are contemplating purchasing a cannabis business, and thus effectuating an ownership transfer, you will need to come to an agreement with the seller about which path you would like to take. Note that if you decide that the business should pause all operations during the ownership transfer, then you will need to prepare all of the documents required for a new, complete license application, wait for approval by the DCC, and pay all application and license fees prior to opening your doors for business once again. You will then need to notify regulators and submit documentation relevant to the transfer.
A. Notification of OwnershipTransfer
Once all parties are in agreement, the DCC must be notified within 14 calendar days of any ownership changes that will take place.
Your local regulator will also need to be informed of the ownership change. Be sure to check all local ordinances to fully understand the requirements.
Partnering with the experts at a California cannabis law firm can be very helpful in navigating this process and ensuring you are meeting all local requirements.
B. Documentation of Ownership Transfer
After notifying the regulators, you must submit documentation about the new ownership structure by supplying business formation documents, and an organizational chart.
New owners must submit Live Scans and other personal identifying information to the state.
Contact Our Experienced California Cannabis Law Firm
Starting a marijuana business is not for the faint of heart (or those with shallow pockets), but the process is much easier with an expert on your side.
Our California cannabis attorneys and licensing specialists have a combined experience of 20++ years helping hopeful cannabis entrepreneurs secure licenses and maintain compliance.
Contact our California cannabis law firm today to schedule a consultation and learn how we can help you reach your goals.