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Oregon Recreational Marijuana Businesses – Part 2 of 2 – Who Can Invest?

money treeIn part I of this series, Oregon Recreational Marijuana Businesses — Who Can Own One? I covered the age and residency requirements for owners of Oregon marijuana businesses under Oregon’s newest law, Enrolled House Bill 3400. That post discussed how the Oregon Liquor Control Commission (OLCC) rules will probably define an “ownership interest” in its pending rules. HB 3400 does not give similar requirements for investors. In fact, though HB 3400 mirrors the language in the Oregon Liquor Control Act regarding “ownership interest,” the terms “investor” and “financial interest” are not mentioned anywhere in the new law. And that is great.

Does this mean that the OLCC will not monitor or regulate investment in Oregon cannabis businesses? No. It only means that HB 3400 does not give the OLCC express parameters on this issue. Under Section 2 of HB 3400, the OLCC retains broad authority “to grant, refuse, suspend or cancel licenses” for marijuana related businesses. Presumably, this could include refusing a license on grounds related to investment.

The “ownership interest” requirements of HB 3400, which require residency for cannabis business owners, were drafted broadly enough to implicate investors. They also mirror the “ownership interest” requirements of the Liquor Control Act. When the OLCC made rules pursuant to the Act, it provided that an “ownership interest” includes anyone “entitled to exercise control over the business” (OAR 845-005-0311(3)(a)). Let’s assume the same rule is promulgated in the marijuana context: in that scenario, if an out-of-state investor takes an equity position in an Oregon business large enough to “exercise control” over the business, the business could see its license application denied (or its license revoked).

Until the rules are actually written, it’s also impossible to rule out the possibility that the OLCC will stretch and write rules similar to the “financial interest” rule it promulgated for liquor licenses under OAR 845-005-0311(3)(a). That rule allows the OLCC to “require the licensee or applicant to identify the person and legal entities with a financial interest in the business and evaluate any such person as if he or she were the actual licensee or licensee applicant.” The rule then gives a laundry list of impermissible financial interests, which would be onerous if applied to the cannabis industry.

To date, the OLCC has not publicly stated any intention to monitor investment in Oregon marijuana businesses. Though the initial owners of cannabis businesses in Oregon will need to be Oregon residents, it appears probable that the cash for those businesses can come from anywhere. But because the OLCC has a reputation for surveillance and rigidity, investors and business owners alike should be sure to structure their cannabis deals mindfully, so as not to implicate the “ownership interest” strictures of HB 3400 and whatever rules come next.

Vince Sliwoski, for the Canna Law Blog

Attorney with Harris Moure