Oregon Marijuana: Proposed Rule Could Threaten Licensees’ Capacity to Raise Capital
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Oregon Marijuana: Proposed Rule Could Threaten Licensees' Capacity to Raise Capital

This post continues our discussion on rule changes proposed by Oregon Liquor and Cannabis Commission. (Other posts are here and here. Please stay tuned for an Omnibus post by Vince Sliwoski. Today’s topic is a proposed revision of the rules governing changes to business structure. A proposed conditional approval rule, which could limit licensees’ ability to raise capital, is the topic.
The current rules require licensees to notify the OLCC if they wish to change their business structure. The current rules require that licensees notify the OLCC before adding an individual or entity to their business structure.
This rule states that an applicant is any individual or person who has a direct or indirect interest in more than 20% or who is entitled to receive more than 20% of revenues, proceeds, or profits. The OLCC conducts an inquiry to determine if such persons are licensable.
This means that the 20% threshold is crucial when seeking investors and raising capital. The 20 percent threshold doesn’t require approval by the OLCC. Licensees can raise capital immediately by notifying the OLCC, adding the investor to their business structure, and then raising capital immediately. If the investor is later found not licensable, the licensee will have to remove the applicant. Licensees do not have to wait for conditional approval by the OLCC. They can raise capital quickly if necessary.
The conditional approval rule proposed lacks sufficient clarity to guide the OLCC licensees, investors and investors
The OLCC proposes to remove the Change in Business Structure rule from OAR 845-025-1160(4), and replace it by a new OAR 845-025-1165. One of the changes is when a licensee notifies the OLCC about a change to business structure.
“The Commission must review the completed form and any other information submitted under section (2). If the Commission finds that the submission is complete, it will notify the laboratory licensee or licensee that the change has been conditionally approved.” OAR 845 25 1165(3)
The proposed rule states that if the OLCC deems the submission complete, the OLCC will notify licensees that the change has been conditionally approved. What if the submission is incomplete? The OLCC would likely notify the licensee that the change was not conditionally approved. If this is the case, the rule should state it explicitly. If the submission is not complete, can the licensee correct it and resubmit? Presumably, yes. Why not state so in the rule?
Timing is another issue. The rule does not specify how long it may take for the OLCC to review the form or other information in order to notify the licensee if a change is conditionally approved. The proposed rule does not specify how long it may take for the OLCC to notify the licensee if the conditional approval is denied. How long will it take for the OLCC to review the form and other information, and issue (or deny), a conditional approval? Nobody knows.
This lack of clarity could severely limit the ability of licensees and investors to add capital. This could be disastrous for struggling licensees that need immediate capital infusion despite the indeterminate amount provided to the OLCC to review and conditionally approve the change of ownership form.
Note that this author is not against the concept of conditional approval. However, such a rule should be explicit about the timelines for OLCC to review the application and its obligations to notify licensees if the change has been granted conditional approval.
Tomorrow is the public hearing! (Oct 25)
On October 25, 2022, a public hearing will be held on the proposed change in place rule and other proposed rules. The hearing will take place at the OLCC offices of Portland and online between 10:00 – 11:00 a.m. (Yeah! Just one hour!). The deadline to comment on these rules will be Halloween, October 31st at 12:00 p.m. The link above provides contact information.
This issue was handled by Alex Berger, Emerge Law. Check out our Oregon posts for more information on the latest state cannabis licensing trends, and OLCC updates.

 

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