Bulletin 2024-03 De Minimis Interests
Section 1609 (b)(27) of the Police Code states that information required of all Applicants for Cannabis Business Permits shall require “A list of every Person with any financial, ownership, or other interest, as may be defined by the Director, in the Applicant, the proposed Cannabis Business, and any Owner of the proposed Cannabis Business, except that the Director may provide that remote or de minimis interests need not be disclosed.”
This Bulletin is being issued to clarify what percentage of financial, ownership, or other interest the Director considers to be de minimis under Section 1609 (b)(27).
“Financial, Ownership, or Other Interest” Defined
The Director finds that a “financial, ownership, or other interest” in a Cannabis Business includes the following:
Ownership interest is the aggregate interest held in the Cannabis Business by any individual who would qualify as a capital “O” Owner under Section 1602. For purposes of this section, “aggregate” means the total ownership interest held by a single person through any combination of individually held ownership interests in a commercial Cannabis Business and ownership interests in an entity that has an ownership interest in the same commercial Cannabis Business. For example, a person who owns 10 percent of the stock in a commercial Cannabis Business as an individual shareholder and 100 percent of the stock in an entity that owns 10 percent of the stock in the same commercial Cannabis Business has a 20 percent aggregate ownership interest in the commercial Cannabis Business.
A financial interest holder is any individual or business entity that has a financial interest in a commercial Cannabis Business, but is not an Owner. A financial interest holder includes, but is not limited to, a non-Owner that is entitled to receive 10 percent or more of the profits of the commercial cannabis business in exchange for rented commercial space, employment services, legal services, and/or other goods and services provided to the commercial cannabis business as part of a profit-sharing agreement.
Other interest in a Cannabis Business may include but is not limited to a security interest. For example, a convertible note may start as short-term debt and can subsequently convert to equity in the Cannabis Business. A convertible note may automatically change into equity once specific milestones are met (e.g. when the entity is officially valued for later investments).
“De Minimis” Interest Defined
The Director finds that a Person’s financial, ownership or other interest of less than 10 percent in the Cannabis Business is a “de minimis” interest, and an Applicant is not required to disclose such interests unless specifically directed to do so by the Director. The Director retains discretion to require such disclosures.
Limits on Permits
Section 1613 (b) of the Police Code states that, “No permit to operate as a Storefront Cannabis Retailer shall be granted if any individual holding a legal or beneficial interest in the proposed Storefront Cannabis Retailer already holds a legal or beneficial interest in four or more existing Storefront Cannabis Retailers that hold permits under this Article 16…”
The “legal or beneficial interest” referenced in this section applies to de minimis interests, in addition to interests not considered de minimis, even if those de minimis interest holders are not disclosed in the permit application. Accordingly, every Storefront Cannabis Retailer permit applicant must attest, prior to permit issuance, that no individual holding a legal or beneficial interest in the business already holds a legal or beneficial interest in four or more existing Storefront Cannabis Retailers with Article 16 permits, and must ensure that this statement holds true for de minimis interest holders, as well as interest holders that are required to be disclosed in the permit application. False attestations are subject to enforcement, including but not limited to administrative penalties, permit suspension, and/or permit revocation.
Posted 06/06/2024