HB 1090: A New Offramp For Colorado Cannabis Business Owners
Being a cannabis business owner in Colorado means dealing with a lot of odd restrictions and limitations that no one can properly explain. One of the most consistent barriers Colorado cannabis business owners have had to put up with is whom they’re allowed to conduct business with or sell their properties to.
Until recently, business entities outside Colorado were not allowed to own stake in local cannabis companies, which severely limited a company’s ability to acquire funding or make strategic changes within the company.
With the passing of House Bill 1090 and Governor Jared Polis’ signing of it, publicly traded companies from all over the country can now attain the necessary credentials and marijuana licenses in the state of Colorado. This change in policy creates new opportunities for cannabis business owners looking for an offramp.
A brief history of HB 1090
The restrictions were initially put in place as a way to ensure that the brand new cannabis industry of Colorado would be operated by Coloradans, allowing locals to be the primary beneficiary rather than bigger corporations from elsewhere. So, while the restrictions made sense in the early days of a big-money industry, they started to hamper the potential expansion of some Colorado cannabis companies.
Although the bill was vetoed in 2018 by then-governor John Hickenlooper, the bill we’ve seen go into law today is more progressive, dropping more restrictions than was originally planned. The reason for this more robust plan was pointed out by one Colorado cannabis lobbyist.
“Colorado was often seen as the most attractive place and most sustainable place to establish a legal cannabis business and today we’ve lost a lot of traction to other states,” said Kristi Kelly, executive director of Marijuana Industry Group. “Investors, both public and private, have turned their attention to other states and other countries.”
That, among other reasons, is why Colorado is making big changes to its local cannabis industry in 2019.
Defining ownership for Colorado cannabis businesses
One of the most drastic changes for Colorado cannabis entrepreneurs is allowing much easier access for businesses to access private equity. In order for someone to be considered a “controlling beneficial owner” they need to own 10 percent of the company’s assets, up from 5 percent. This change will allow for more “silent partners” to get involved with a business on a low-stakes, hands-off basis that helps fund the company’s business ventures.
HB 1090 essentially draws a distinction between three different levels of ownership:
- Controlling Beneficial Owner – a person or entity that owns 10 percent of the company
- Passive Beneficial Owner – a person or entity that holds any interest in the company who is not a Controlling Beneficial Owner
- Indirect Financial Interest Holder – a person or entity that does not fall into the first two categories, but holds the rights to an IP being used by the cannabis business, is a party to the cultivation and selling of cannabis products, or anyone leasing equipment or property for use in the operation of a cannabis business.
Defining “Control” and “Acquire”
A problematic concept in the law that kept coming up before the passing of HB 1090 was how Colorado defined “control” of a cannabis business, and what it meant to “acquire” a cannabis business.
The definitions, as outlined in the law, can be paraphrased as follows:
- “Control” is directly or indirectly gaining power to direct management and policy within a cannabis business.
- One “acquires” a Colorado cannabis business through both the acquisition of ownership interest, and by acquiring control, voting power, and the sole power to dispose of the owner’s stake in the company.
What this means for colorado cannabis business owners
This change in policy opens up many avenues that Colorado cannabis business owners didn’t previously have available to them. Financially, you’re now able to pursue private equity and outside funding in a way that would have been illegal before. Strategically, you have an off-ramp for you and your business that was nearly impossible to find previously.
What changes for CBD businesses
While cannabis companies focusing on THC products still have plenty of hurdles to get past from a legal standpoint, this change makes CBD companies much more appealing for big business. CBD has become a household discussion across the United States, so now CBD companies have the ear of the public and the attention of big-time private businesses. HB 1090 going into effect provides CBD businesses with an air of legitimacy, and some peace of mind for CBD entrepreneurs that should always be tracking changes in policy such as this.
If you have a valuable brand that’s ripe for acquisition, you’re no longer limited to Colorado companies. Nearly every US company on the stock exchange is able to invest in what you’ve built. And with HB 1090 in effect since November 1st, you’ve never had a better opportunity to get your cannabis brand in front of important, interested, and monied parties.
In order for those companies and their piles of money to invest in your business, they’ll need to notice you and appreciate your brand. To make sure you’re presenting your company the best you can, here’s our blog on the Top 5 Pitfalls in CBD Marketing.