Lately, there has been an uptick in the number of cannabis farms holding either a local or state license being bought and sold throughout the County. From a regulatory perspective, purchasing a cannabis farm presents issues with respect to business continuity, disclosure requirements, and other responsible agency requirements for transfer of required permits and authorizations. The following is a brief overview of the regulations that impact the transfer of a cannabis farm, some techniques for avoiding potential interruption of business, and other regulatory requirements that should be taken into consideration when purchasing a cannabis business.
It must be noted that cannabis is a Schedule I controlled substance and under the Federal Controlled Substances Act, the cultivation, possession, manufacture, transportation, and distribution of cannabis is a felony and may expose violators to both criminal and civil liability. The following should not be construed as legal advice and is merely provided for informational purposes pertaining to California state cannabis laws.
Title III, Division 8, Chapter 1 of the California Code of Regulations regulates the cultivation of cannabis in California. Under section 8202(c) cultivation licenses are not transferable or assignable to any other person, entity, or property. Likewise, applications for licenses are not transferrable or assignable.
Licensees are required to notify the California Department of Food and Agriculture within ten (10) calendar days of any change in ownership that does not affect the business entity type. The new owners of the licensee shall submit all of the information required to be disclosed by the owner at time of initial permit application pursuant to section 8102 within ten (10) days of the change of ownership. To change ownership information of a license application for an annual or temporary state license, California Department of Food and Agriculture (CalCannabis) requires a separate profile be created for the new owner and a new application submitted for CalCannabis review.
Local jurisdiction requirements vary. For instance, under Humboldt County’s ordinance, to transfer an application, the prior and previous owner must execute an application transfer form, pay a fee, and provide updated application documentation. Changes or modifications to the permit or project, including any change of owner, requires notification, review, and approval by the County Planning Division prior to granting the modification. Conversely, a commercial cannabis permit issued by the City of Arcata is non-transferable to another location, and no transfer to another owner or modifications may be made without the following: (a) for a transfer of ownership, a request for permit ownership transfer must be submitted to the Building Official on a City form at least sixty (60) days prior to the transfer, together with a fee; (b) a new owner shall meet all requirements for applicants of an initial permit; and (c) all identifying information required in the original application shall be submitted, a written certification by the new owner certifying the owner will abide by all terms and conditions of the permit and ordinance, the specific date the transfer is to occur; and acknowledgement of full responsibility for complying with any existing permit.
Any one looking to acquire a cannabis farm should take the above regulations into account when structuring the purchase of a permitted cannabis cultivation site. First, contingencies should be set to allow buyer and seller to provide the sufficient notices to both CalCannabis and other regulatory agencies having jurisdiction over cannabis cultivation sites. These agencies include the California Department of Fish and Wildlife, the State Water Resources Control Board, and the Regional Water Quality Control Boards. All documents requesting transfer of the various permits should be carefully reviewed by counsel prior to submission to the agencies to ensure timely processing. Any landlord should be consulted with early in the acquisition process for purposes of obtaining landlord consent to new ownership as applications will require evidence of owner authorization for the activity and a lease. Likewise, when setting a closing date, the regulatory notice and waiting periods should be considered. For instance, the City of Arcata’s waiting period of sixty days should be considered when choosing a closing date for an acquisition to provide proper noticing and to avoid any business interruption. In a similar vein, all licensees and state license applicants are required to have obtained a local authorization for the proposed cannabis activity. Any transaction of a cannabis business should provide for the submission and issuance of the local permit with the new owner information prior to close of the business to facilitate any application or modification of state license. Therefore, when state licensing authorities inquire with the local jurisdiction to determine whether the applicant is authorized to engage in the proposed activity, the ownership informatation shared between the locals and the state remain consistent.
Lastly, counsel should check with other responsible agencies having jurisdiction over cannabis projects to determine how and whether certain permits are transferable, run with the property, or will require new applications. Some of the permits required by CalCannabis include Water Quality Discharge Permits pursuant to State Water Resources Control Board Order R1-0023-2017, any Lake and Streambed Notification (F&W Code Section 1600/1602), and enrollment in any regional board orders as well.
If you are considering buying or selling a cannabis business, be sure to review the regulations of the agency regulating your specific activity. If you need help, the attorneys at Janssen Malloy LLP are here to assist.