Ongoing Disclosure Requirements For Cannabis Licensees & Owners in California

By: Jay Purcell, Clark Neubert LLP

Finally, cannabis companies are obtaining annual licenses, triggering a new set of disclosure regulations. Three regulators require ongoing disclosures of changes to old—application-information and disclosure of information not previously requested: Bureau of Cannabis Control (“BCC,” regulates retailers and distributors), CA. Department of Food and Agriculture (“CDFA,” regulates cultivators) and CA. Department of Public Health (“CDPH” regulates manufacturers). Most disclosures relate to information on licensee’s application for an annual license. In that application directors, executives, 20% shareholders and other figures who exercise management, direction or control (defined as “Owners”) disclose information about themselves, their histories and their investments.

Ongoing Disclosure Requirements.

Licensees provide ongoing disclosures to regulators about changes to operations and their investors, both large and small. Some information must be disclosed immediately and other data need not be disclosed for fourteen (14)-days. Different regulators treat the same data points differently (e.g., granting an unvested stock option is not disclosed to CDFA, disclosed to CDPH in w/in 10-days, and BCC w/in 14-days). For this reason, licensees should become familiar with the reporting requirements for all their regulators (CDFA; CDPH;BCC). Some requirements will be difficult to enforce; for example, requiring disclosure of a licensee’s bank account balances every two weeks. More difficult is requiring a public company identify and obtain contact information for its ≥5% shareholders. Despite some impracticality, it is anticipated that regulators will focus on changes Owners, significant financial interest holders and changes to operations. Because of the wide scope of reportable events, every licensee should schedule time to harvest and report this data at least every two weeks. Scanning the list below, most licensees will spot multiple unreportedevents applicable to them.

Most Common Reportable Events

  -Change of Owners (BCC: 14 days; CDFA & CDPH: 10 days)

  -Change of Financial Interest Holder (BCC: 14 days; CDFA & CDPH: 10 days)

  -Change to Any Information in Annual Application (CFDA: 10 days)

  -Change to Contact Information, Bank Accounts and Balances, Loans, Insurance (BCC:14-days; CFDA: 10-days)

Reportable Events for All Owners

  -Civil Penalty or Judgement against Owner (All: 48-Hours)

   -Criminal Conviction or Civil Judgement against Licensee or Owner (All: 48-Hours)

   -Revocation of Local License, Permit, or other Authorization (All: 48-Hours)

  -Labor Law Sanctions / Administrative Orders against Licensee or Owner (All: 48-hours)

  -Labor Law Civil Judgements (BCC: 48-hours)

  -Bankruptcy or Assignment for Benefit of Creditors (CDFA: 10-days)

  -Death, Incapacity, Insolvency (BCC: 14-days)

Security-Related Reportable Events

  -Track-and-Trace System Failure or Non-Resolution (BCC: Immediately)

  -Significant Discrepancy in Inventory (BCC: Immediately)

  -Diversion, Theft, Loss, Criminal Activity (BCC: 24-hours)

   -Security Breach (BCC: 24-hours)

   -Loss or Unauthorized of Records (BCC: 24-hours)

   -Change in Track-and-Trace Account Manager (CDFA: 48-hours)

   -Diversion, Theft, Loss or Criminal Activity (CDFA: 3-calendar days, also notify law enforcement)

Click Here for PDF of Reportable Events