Recent Status of Colorado HB19-1090: Publicly Licensed Marijuana Companies
By Charles S. Alovisetti, Partner; Jessica Scardina, Senior Associate Attorney; and Ben Leonard, Associate Attorney
Aug 26, 2019
On May 29, 2019, Colorado Governor Jared Polis signed into law drastic changes to Colorado cannabis regulations. HB 1090, which goes into effect on November 1, 2019, loosens ownership restrictions and permits public companies to own cannabis licenses in the state. Please read this comprehensive summary of HB 1090 and our prior analysis of the rulemaking process for more information.
On August 1, 2019, emergency rules were adopted pursuant to HB 1090. These new rules appear to have immediately removed all restrictions on convertible securities in advance of HB 1090’s November 1, 2019 effective date. Prior rules presented several challenges for companies trying to raise capital, and required that any form of convertible securities (be it a warrant, option, convertible note or anything that could conceivably convert into equity ownership of a licensed cannabis business) be preapproved by the Marijuana Enforcement Division (MED) before any money changed hands. All convertible securities were referred to as “Permitted Economic Interests” and had to be held by an individual, rather than an entity.
Then on August 21, 2019, VS received written confirmation from the MED that certain convertible debt transactions may occur prior to the November 1, 2019 effective date. In order for these financings to be compliant, two conditions must be met:
None of the holders of the convertible debt can be considered controlling beneficial owners under the new rules (which means no one can be in a position to convert into an equity position of ten percent or more of the licensed business); and
The convertible instrument must clarify that the conversion may not occur prior to November 1, 2019.
This new guidance clarifies that companies and investors can begin taking advantage of HB 1090’s more flexible regulatory structure immediately.