Last week, the Washington State Liquor and Cannabis Board (the “LCB”) issued a new set of proposed marijuana regulations. The LCB’s Rulemaking Summary can be found here. The proposed rule changes include the removal of the residency requirement for Financiers.
A Financier is defined as a person or entity, other than a banking institution, that has made or will make an investment in a marijuana business. Currently, Financiers must demonstrate that they and their spouse have lived in Washington State for six months. This residency requirement has significantly limited the investment pool for marijuana businesses. Removing the residency requirement for Financiers should help marijuana businesses find needed capital and generally aid in the success of the legal marijuana market in Washington State.
Under the proposed rule change, individuals or entities that loan money to marijuana businesses pursuant to a standard loan agreement would most likely not be required to be Washington residents, although they would still have to pass financial and criminal background checks. Importantly, owners of marijuana businesses will still need to be Washington residents; the residency requirement will continue to apply to all corporate shareholders as well as limited liability company members.
Thus, a Financier that obtains an ownership interest in a corporation or limited liability company in exchange for providing financing will still most likely need to meet the residency requirement. Whether out of state investors will be able to receive any profits from a marijuana business in exchange for financing remains to be seen. Business owners and investors should consult with legal counsel in regard to the new rules and financing options for their particular circumstances.
The LCB will be holding public hearings on the proposed rules starting February 10 with rule adoption possible in March. Stay tuned to this blog for updates on LCB rulemaking.
For more information on the regulation of marijuana businesses, please contact Heather Wolf.