New York OCM Interim Guidance on Cannabis License Ownership Changes and Amendments
Written by Mike McQueeny
While many have criticized the OCM for delays in licensing, which has recently yielded the statement by OCM leadership that many of the applications submitted in November 2023 will not be issued until 2025, the reality is that the agency has a major staffing issue. With vacancies as high as sixty-five (65) and OCM’s interim Executive Director describing the agency as “woefully understaffed,” the impact is felt not only on applicants for licensure but also those seeking to take on new investors and/or seeking to change the location for licensed activities. While the regulations clearly delineate a path for the agency to review and consider these more routine administrative tasks, the infrastructure problems of OCM have caused substantial delays.
As a first step, OCM has issued interim guidance related to amendments to Adult-Use Licenses and Changes to Ownership.
Changes of Ownership
Regarding changes of ownership, OCM acknowledges that while there are clear-cut regulatory requirements for when OCM notice and/or approval is required (new passive investors between 10%-20%, new non-exempt agreements, new lenders greater than 10% of a licensee’s capital, new direct or indirect financial controlling interests, etc.), OCM is “not accepting any requests [for changes] to ownership or TPI at this time,” (emphasis in original) given that it does not have the infrastructure to process them. The irony of this statement is that an agency, in and of itself, cannot dictate what it will and will not consider; instead, the controlling statute and promulgated regulations control what must be done and when by an agency. Notwithstanding that, OCM acknowledges that while it is “working on a process to facilitate these changes via the New York Business Express (NYBE) and TPI Portal platforms,” those systems are not yet in place, and as such, while TPI changes “are not being accepted at this time,” (emphasis in original), OCM “will not take any adverse action against a licensee for not having notified [OCM] or not having requested approval for a change,” albeit with the acknowledgment that such changes taken in the interim are done at a licensee’s own risk.
To be clear, not all actions related to changes of ownership may be taken (even at a licensee’s own risk) in the interim; only those actions that the regulations identify as requiring either OCM notice and/or approval. In turn, the interim guidance makes clear that the same “hands off” approach will not apply to those actions that require Cannabis Control Board (“Board”) approval. This includes fundamental changes to the composition of a licensee, including transferring a majority (50%) ownership or control to a new TPI or changes to majority voting shares. Nor does this interim guidance approve of any other transactions otherwise deemed to violate the Cannabis Law, i.e., TPI restrictions regarding threshold participation in the maximum number of qualifying licenses. The guidance will also require – prior to the formal changes to NYBE - updates to be provided via survey before the amendment system becomes operational.
In short, while licensees are certainly not provided carte blanche with respect to changes of minority and non-controlling interests, these actions may be taken without risk of adverse action in the absence of OCM’s acknowledgment and/or approval of the change, provided the change does not otherwise violate the Cannabis Law, and provided the licensee complies with the guidance and submits updates via survey. Nor do actions taken during this interim time frame guarantee the ultimate approval of the transaction, and parties must exercise appropriate due diligence prior to entering into any such transaction. Investors might consider how to appropriately address this corporate uncertainty in the ultimate transaction documents, given that regulatory approval is typically among the final closing conditions of any transaction in the cannabis space.
Changes of Location
OCM also issued guidance related to updates to other information for adult-use cannabis licenses, including changes of ownership. OCM has made an amendment survey available whereby a licensee can request to add or remove locations. The survey will allow a licensee to request to relocate from their current licensed location to a new location. OCM warns that proximity protection requirements still apply, as do sensitive use setbacks related to schools, houses of worship, designated public youth facilities, and proximity to other dispensaries. OCM, however, goes on to caution that the submission of the survey does not constitute approval and that OCM is only “beginning to process amendment requests in addition to the ongoing work of reviewing and issuing applications,” meaning even these requests are likely to be met with delays.
Conclusion
While the subtext of these guidance documents is for licensees and investors to continue to expect delays, the reality is that some guidance is better than none. Many licensees have submitted requests for amendments that have been met with zero response from OCM or, possibly worse, statements that agency simply is not able to process these applications at this time. The guidance presents a recognition by OCM that licensees should not be penalized for OCM’s delays or failure to act, that licensees certainly need the ability to move forward with investors, open and/or expand their license footprints, and that in the absence of this guidance, investors would be scared away by the underlying uncertainty.
Most importantly, and notwithstanding the guidance, all parties (both licensees and investors) must be cognizant of controlling regulations related to TPI requirements and restrictions, as absent either party’s diligence, any investment of time, money, and effort is fundamentally taken at their own risk.
A version of this article was previously published on Foley Hoag.
As a partner and Co-Chair of Foley Hoag’s national Cannabis Group, Mike McQueeny has provided trusted counsel to startups and multi-state operators alike on issues associated with legislative/regulatory development and compliance. He has assisted clients in drafting and securing competitive state cannabis permits, having worked on winning applications in multiple states. He counsels clients on complex issues of regulatory compliance, including through advising companies on regulatory considerations associated with anticipated mergers and acquisition.