Definitions of Ownership and Financial Interest and Role of Advisors

 

Our concerns extend to a specific subset of questions with respect to the role and function of professional advisors such as CPA’s and Attorneys.

  • The definitions of “Ownership Interest” and “Financial Interest Holder” contained in Secs. 5003 and 5004 of the regulations have finally been issued and homogenized across BCC, CDPH and CDFA.
  • We understand that there are situations where an individual who may have intended to merely be an advisor such as an attorney or certified public accountant [an “Advisor”] may have place themselves in a role where they would be deemed to  possess an Ownership Interest or become a Financial Interest Holder by virtue of their ability to assert influence, if not outright control over the business, legal and economic consequences to a licensee through their actions. We presume that is such situations, the Advisor would have been required to submit the appropriate disclosures and information for vetting at the time that the licensee’s application was submitted. Please confirm
  • Lack of Provision for Applicants and Licensees to be Represented by Counsel – Attorney or Certified Public Accountant under Prop. 64 Legislation or the Emergency Regulations
  • Lack of Guidance from Regulators under definitions of Ownership Interest and Financial Interest Holder where an Advisor [e.g. Attorney or CPA] exerting influence, management, or control over a Licensee would be sufficient to require an amendment of the Licensee’s application.
  • If so, would the Licensee or the Advisor be subject to sanction or would there be a “safe harbor” for a corrective filing, or a more severe sanction upon discovery if either the Licensee or the Advisor failed to self-report?
  • Would a transaction or filing as described above require corrective filing with your agency as well?

We view this set of questions as directly relevant to professionals as they seek to set up Best Practices for working with California commercial cannabis industry clients. A copy of our letters to the regulators follows: