1 CCR 212-3-2-235 - Suitability
Basis and Purpose - 2-235
The statutory basis for this rule includes, but is not limited to, sections 44-10-202(1)(e), 44-10-203(2)(c), 44-10-203(2)(ee), 44-10-308(4), 44-10-308(6), 44-10-309, 44-10-310, and 44-10-312(4), C.R.S. Section 44-10-310, C.R.S., requires that persons disclosed or who should have been disclosed to the State Licensing Authority obtain a finding of suitability from the State Licensing Authority. The purpose of this rule is to explain the conditions under which a Person is subject to either a mandatory finding of suitability or a finding of suitability for reasonable cause, to identify exemptions from an otherwise required finding of suitability and to identify the information and documents that, at a minimum, must be submitted in connection with any Person's request for a finding of suitability.
A.
Persons Subject to a Mandatory Finding of Suitability for Regulated
Marijuana Businesses That Are Not Publicly Traded Corporations.
1. Except as provided in subparagraph
(A)(1)(a), any Person intending to become a Controlling Beneficial Owner by
submitting an initial application for any Regulated Marijuana Business that is
not a Publicly Traded Corporation must first obtain a finding of suitability
from the State Licensing Authority.
a.
Members of the Board of Directors and Executive Officers of a
Regulated Marijuana Business. An individual who is a Controlling
Beneficial Owner because they are a member of the board of directors or an
Executive Officer of a Regulated Marijuana Business or is Controlling a
Regulated Marijuana Business but who does not possess ten percent or more of
the Owner's Interest in a Regulated Marijuana Business must submit a request
for a finding of suitability to the State Licensing Authority within 45 days of
becoming such a Controlling Beneficial Owner.
2. Indirect Ownership of Ten-Percent or More
Owner's Interests in a Regulated Marijuana Business.
a. For a Controlling Beneficial Owner that is
an Entity, the Entity's request for finding of suitability must include all
information necessary for the State Licensing Authority to determine whether
that Entity's Executive Officers and any Person that directly or indirectly
owns ten percent or more of the Owner's Interest in the Regulated Marijuana
Business are suitable. For example, assuming the following scenario, Licensee
RMB LLC has one-thousand outstanding ownership interests and CBO 1, LLC owns
400 of those ownership interests. John Doe owns 30% of CBO 1, LLC. Therefore,
John Doe indirectly owns 12% of the outstanding ownership interests of Licensee
RMB LLC, and must apply to the State Licensing Authority for a finding of
suitability.
3. Any
Person that has not received a finding of suitability and who intends to become
a Controlling Beneficial Owner of a Regulated Marijuana Business that is not a
Publicly Traded Corporation must submit their request for a finding of
suitability prior to or contemporaneously with the change of owner application,
unless exempt from the change of owner application requirement under Rule
2-245(C).
4. For a Controlling
Beneficial Owner that is a trust, the trust's request for a finding of
suitability must include all documents and information required or requested by
the State Licensing Authority to permit a determination of whether or not the
trustee and any beneficiary who may exercise control over the trust is
suitable. A trust will not be found suitable if any person prohibited by
section 44-10-307, C.R.S., is the trustee,
otherwise controls the trust, or is positioned to receive distributions from
the trust while a person prohibited.
5. Any Passive Beneficial Owner who elects to
apply for an Owner's License in accordance with Rule 2-265(B)(3).
B.
Persons Subject to
a Mandatory Finding of Suitability for Regulated Marijuana Businesses That Are
Publicly Traded Corporations.
1.
The following Persons must apply to the State Licensing Authority for a finding
of suitability:
a. Any Person that becomes a
Controlling Beneficial Owner of any Regulated Marijuana Business that is a
Publicly Traded Corporation; and
b.
Any Person that indirectly Beneficially Owns ten percent or more of the
Regulated Marijuana Business that is a Publicly Traded Corporation through
direct or indirect ownership of its Controlling Beneficial Owner. For example,
assuming the following scenario, Licensee PTC Inc. has one-million shares of
outstanding Securities and CBO 1 owns 400,000 of those securities. John Doe
owns 30% of CBO 1. Therefore, John Doe indirectly owns 12% of the outstanding
securities of Licensee PTC Inc. and must apply to the State Licensing Authority
for a finding of suitability.
2. For a Controlling Beneficial Owner that is
an Entity, the Entity's request for finding of suitability must include all
information necessary for the State Licensing Authority to determine whether
its Executive Officers and any Person that indirectly owns ten percent or more
of the Owner's Interest in the Regulated Marijuana Business are
suitable.
3.
Timing of
Request for Finding of Suitability Involving Publicly Traded
Corporation.
a. Unless exempted
under Rule 2-235(E), all Persons that will be a Controlling Beneficial Owner in
a Regulated Marijuana Business that is entering into a Publicly Traded
Corporation transaction described in Rule 2-245(B)(1) must first obtain a
finding of suitability by the State Licensing Authority before the transaction
can close or the public offering can occur.
b. A Person who becomes a Controlling
Beneficial Owner in a Regulated Marijuana Business that is a Publicly Traded
Corporation must submit a request for a finding of suitability to the State
Licensing Authority within 45 days of becoming a Controlling Beneficial
Owner.
c. An individual who is a
Controlling Beneficial Owner because they are a member of the board of
directors or an Executive Officer of a Regulated Marijuana Business or is
Controlling a Regulated Marijuana Business but who does not possess ten percent
or more of the Owner's Interest in a Regulated Marijuana Business must submit a
request for a finding of suitability to the State Licensing Authority within 45
days of becoming such a Controlling Beneficial Owner.
B.5.
Persons Subject
to Mandatory Finding of Suitability: Social Equity Licensees.
Effective through February 1, 2025.
1.
Qualifications. To qualify as a Social Equity
Licensee, the Applicant must be found suitable for licensure pursuant to Rule
2-235, unless otherwise exempted by these Rules, and must meet the following
minimum eligibility requirements:
a. The
Applicant is a Colorado Resident and has established Colorado residency by
providing the items required by Rule 2-265(H).
b. The Applicant has not been the Beneficial
Owner of a License subject to administrative action issued by the State
Licensing Authority resulting in the revocation of a license issued pursuant to
the Marijuana Code;
c. The
Applicant has demonstrated at least one of the following:
i. The Applicant has resided for at least
fifteen years between the years 1980 and 2010 in a census tract designated by
the Office of Economic Development and International Trade as an opportunity
zone or a census tract designated as a Disproportionate Impacted
Area;
ii. The Applicant or the
Applicant's parent, legal guardian, sibling, spouse, child, or minor in their
guardianship was arrested for a marijuana offense, convicted of a marijuana
offense, or was subject to civil asset forfeiture related to a marijuana
investigation; or
iii. The
Applicant's household income in the year prior to application did not exceed
50% of the state median income as measured by the number of people who reside
in the Applicant's household.
d. The Social Equity Licensee, or
collectively one or more Social Equity Licensees, holds at least fifty-one
percent of the Beneficial Ownership of the Regulated Marijuana Business
License.
2.
Information Required to Establish Qualification as a Social Equity
Licensee.
a. To demonstrate
qualification as a Social Equity Licensee based on residence during the
relevant time period, the Applicant must demonstrate the Applicant's residency
which may include either:
i. Providing
information or documents including but not limited to a copy of school records,
rental agreements, lease agreements, utility bills, mortgage statements, loan
documents, bank records, tax returns, or any other document which proves the
Applicant's place of residence; or
ii. Affirming, under penalty of perjury, the
Applicant's place of residence and provide the name(s) and contact information
for at least one individual who can verify the Applicant's place of residence
during the time period at issue.
b. To demonstrate that an Applicant qualifies
as a Social Equity Licensee based on a prior marijuana conviction of a family
member, the Applicant must provide affirmation of the familial relationship and
court or other documents demonstrating the family member's arrest or conviction
for a marijuana offense or that the family member was subject to a civil asset
forfeiture related to a marijuana investigation.
c. To demonstrate that an Applicant qualifies
as a Social Equity Licensee based on the Applicant's income, the Applicant must
provide the Applicant's tax return for the prior year. If an Applicant applies
between January 1 and April 15 but has not yet filed a tax return, the
application may be delayed or denied until the tax return is filed and provided
to the Division. The Division cannot accept tax returns for previous
years.
3.
Denial on the Sole Basis of a Marijuana Conviction.
The State Licensing Authority will not deny an application for a Social Equity
License or a related request for a finding of suitability on the sole basis of
a marijuana conviction.
B.6
Persons Subject to Mandatory
Finding of Suitability: Social Equity Licensees. Effective
February 1, 2025.
1.
Qualifications. To qualify as a Social Equity
Licensee, the Applicant must be found suitable for licensure pursuant to Rule
2-235, unless otherwise exempted by these Rules, and must meet the following
minimum eligibility requirements:
a. The
Applicant has not been the Beneficial Owner of a License subject to
administrative action issued by the State Licensing Authority resulting in the
revocation of a license issued pursuant to the Marijuana Code;
b. The Applicant has demonstrated at least
one of the criteria established in section
44-10-308(6)(b),
C.R.S.; and
c. The Applicant for a
Social Equity License, or collectively one or more Social Equity Licensees,
holds, or will hold, at least fifty-one percent of the Beneficial Ownership of
the Regulated Marijuana Business License.
d. The Applicant is not a Controlling
Beneficial Owner of any combination of more than three Retail Marijuana Store
Licenses, Medical Marijuana Store Licenses, Retail Marijuana Cultivation
Facility Licenses, or Medical Marijuana Cultivation Facility Licenses, unless
the Beneficial Ownership of the listed Licenses for which the Applicant is a
Controlling Beneficial Owner are at least fifty-one percent held by the
Applicant as a Social Equity Licensee, or collectively one or more Social
Equity Licensees.
i. For the purposes of
subparagraph (d), co-located Retail Marijuana Store and Medical Marijuana Store
Licenses, or co-located Retail Marijuana Cultivation Facility and Medical
Marijuana Cultivation Facility Licenses constitute one license.
2.
Information Required to Establish Qualification as a Social Equity
Licensee.
a. To demonstrate
qualification as a Social Equity Licensee based on the Applicant's residence
during the relevant time period, the Applicant must demonstrate the Applicant's
residency, which may include either:
i.
Providing information or documents including, but not limited to, a copy of
school records, rental agreements, lease agreements, utility bills, mortgage
statements, loan documents, bank records, tax returns, or any other document
which proves the Applicant's place of residence; or
ii. Affirming, under penalty of perjury, the
Applicant's place of residence and provide the name(s) and contact information
for at least one individual who can verify the Applicant's place of residence
during the time period at issue.
b. To demonstrate qualification as a Social
Equity Licensee based on the Applicant receiving government assistance, the
Applicant must either:
i. Provide information
or documentation, including, but not limited to, a copy of a benefit
verification letter, award letter, or other official communication from the
program providing assistance during the time period at issue; or
ii. Affirming, under penalty of perjury, the
Applicant's participation in an appropriate government assistance program
during the time period at issue.
c. To demonstrate that an Applicant qualifies
as a Social Equity Licensee based on a prior marijuana arrest and conviction of
the Applicant or the Applicant's spouse, parent, or legal guardian, the
Applicant must provide affirmation of the familial relationship and court or
other documents demonstrating the Applicant or the Applicant's spouse, parent,
or legal guardian's arrest and conviction for a marijuana offense.
d. To demonstrate that an Applicant qualifies
as a Social Equity Licensee based on a prior marijuana arrest or conviction of
the Applicant's sibling or child or minor in the Applicant's guardianship, the
Applicant must provide affirmation of the familial relationship and court or
other documents demonstrating the arrest or conviction of the Applicant's
sibling or child or minor in the Applicant's guardianship for a marijuana
offense.
i. In order for an Applicant to
qualify as a Social Equity Licensee pursuant to subsection
44-10-308(6)(b)(III)(A),
C.R.S., the Applicant shall provide documentation demonstrating qualification
pursuant to this subparagraph (d) and subparagraph (a) of Rule 2-235(B.6)(2) as
applied to the Applicant's sibling or child or minor in the Applicant's
guardianship residence.
ii. In
order for an Applicant to qualify as a Social Equity Licensee pursuant to
subsection
44-10-308(6)(b)(III)(B),
C.R.S., the Applicant shall provide documentation demonstrating qualification
pursuant to this subparagraph (d) and subparagraph (b) of Rule 2-235(B.6)(2) as
applied to the Applicant's sibling or child or minor in the Applicant's
guardianship receiving assistance.
3.
Denial on the Sole Basis of a
Marijuana Conviction. The State Licensing Authority will not deny
an application for a Social Equity License or a related request for a finding
of suitability on the sole basis of a marijuana conviction.
C.
Finding of Suitability for
Reasonable Cause. For Reasonable Cause, any other Person that was
disclosed or should have been disclosed pursuant to subsections
44-10-309(1) or
(2), C.R.S., or that was required to be
disclosed based on previous notification of Reasonable Cause must submit a
request to the State Licensing Authority for a finding of suitability. Any
Person required to submit a request for a finding of suitability pursuant to
this Rule must submit such request within 45 days from notice of the State
Licensing Authority's determination of Reasonable Cause for the finding of
suitability.
D.
Information Required in Connection with a Request for a Finding of
Suitability. When determining whether a Person is suitable or
unsuitable for licensure, the State Licensing Authority may consider the
Person's criminal character or record, licensing character or record, or
financial character or record. To consider a Person's criminal character or
record, licensing character or record, and financial character or record, all
requests for a finding of suitability must, at a minimum, be accompanied by the
following information:
1.
Criminal Character or Record:
a. A set of the natural person's fingerprints
for purposes of a fingerprint-based criminal history record
check.
2.
Licensing Character or Record:
a. Affirmation that the Person is not
prohibited from holding a license under section
44-10-307, C.R.S.
b. A list of all Colorado Department of
Revenue-issued business licenses held in the three years prior to submission of
the request for a finding of suitability;
c. A list of all Department of Regulatory
Agencies business, professional, or occupational licenses held in the three
years prior to submission of the request for a finding of
suitability;
d. A list of any
marijuana business or personal license(s) held in any other state or territory
of the United States or District of Columbia or another country, where such
license is or was at any time subject to a denial, suspension, revocation,
surrender, or equivalent action by the licensing agency, commission, board, or
similar authority; and
e.
Disclosure of any civil lawsuits in which the Person was named a party where
pleadings included allegations involving any Regulated Marijuana
Business.
3.
Financial Character or Record:
a. Disclosure of any sanctions, penalties,
assessments, or cease and desist orders imposed by any securities regulatory
agency other than the United States Securities Exchange Commission;
b.
Account Statements or Property
Ownership Documents Required.
i.
If a Person is submitting a request for a finding of suitability to acquire ten
percent or more of the Owner's Interest in a Regulated Marijuana Business and
has identified both the source of funds or property and the Regulated Marijuana
Business License that will be acquired at the time of the request for the
finding of suitability, then the Person shall also include, copies of the
Person's financial account statements for the preceding one-hundred eighty days
for any accounts serving as a source of funding used to acquire the Owner's
Interest in the Regulated Marijuana Business; or, if the Person is contributing
one or more asset(s) to the Regulated Marijuana Business in exchange for the
Owner's Interests, documents establishing the Person has owned such asset(s)
for the preceding one-hundred eighty days.
ii. If a Person has not identified both the
source of funding or property and the Regulated Marijuana Business License that
will be acquired, then the Person can submit a request for a finding of
suitability without account statements or property ownership
documents.
iii. When a Person
submits a Change of Controlling Beneficial Owner or new Regulated Marijuana
Business License application, the Person shall also provide account statements
for the funds that will be used to acquire the Owner's Interest in the
Regulated Marijuana Business License or the property ownership documents for
the preceding one hundred eighty (180) days.
E.
Exemptions from a
Finding of Suitability.
1. The
following Persons are exempt from an otherwise required finding of suitability:
a. Any Person that currently possesses an
approved Owner License issued by the State Licensing Authority and such Owner
License has not, in the preceding 365 days, been subject to suspension or
revocation.
2. Exemptions
from an otherwise required finding of suitability are limited to those listed
in this Rule. The State Licensing Authority will consider other factors that
may inform amendments to this Rule through the Department's formal rulemaking
session.
F.
Timing to Approve or Deny a Request for Finding of
Suitability. Absent Reasonable Cause, the State Licensing
Authority must approve or deny a request for a finding of suitability within
120 days from the date of submission of the request for such finding, where
such request was accompanied by all information required under subparagraph (D)
of this Rule.
G.
Executive Officer Considerations. Whether an
individual is an Executive Officer subject to a mandatory finding of
suitability is based on the definition in these rules and the facts and
circumstances. In determining whether an individual is an Executive Officer,
the State Licensing Authority will consider the following, non-exhaustive
factors:
1. Executive Officers include, the
Chief Executive Officer, Chief Operating Officer, Chief Financial Officer,
president, and the General Counsel. Title alone is not dispositive and an
individual with a title that is not included in the list above may also be an
Executive Officer where they have similar policy making authority.
2. The level of decision-making authority the
individual possesses;
3. The
Controlling Beneficial Owner and/or Regulated Marijuana Business's
organizational chart; and
4. Any
relevant guidance from the United States Securities and Exchange Commission or
similar securities regulator, securities rules or securities case
law.
H.
Findings of Suitability Expiration.
1.
Finding of
Suitability. A finding of suitability other than for a Social
Equity Licensee is valid for one year from the date it is issued by the State
Licensing Authority. If more than one year has passed since the State Licensing
Authority issued a finding of suitability to a Person other than for a Social
Equity Licensee and such Person has not during that time applied to become a
Controlling Beneficial Owner of a Regulated Marijuana Business pursuant to an
initial business license application or change of owner application, then such
Person shall submit a new request for finding of suitability to the State
Licensing Authority and obtain a new finding of suitability before submitting
any application to become a Controlling Beneficial Owner of a Regulated
Marijuana Business. Upon approval and issuance of an Owner License, a finding
of suitability is no longer valid.
2.
Finding of Suitability for
Social Equity Licensees. A finding of suitability for Social
Equity License Applicants under Rule 2-220(C) is valid for two years from the
date it is issued by the State Licensing Authority. If more than two years has
passed since the State Licensing Authority issued the finding of suitability
and such Social Equity Licensee has not during that time applied to become a
Controlling Beneficial Owner of a Regulated Marijuana Business, then such
Social Equity Licensee shall submit a new request for finding of suitability to
the State Licensing Authority and obtain a new finding of suitability before
submitting any application to become a Controlling Beneficial Owner of a
Regulated Marijuana Business. Upon approval and issuance of an Owner License, a
finding of suitability is no longer valid.
Notes
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