Floodgates poised to open in Colorado with potential new wave of cannabis investors

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colorado outside investors, Floodgates poised to open in Colorado with potential new wave of cannabis investors

Colorado is on the verge of opening its marijuana markets to an influx of fresh capital and investors.

State lawmakers last week passed a bipartisan bill that would for the first time allow publicly traded companies to invest in or hold a medical or recreational marijuana license in the state, starting next January. 

The legislation, which has been sent to Gov. John Hickenlooper for his signature, also would eliminate the current 15-person limit for out-of-state owners of a Colorado cannabis company. The governor has not yet taken a position.

“This puts Colorado on par with most of the rest of the nation in terms of being able to take investment money,” said Andy Williams, CEO of Denver-based grower and dispensary Medicine Man, which hopes to sell public stock by mid-2019.

“Even though (Colorado is) in the lead in the cannabis industry in business acumen as well as the maturity of our operations, investment money is going elsewhere because of those restrictions,” Williams added.

“This is going to open up investment in Colorado so our companies can grow and compete with the rest of the nation and take part in the rollout of the industry.”

State’s businesses protected

Christian Sederberg, a Colorado cannabis attorney, said the legislation – “the culmination of several years of discussions” – includes safeguards to protect the state as foreign and U.S. publicly traded companies try to enter the market.

Under the proposed safeguards, publicly traded businesses seeking to invest in Colorado companies would be required to:

  • Receive permission from the state licensing authority, which would take into account various factors, such as prior criminal convictions.
  • Disclose officers, directors, affiliates and individuals who have a 5% or more ownership interest.
  • Have at least one officer who has been a Colorado resident for at least a year.
  • Ensure that company officers with day-to-day operational control have been residents of Colorado for at least one year before assuming that role.
  • Disclose to the state licensing authority any filing made to a federal securities exchange and provide a copy of that filing within five days.

In addition, license holders would be required to submit transfer-of-ownership requests to both the state and local jurisdiction, and the latter may hold a hearing on the application.

Sederberg said the capital flexibility also would help Colorado-based companies that operate in multiple jurisdictions.

In the early days of Colorado’s rec MJ industry, businesses had to rely primarily on in-state investors.

Dan Anglin, a founder and chairman of the Colorado Cannabis Chamber of Commerce, noted that investment opportunities in Colorado increased a couple of years ago when the state allowed nonresidents into the market – although the available pool was capped at the 15-person limit.

The ban on publicly traded companies remained a big roadblock.

Additional access to investment, Anglin noted, would help Colorado companies participate in what is a “very expensive business,” marked by high costs to build infrastructure and ensure compliance with regulations.

Some businesses may want to remain boutiques, he added, and that’s their choice.

“What this really does is give business owners in Colorado more choices for how to move their business forward – whether to keep it small or grow it to a national brand,” said Anglin, who also is owner of Colorado edibles maker Americanna.

Tim Cullen, CEO of Colorado Harvest Company, a Denver-based vertically integrated cultivation and retail business, said he’s excited about the prospect.

“The current situation with banking does not allow a legal cannabis company like Colorado Harvest Company to take a bank loan for running capital or expansion,” Cullen wrote in an email to Marijuana Business Daily. “It’s been difficult to watch other states (mainly California) structure their rules to be more favorable to outside business.

“As other states expand into the legal cannabis market, it’s important that Colorado make changes to their rules to keep the environment friendly for business and competitive with other markets.”

‘A significant change’

Sederberg stressed that “obviously this is not a done deal yet. I’m hopeful the governor will sign it, but it’s obviously a very significant change.”

He said it remains to be seen whether the legislation, if it becomes law, would accelerate the industry consolidation trend.

“Consolidating is going to happen one way or the other,” Sederberg added.

The state Senate passed the bill by a 29-6 vote; the House passed an amended bill by a 43-22 margin.

The Legislative council staff estimates the new provisions would generate $4 million in additional revenue for the state by fiscal year 2019-2020 and a net gain of $2.2 million when additional expenditures are included.

Jeff Smith can be reached at jeffs@mjbizdaily.com