Opinion: What to consider when buying a Florida medical cannabis business license

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Dustin Robinson (Courtesy photo)

With Florida voters deciding whether to legalize adult-use marijuana this fall, medical cannabis business licenses in the state are among the most coveted in the United States.

Several Medical Marijuana Treatment Center (MMTC) licenses could be for sale in Florida as soon as this spring.

The Florida Office of Medical Marijuana Use is expected to announce the winners of 22 MMTC licenses by the first week of April, which would nearly double the number of existing permits.

Winners of the MMTC licenses – vertically integrated operations with no cap on facilities – will be chosen from 74 applications submitted in April 2023.

Meanwhile, language in the November adult-use ballot initiative explicitly allows MMTC license holders to operate in the recreational marijuana market as soon as the measure is passed.

Out of the 22 winners of the newest MMTC licenses, 10-12 are likely to attempt to sell their permit, especially if license values increase as a result of the adult-use initiative passing.

While these licenses are not operational when they are first awarded, buyers should still consider significant diligence if they are interested in purchasing one of the coveted Florida MMTC licenses.

Cannabis regulatory compliance

Potential buyers must be familiar with Florida Statute Section 381.986 and the specific regulations set forth by the Office of Medical Marijuana Use, which oversees MMTCs.

Specifically, interested parties should know about the following regulatory requirements:

  • Rule 64ER22-1: Must post $5 million bond 10 days after licensure.
  • Rule 64ER 21-10: Must request cultivation authorization within 60 days of licensure, processing authorization within 120 days of licensure and dispensing authorization within 180 days of licensure.
  • Rule 64-4.203: Procedures for requesting a variance from the representations made in the initial application.
  • Other regulatory compliance matters: background checks, ownership changes and financial disclosures.

As part of the license-application process, applicants had to secure infrastructure to demonstrate their ability to operate, meaning applicants most likely entered into dozens of contracts outlining the applicant’s rights and obligations.

The type of infrastructure secured and how the infrastructure was secured varies widely among the applicants.

For example, some applicants might have a letter of intent on a property that has no cultivation infrastructure, while other applicants might own a property already set up for cultivation.

Since Rule 64ER 21-10 requires the MMTC to request cultivation authorization within 60 days of licensure, it is important a buyer ensures that a cultivation property is secured and has sufficient infrastructure to comply with the 60-day requirement.

As another example, license applicants might have secured dozens of expensive leases on retail locations.

If assuming all these leases is not palatable, a buyer should confirm whether the leases can be terminated without penalty.

Additionally, license applicants might have entered into agreements with employees that include base salary, vested stock and bonuses.

Potential buyers need to know about these obligations as well as their rights to terminate such contracts.

Marijuana application representations

MMTCs are required to operate consistently with the representations made in their application; if an MMTC wants to make changes inconsistent with its application, it must file a variance with the Office of Medical Marijuana Use.

Since the April 2023 licensing round was highly competitive, the 22 winners most likely made some very aggressive representations in their applications.

It is important that a buyer understands the full scope of the representations made in the application and has a clear plan for any representations that require it to file a variance.

Ownership restrictions on buying entity

Florida has ownership restrictions for MMTC licenses.

For example, if an individual owns more than 5% of an MMTC license, then that person cannot have any ownership in another MMTC license.

Additionally, anyone who owns more than 5% of a business must be able to pass a Level 2 background check.

So, a buyer should perform diligence on the owners of the Buying Entity to ensure:

  1. Any owner with more than 5% ownership of the buying entity does not have ownership in another MMTC.
  2. Any owner with more than 5% ownership of the buying entity can pass a Level 2 background check.
  3. Any owner with less than 5% ownership in the buying entity does not own more than 5% of another MMTC.

Trusting sellers to cooperate in transition

Transferring ownership of an MMTC license is not simple.

It requires precise coordination among the buyer, seller, attorneys and other professionals working on the transaction.

Buyers should create a clear plan for ensuring a smooth transition and conduct diligence on the sellers to ensure they can trust the seller to cooperate.

If a seller has been dodgy negotiating the sale of an MMTC license, a buyer should strongly consider whether the seller can be trusted to help with the transition.

Dustin Robinson, CPA, is the founding partner of Mr. Cannabis Law, a full-service law firm focused on providing support for those navigating the marijuana business license application process. He can be reached at drobinson@mrcannabislaw.com.

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