In recent posts, we discussed lessons learned from recent compliance cases in the cannabis industry, and provided a checklist of key due diligence issues. In both articles, we highlighted the importance of independent verification of state cannabis licenses. Unfortunately, it is not always easy to get official information from state cannabis regulators.
Information about cannabis licenses is not always public. This is the case in Arizona, where state law prohibits the release of the names of medical cannabis licensees. In other jurisdictions, license information is usually available, but the presentation of the information ranges from user-friendly databases (California and Colorado) to a series of not-so-user-friendly Excel sheets (Nevada and Oregon). Finally, some state cannabis industries are regulated by more than one agency, which means that verifying licenses may require checking with multiple issuers. For example, California has three different license-issuing regulators.
How do states rank on transparency?
Galen Diligence has compiled a research guide to accessing official data about cannabis licenses. Based on this work, we have also assembled a Transparency Ranking that compares states based on the level of public access to information about licenses.
Our Transparency Ranking rates 23 jurisdictions across three categories:
- Licenses: Does the regulator publicize the names of licensees? Is it possible to confirm that a license is in good standing?
- Enforcement actions: Does the regulator release information about enforcement actions or compliance issues involving licensed businesses?
- Application data: Does the regulator release information about pending applications? Is information about applicant scores or submitted application files available?
As the Transparency Ranking shows, only four states release enough information to make it relatively straightforward to conduct critical due diligence checks: Maryland, Massachusetts, Michigan, and Washington.
Key problem: Enforcement data
The biggest information gap across the United States is access to information about enforcement actions, which is obviously relevant to assessing the risks presented by a business partner.
In communications with regulators, we have occasionally been told that enforcement information may be obtained through a formal public records request. However, the information requested may not be complete and may not be provided in a timely manner. In Ohio, for example, we were advised that enforcement information may be released, but the licensee would be notified of the request and given the opportunity to dispute its release before we received it. In fact, an attempt by the Cincinnati Enquirer to access enforcement information over the summer led a cannabis company there to file a motion in court to prevent its release.
Because of frequent changes in state regimes governing the release of information, we update the Transparency Ranking on a quarterly basis. For example:
- Nevada first released public information regarding licensees in May 2019, and went further than many states by including information not only about licensed businesses, but also about owners, officers, and directors, and additional licenses associated with those individuals.
- Michigan began releasing information about license denials and suspensions in August 2019. For example, according to Michigan’s (now publicly available) records, one applicant was denied for “implausible business arrangements.” Another was rejected for being unable to account for two large deposits in its bank accounts. The Disciplinary Action Report summarizing all actions taken by the regulator between April and August 2019 can be accessed here.
- Maryland removed application scoring data from 2015 from its website in mid-2019, but that information can still be obtained by emailing the regulator.
A final note of caution
Even information provided by state regulators must be reviewed with a critical eye. For example, the California Bureau of Cannabis Control has a robust license database that includes a category called “Business Owner.” However, this category only lists a single individual, which is inadequate since most cannabis companies are owned by more than one person. When we asked the Bureau how they decide who is listed in this category, they told us that it is “the owner who submitted the original license application to the Bureau.” Such an approach will rarely present a complete picture of the company’s ownership (especially when many multi-state operators are also publicly trading in Canada).