If You Believe the Proposed Rules, Regulators Want to Know EVERYTHING About YouOr: A Few Words on Disclosure Requirements

For those who are still scouring the proposed adult use rules, take a look at  the sheer volume of information required to be disclosed to the Department of Administrative and Financial Services (DAFS) by anyone seeking a license, and the Department’s claim to unlimited power to keep digging and digging and digging until “satisfied.”

Section 2.4 seems to be designed to require the disclosure of every contract and relationship and, the Department may argue, could even require you to disclose not only your contractors, but your contractors’ contractors. Remember the broad definition of “party of control” (discussed here), and add to that similarly broad definitions of “true party of interest” and “other interested parties.” An applicant must not only disclose all three categories of “parties” (which could be read to encompass everyone remotely involved with or interested in the business), but must provide “all requested information concerning financial and management associations and interests of other persons, parties of control, other interested parties or true parties of interest in the marijuana establishment” (Rule 2.4.2(B)(2)). 

These regulations take us at least two layers deep, but if the Department wants to keep digging even further, it can. Rule 2.5.1 allows the Department to “require additional information to verify that business structures, loans, franchise agreements, and other legal arrangements or anything else regarding true parties of interest, parties of control or other interested parties are not being used to circumvent ownership requirements.”

If these exacting disclosure requirements, combined with broad powers of investigation, remain in the final rules, this will cause headaches on both sides of the process. Applicants will need to be comfortable providing all sorts of sensitive information to regulators, but will also need to be sure their investors, contractors, etc., are comfortable also providing this information to regulators. This is probably something that businesses will want to address, if possible, at the time they enter into their business arrangements to make sure these issues don’t arise in the thick of the application process.

I expect that regulators, too, will find these regulations a bit too much when put into practice. They will need to sift through vast troves of contractual arrangements and other partnerships, many of which will require a particular expertise to decipher. Applicants who want to air on the side of compliance will be almost required to dump their entire filing cabinet on the Office of Marijuana Policy (OMP) just by virtue of the vague nature of the regulations. We’ll see if this language stays in the final rules, and we’ll see if it is relaxed over time through the practice of the Department.