How to Prepare for Cannabis Business Ownership Disputes in Colorado

By Justin Johnson

Jun 19, 2020

Many licensed Colorado marijuana businesses unfortunately experience disputes among their owners. Reasons vary, but almost all of them trigger regulatory issues that must be navigated. It remains critical that local and state regulations are followed throughout the ownership dispute process.

The Marijuana Enforcement Division (MED) addresses dispute circumstances in the MED Rules for private companies: Rule 2-245(F), certain business disputes require a business to submit a change of owner application or otherwise initiate mediation, arbitration, or a judicial proceeding within 90 days of the dispute. If a settlement cannot be reached, the litigation will proceed. It’s imperative to have experienced litigation and regulatory counsel at the outset of the process so that the mediator, arbitrator, or judge fully understands the regulatory impacts of his or her order.

Another popular method to help resolve ownership disputes is placing the company into receivership or utilizing a court appointee until the dispute is resolved. Receiverships also act as an alternative to bankruptcy since bankruptcy is not typically an option available for licensed marijuana businesses.

For all cannabis business ownership disputes in Colorado, remember these important regulatory issues:

  1. All owners must keep their ownership badges renewed and updated until local and state approval of any change.

  2. Be sure to comply with all renewal application requirements.

  3. Owners exiting the industry must surrender their ownership badge.

  4. Application requirements vary depending on how ownership percentages change after an ownership dispute.

  5. The arbitrator or judge should be advised on the regulatory aspects so that his or her order can be drafted in a manner that is palatable to the MED and complies with regulatory requirements.

Disputes happen, and the decisions that businesses make early on can have a serious impact on the dispute’s outcome. Please contact Vicente Sederberg for assistance in preparing for disputes and avoiding litigation.

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