Maine’s Adult Use Regulations Limit Industry’s Access to Capital

Maine’s Office of Marijuana Policy released its provisionally adopted rules last Friday. The rules are relatively modest as they include only 78 pages of regulatory requirements. However, the benefits of a friendly regulatory environment may not overcome the onerous in-state licensing and ownership limitations.

Maine’s adult-use regulations are structured to award licenses to local residents. Applicants must be either a natural person who is a local resident; or a business entity whose officers, directors, general partners and majority of shareholders are natural persons and Maine residents.

These restrictions limit the ability of Maine residents to access the capital needed to grow the industry in a manner that benefits the state and local license holders. Applicants may find it difficult to raise sufficient capital to fund the long road required in starting a cannabis business. A lack of capital may also reduce initial revenues and tax dollars generated in the state.

The regulations also require cannabis businesses to disclose any “party of control”, which refers to a person or group of persons who exert more than a minimum influence over the businesses operations. Cannabis businesses must transfer its license when the party of control changes. By defining a party of control, Maine can stop entities from using a side door contract to entering the market without transferring the license.

Maine requires cannabis businesses to disclose contracts for IP, branding or loans that may include provisions that exert control over a business in exchange for money. The lack of objective standards around determining when a person becomes a “party of control” increases the risk that Maine’s regulator may determine that these contracts constitute a transfer to a party of control or may prohibit contractual provisions that dictate the quality of products and services. Entities entering into such agreements should seek guidance from the regulator so it avoids triggering such an event.

Maine’s regulations may guarantee the continued slow roll out of the adult-use cannabis industry as applicants’ will need to raise funds from local friends and neighbors. Hopefully Maine will reconsider this approach and allow the cannabis industry to grow in a responsible manner. The industry is facing multiple challenges, and additional capital roadblocks should be removed.

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