We recently wrote that we are working on a substantial number of merger and acquisition deals regarding Oregon marijuana businesses. One question that comes up in these deals, without exception, is how the Oregon Liquor Control Commission (OLCC) license acquisition process works for the incoming party. This is because licensing is a fundamental sale consideration: no economic activity will be allowed for the new ownership group until it receives state approval. Fortunately, when it comes to changes in ownership, OLCC works hard to expedite license turn-over.
A very common misconception among Oregon buyers and sellers is that a party can buy, sell or transfer an existing pot license. This is not allowed. Instead, as we explained last February on this blog, whenever 51% or more of a business is bought or sold—whether through an asset purchase agreement or stock sale—OLCC requires the new ownership group to apply for, and obtain, a new license. The good news here is that the purchaser need not start from scratch: when representing buyers, we typically reach out to OLCC’s lead licensing technician and let her know that a new application has been submitted. She will pull the application out of the queue, and pass it along to one of two OLCC “change-in-ownership” technicians. In our experience, these individuals usually take about two weeks to review the application materials, and another week or so to schedule an inspection.
Assuming there are no issues with background checks or acquiring a replacement Land Use Compatibility Statement, OLCC will issue the new license and the buyer can begin to take on seller’s inventory. Typically, both the buyer’s and seller’s license are active for a day or two during the inventory transfer period. At this time, buyer presents an OLCC letter to METRC, and the parties put together a manifest to move everything over. After the inventory is fully transferred to buyer, the seller’s license is cancelled.
You may be wondering: “where can I find any of this information on the OLCC website?” The answer is, “you can’t.” OLCC has undertaken quite a few changes to its licensing process in the past year (mostly, for the better), and not all information applicable to licensing is available online, or even stated in the administrative rules. Instead, the parties and their lawyers need to work closely with OLCC to facilitate the licensing process, and both buyer and seller should try to keep abreast of any changes in protocol.
Finally, because the change-in-ownership licensing process takes three weeks or more, it is critical for the parties in any sale transaction to get the estimated closing timeline correct when drawing up paperwork. If the relevant sale agreements provide for a transaction closing date prior to when a license may realistically issue, at least one party will likely run the risk of default. For this reason, almost any well written sale agreement will be contingent upon the grant of a new OLCC license for buyer, and will not allow for the balance of the purchase price to transfer until the license issues.
For more on the purchase and sale of Oregon cannabis businesses, check out the following:
