Overview
Cannabis Businesses sometimes contract with third parties (e.g., through MSAs) to outsource specific functions such as licensing, branding, operations, and staffing. While these agreements can help Cannabis Business operate, they may not result in ownership or control structures that circumvent the City’s social equity laws and regulations.
Under Article 16 of the San Francisco Police Code, the Office of Cannabis (OOC) regulates all commercial cannabis activity in the City and County of San Francisco. Cannabis Business Permits are non-transferable, and any changes in ownership, management, or control must be disclosed and reviewed, with some requiring permit amendments. Businesses entering into MSAs must disclose these arrangements and demonstrate compliance with Article 16.
Considerations
Right to Proportionate Ownership Interests
OOC’s Equity Program offers priority permit processing when an Equity Applicant has a sufficient level of “ownership interest” in the business seeking the permit. For purposes of this program, an “ownership interest” means that the Equity Applicant has the right, proportionate to the interest held, to:
- Share in the business’s profits, including dividends, distributions, or other payments
- Share in the proceeds of a sale of the business’s assets, liquidation of the business, merger of the business into another business, or any other transaction that would signify the end of the original business
- Vote on fundamental decisions relating to the business
When reviewing MSAs, the OOC shall, at minimum, look for the following information:
- Whether Permittee receives all revenue from its permitted activity
- Whether Permittee has sole responsibility for all taxes related to its permitted activity
- Whether Permittee carries relevant insurance
- Whether Permittee participates in employment and operation decisions
- Whether the VEA as CEO participates in employment and operations decisions
- Whether all ownership and financial interests have been disclosed to the OOC
Explicitly Prohibited Arrangements
Arrangements that grant a third party:
- Sole authority over hiring, terminating, or supervising staff.
- Exclusive responsibility for financial management or accounting.
- Exclusive control over compliance functions or regulatory relationships.
- Sole authority to bind the business in material contracts.
Independent Legal Counsel for Equity Owners
Parties are encouraged to secure private legal counsel to ensure compliance with these rules. The OOC’s website will include relevant guidance, as well as information about free or reduced-fee legal and technical assistance for Equity Applicants. Equity Applicants are also encouraged to contact their local Bar Association’s Lawyer Referral Service regarding alternative options, including reduced fee services.