The text of State Question 788 (788) said nothing about the legality of transferring a medical marijuana business license. Likewise, the Oklahoma Medical Marijuana and Patient Protection Act (OMMPPA), enacted in 2019 after 788's passage the year before, neither authorized nor prohibited the transfer of a business license issued by the Oklahoma Medical Marijuana Authority (OMMA). Nevertheless, beginning in 2018, OMMA regulations contained a provision, 310:681-5-1-2(g)(f)(1), that said, "Business licenses may not be assigned or otherwise transferred from one person to another person, from one medical marijuana business to another, or from one legal entity to another."

This prohibition quickly struck against the reality of free-market economics, and medical marijuana businesspeople began asking Oklahoma cannabis attorneys almost immediately for ways around this rather expansive rule (which, near as could be seen, did not originate from a clear legislative mandate). One workaround received tacit approval by OMMA, whereby the seller would retain a minimum of 1% interest in the company and transfer the remaining 99% interest to the buyer.

Before this practice even got a chance to run into the inevitable compliance problems it would have faced with the Oklahoma Bureau of Narcotics and Dangerous Drugs Control (OBN), the Legislature enacted SB 1033 in 2021, establishing detailed procedures for both intra-entity ownership changes and inter-entity transfers of medical marijuana business licenses. In response, OMMA removed 310:681-5-1-2(g)(f)(1) from its governing regulations. As a result, medical marijuana businesses could now be bought and sold like any other commercial enterprise, except this exact kind of transaction, specifically legalized by the Legislature and approved by OMMA itself, was only narrowly legal under a specific exception to the OBN statutes and was aggravated trafficking of a controlled dangerous substance (technically) in every other nonexempt circumstance.

This was the problem faced by OMMA, the OBN, medical marijuana businesspeople and Oklahoma cannabis attorneys in the years between SB 1033's enactment in 2021 and the passage of SB 1939 in 2024. SB 1939 provided a new procedure, enacted at 63 O.S. §427.14(c) (the transfer statute), for changing ownership of a medical marijuana business license or transferring the license from one company to another. Critically, the transfer statute allows the business to remain operational during the transfer.

This transfer statute[1] represents a significant improvement in our state's medical marijuana regulatory framework. This article will provide a detailed breakdown of the transfer statute to assist practitioners in guiding their clients through what would otherwise be a murky and perilous gray area in the law.

THE TRANSFER STATUTE

The Transfer Procedure: Basics

The transfer statute outlines a straightforward procedure for transferring ownership of a medical marijuana business, and the bulk of this procedure is outlined in Subsection B of the transfer statute.

First, the licensee "intending to transfer ownership of a medical marijuana business shall submit [a transfer application] to [OMMA]."[2] Upon OMMA approval of the transfer application, the new ownership must then submit an application for registration with the OBN.[3] Once the OBN approves the new application and issues registration to the new ownership, three things then happen in the next 15 days: the original OMMA license of the seller will terminate, the original OBN registration of the seller will terminate, and the seller's inventory of medical marijuana materials must be transferred from the prior ownership to the new ownership within the OMMA seed-to-sale inventory tracking system (Metrc).

The Transfer Agreement: A Seller's Perspective

A client walks into your office tomorrow and tells you: "I've had a grow since 2019, and I've got a guy who wants to buy it. I’ve never made any money doing this, and I'm sick of the whole business. I simply want to walk away and be done with it. He says he'll pay me $50,000 for the whole thing, but he wants to get into the grow and take it over tomorrow. He'll take care of the renewals and licensing and everything. Can you put together a contract that says all that?"

You have just been asked to put together what OMMA calls a "transfer agreement." While transfer agreements can say any number of things – and there are as many different possible iterations of a transfer agreement as with any kind of commercial contract – every transfer agreement must comply with the transfer statute,[4] and therefore, every transfer agreement must contain certain provisions. So while you can tell your client who wants to sell his grow, "This is possible," you will also have to tell him that certain things he wants in the transfer agreement are not.

First, the seller cannot simply "walk away and be done with it." The transfer statute says, "Nothing [in the transfer statute] shall authorize any new owner to take possession of medical marijuana, medical marijuana concentrate, or medical marijuana product or exercise control over any activities involving the medical marijuana business unless and until the application has been approved by the Authority and the new ownership is registered with [the OBN]."[5]

Moreover, while the transfer statute specifically authorizes the buyer to "get into the grow," they may only do so as an employee of the current owner (and an employee credentialed by OMMA, as all agents or employees of a medical marijuana business must be, under 63 O.S. §427.14b).[6] In other words, while the buyer can "get into the grow," the buyer cannot "take it over" yet. The current owner must remain in charge until the transfer is complete. This approach aligns with the governing OBN statutes, which normally only authorize registrants themselves to possess controlled dangerous substances (CDS) of any kind (including medical marijuana) but provide that agents or employees of an OBN registrant do not, themselves, have to be registered to possess CDS.[7]

Along the same lines, while the buyer and seller may include a provision in the transfer agreement for the seller to "take care of the renewals and licensing," your marijuana business seller should be very careful here. The transfer statute provides that the "existing licensee and registrant shall be required to submit timely and sufficient renewal applications for the business to continue to operate during the pendency of any business transfer."[8]

This is no minor obligation. To grow, process, transport, dispense or even possess medical marijuana legally, the company must have both an active OMMA license and an active OBN registration. These licenses have one-year terms, and under the Oklahoma Administrative Procedures Act, the businesses may only continue to operate past their one-year expiration if they have "made timely and sufficient application for renewal of a license."[9] Changes in the law taking effect in 2025 make this burden even heavier, since 63 O.S. §427.14 (N) now classifies a "timely" renewal submission for an OMMA business license as one submitted at least 60 days prior to its expiration. Likewise, under 63 O.S. §2-303 (F), OBN renewals must now be filed by Sept. 1, a change from the previous Oct. 31 deadline. In other words, while your hypothetical seller's hypothetical buyer might be willing to undertake all these obligations, the transfer statute leaves those burdens with the existing licensee, and any attempt to have the buyer take over these responsibilities completely leaves both sides in a risky position.

In short, what may seem to your client like a simple transaction is anything but, and both of you will need to carefully consult the medical marijuana statutes,[10] the OBN registration statutes[11] and both the OMMA[12] and OBN[13] regulations before moving forward.

The Transfer Agreement: A Buyer's Perspective

A client walks into your office tomorrow and says: "I've met a guy who's been running a dispensary since 2020. It's a headache, but he says he's made good money doing it. He's ready to sell out, though, and says I can take it over right away for $50,000. I've just got to take care of the renewals and licensing and the transfer. Can you help me do this?"

Even though we are now talking about a dispensary and not a grow, the same principles apply: Your prospective client can begin working in the dispensary (if credentialed), but they cannot take it over right away. While the buyer and seller may work out an arrangement regarding responsibility for licensing and registration, it must be carefully managed and compliant with the law. In addition, your client, as the buyer, will face special considerations the seller will not.

First, and most importantly, your client needs to conduct due diligence to determine whether they should buy this business in the first place. Beyond traditional due diligence inquiries into the company's financials and liabilities, the unique legal status of medical marijuana raises a host of additional concerns.

One step your client can take is to search the OBN's public registrant database[14] for both the name of the company that holds the dispensary license and the name of the owner. When the dispensary's corporate name is searched, an active OBN registration should appear. The database also shows whether the OBN has filed any disciplinary actions against the company, and if the agency has, the administrative filings will also be available. This is an invaluable resource and by far the best public database of administrative actions involving medical marijuana businesses in the state.

The database also allows users to download a CSV file for any OBN registrant (look for the "Download (.csv)” tab on the search results page). This CSV file will show the owners currently listed on the OBN’s records for that registration. Your client must ensure the person attempting to sell the business is, in fact, the person listed as the owner. If not, they definitely need to inquire further before proceeding. There may have been a prior attempted transfer the regulatory agencies were unable to process, but regardless, this problem must be addressed before your client moves forward.

In addition, you may consider filing a request under the Open Records Act with OMMA for any disciplinary actions taken against the dispensary or any medical marijuana business owned by the dispensary's owner. Title 63 O.S. §427.14 (H)(8) says that a medical marijuana business license "shall not be issued to or held by ... [a] person who was involved in the management or operations of any medical marijuana business ... that, after the initiation of a disciplinary action, has had a medical marijuana license revoked, not renewed, or surrendered" for a period of five years if the violations involved certain "bad acts," like unlawful sales or purchases, making false statements to OMMA, harming or threatening to harm OMMA employees, refusing to permit OMMA access to licensed premises, using prohibited, hazardous substances for processing in a residential area or criminal acts relating to the operation of a medical marijuana business.

In other words, OMMA could already be taking enforcement action against the dispensary license your client hopes to buy, and not even because of any violation involving the dispensary itself, but because of entirely separate violations at a separate business owned or simply just managed by the seller.

Beyond these due diligence concerns, your client will also be responsible for ensuring that two applications are filed: the transfer application with OMMA and the new medical marijuana registration application with the OBN.

To file a transfer application, your client must first obtain a "transfer code" from the seller, and the OMMA system will not provide this transfer code until the transfer agreement has been submitted. Once issued, the code is only valid for a 47-hour period. This means the terms of the transaction between the buyer and seller must be finalized and memorialized in a transfer agreement before the transfer process begins, and once this process is started, your client must be ready to submit all the materials needed for the transfer application immediately. These materials are numerous and not simple to put together. Again, carefully consult OMMA regulations.

Only after OMMA approves the transfer and places the license in the buyer’s name can your client file an application for a new registration with the OBN. OMMA growers and processors must register as "medical marijuana manufacturers," while dispensaries must register as "medical marijuana distributors." The OBN registration application requirements are entirely separate from OMMA's, and the OBN is particularly concerned with security requirements due to the agency's core mission to prevent the illegal diversion of CDS into the black market. Your client should thoroughly review OBN regulations, especially the security requirements for both manufacturers[15] and distributors,[16] and ensure the facility meets those requirements prior to filing their registration application.

Upon approval of your client's OBN registration, three obligations will arise. First, your client will have to provide OMMA with a detailed inventory of all medical marijuana materials in the facility.[17] Second, the entire inventory in the seller's Metrc account will have to be transferred to the buyer's Metrc account, and this must be done within 15 days of the new OBN registration's approval.[18] Finally, the OBN’s rules provide a special notice procedure when one OBN registrant (here, the seller) desires to discontinue its business activities "by transferring such business activities to another person."[19]

The OBN notice procedure requires the seller-transferor to provide the OBN with the following information at least 14 days before custody of the medical marijuana inventory goes to the buyer-transferee: the name, address, registration number and business activity of the seller-transferor[20] and the same for the buyer-transferee.[21] Other required information includes whether the location is moving and, if so, the new address,[22] whether a quota requirement (which would never apply to a medical marijuana business) applies[23] and the date of the proposed transfer.[24] Even though this is an obligation on the seller, your buyer-client will need to make sure this takes place.

Unless the registrant-transferor learns from the OBN prior to the proposed transfer date that the transfer may not occur, the seller can distribute the medical marijuana inventory to the buyer, with two additional recordkeeping requirements imposed on the seller. First, the seller must generate a final pretransfer inventory pursuant to both OMMA and OBN regulations and file a copy with the OBN.[25] Second, the seller must provide the buyer with all records the seller was required to maintain for the transferred inventory.[26]

Note there may be two ways to read this second requirement: one broad (i.e., the seller must provide the buyer with all required records going back to the start of the business) and one narrow (i.e., the seller only needs to provide the records related to the inventory itself). For example, if no item in a dispensary's inventory came into its possession earlier than June 1, 2024, does the dispensary's buyer need records earlier than that date? As a buyer's attorney, I would always urge the broader reading to ensure my client is not at risk of failing to possess records it should arguably possess, especially since the regulation says, "Responsibility for the accuracy of records prior to the date of transfer remains with the transferor, but responsibility for custody and maintenance shall be upon the transferee."[27]

As a seller's attorney, however, I would ask why my client would not simply want to provide the entire set of records. Perhaps there are proprietary business reasons, or perhaps there are concerns about potential undiscovered violations. Regardless, these are the kinds of conversations any lawyer representing a cannabis business must be prepared to ask. And when the buyer receives the inventory and records, all future recordkeeping obligations (both for pre- and post-transfer activity) lie with the new business.

CONCLUSION

In a memorandum issued to OBN Director Donnie Anderson on Oct. 16, 2023, OBN Assistant General Counsel James Hutchison provided a clear and comprehensive answer to the question, "Is a medical marijuana business license and/or registration transfer authorized by the Uniform Controlled Dangerous Substances Act and what impact does this have on controlled dangerous substances?"[28]

Mr. Hutchison's short answer was "No," and toward the end of his memorandum, he noted, "This is an issue that should be addressed at the next legislative session."[29] In that next legislative session, OMMA, the OBN and Attorney General Gentner Drummond worked together with representatives of the cannabis industry, led by Ryan Kiesel, to enact the transfer statute. This kind of interagency collaboration with both the Legislature and the regulated community is a simple story of good governance in action. We hope it is also remembered as one small piece of the extraordinary legacy Mr. Kiesel left behind.

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ABOUT THE AUTHORS

Brian Ted Jones is president of Brian Ted Jones PC, a cannabis law firm based in midtown Oklahoma City. He is a Choctaw citizen and a graduate of both St. John's College and the OU College of Law.

 

 

 

 

Max Federman is an associate attorney at Brian Ted Jones PC. He is a graduate of Heritage Hall in Oklahoma City, the Wharton School at the University of Pennsylvania and the OU College of Law.

 

 

 

 

 

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ENDNOTES

[1] This reform would not have happened without the efforts of the late Ryan Kiesel, and nobody worked harder than he did to see this common-sense policy enacted into the Oklahoma Statutes. Mr. Kiesel was a proud member of the OBA who left us this year at much too young an age. We would like to dedicate this article to him.

[2] 63 O.S. §427.14c (B).

[3] Id.

[4] See 63 O.S. §427.14c (A): "After the effective date of this act, no medical marijuana business shall be transferred without written approval of an application by [OMMA.]" See also 63 O.S. §427.14c (G): “Any attempt to transfer a medical marijuana business, medical marijuana, medical marijuana concentrate, or medical marijuana products of a medical marijuana business without approval from the Authority shall be grounds for revocation or nonrenewal of the license and denial, revocation, or nonrenewal of current or future licenses or license applications with ownership held by any such person involved in the unlawful transfer.”

[5] 63 O.S. §427.14c (D).

[6] 63 O.S. §427.14c (E).

[7] 63 O.S. §2-302 (H)(1).

[8] 63 O.S. §427.14c (C).

[9] 75 O.S. §314 (B).

[10] 788 (at 63 O.S. §420 et seq) and the Oklahoma Medical Marijuana and Patient Protection Act (at 63 O.S. §427.1 et seq.).

[11] 63 O.S. §§2-301-2-309.

[12] OAC Title 442.

[13] OAC Title 475.

[14] Available at https://bit.ly/4jy7B56.

[15] OAC 475:20-1-4(b).

[16] OAC 475:20-1-3(b).

[17] 63 O.S. §427.14c (F).

[18] 63 O.S. §427.14c (B).

[19] OAC 475:35-1-3(b).

[20] OAC 475:35-1-3(b)(1).

[21] OAC 475:35-1-3(b)(2).

[22] OAC 475:35-1-3(b)(3).

[23] OAC 475:35-1-3(b)(4).

[24] OAC 475:35-1-3(b)(5).

[25] OAC 475:35-1-3(c)(1).

[26] OAC 475:35-1-3(c)(2).

[27] Id.

[28] This memorandum is available online at https://bit.ly/43TGRaK.

[29] Id. at p. 10.