What Does “Control” Mean in NY Cannabis?

OCM does not only look at who owns shares.
They look at who has the ability to influence or direct operations.

Control can include:

• Voting rights over major business decisions
• Authority to hire or fire management
• Approval rights over budgets or expansion
• Veto rights in operating agreements
• Control of bank accounts
• Power through management contracts

If an investor can meaningfully steer the business, OCM may consider them a True Party of Interest (TPI).

Ownership vs Governance

These are not the same.

Ownership

Owning equity or shares in the business.

Governance

Having decision-making power over how the business operates.

An investor may:

• Own 20% but have no voting rights (low governance power), or
• Own 5% but hold veto rights over expansion, debt, or hiring (high governance power).

OCM focuses heavily on governance.

Can an Investor Be “Passive”?

Yes—but only if they truly are.

A passive investor typically:

• Has no operational role
• Has no veto rights
• Does not control contracts
• Does not control daily management
• Does not influence compliance decisions

If those conditions change, they may no longer be passive.

The Risk of Management Agreements

This is where operators get into trouble.

Some investors structure control through:

• Management services agreements
• Brand licensing agreements
• IP control agreements
• Consulting contracts tied to revenue

If those agreements give the investor operational control, OCM may treat them as controlling parties—even if they don’t technically “own” the business.

Labels do not protect you. Substance does.

What OCM Is Trying to Prevent

New York cannabis law was designed to avoid hidden control structures where:

• A license holder is only nominally in charge
• Outside investors actually run the business
• Undisclosed parties influence operations

If OCM determines that control exists without disclosure or approval, it may treat that as an unauthorized ownership change.

When Is OCM Approval Required?

OCM approval is typically required when:

• Ownership percentages change
• Governance rights change
• New investors gain control or influence
• Management agreements shift operational authority
• Decision-making authority is reassigned

If you restructure your cap table or governance without filing amendments, you risk regulatory action.

What Happens If Investors Control Without Disclosure?

Possible consequences include:

• Investigation
• License suspension
• License revocation
• Denial of renewal
• Civil penalties

OCM reviews not just initial applications—but ongoing compliance.

Control structures are not a “set it and forget it” issue.

Real-World Scenario

Investor provides $750,000.

In exchange:

• Receives 15% equity
• Holds veto rights over expansion
• Approves all new vendor contracts
• Controls brand licensing

That investor likely has governance power requiring disclosure and approval.

Even if the operating agreement says the founder is “CEO.”

Who Really Runs the Dispensary?

In New York:

The license holder must maintain real control.

If OCM believes someone else is running the business behind the scenes, that creates regulatory risk.

Capital is allowed. Hidden control is not.

Before You Sign With an Investor

Review:

1. Your operating agreement
2. Voting thresholds
3. Veto provisions
4. Management services agreements
5. Brand/IP licensing agreements
6. Banking authority
7. Compliance authority

Ask one question:

If OCM reviewed this structure, would they say the investor controls the business?

If the answer is unclear, fix it before filing.

Frequently Asked Questions

Can an investor sit on the board?

Yes, but board authority may trigger governance control and require disclosure.

Can an investor approve budgets?

Possibly. but approval rights are a form of governance and may require regulatory review.

Can an investor be paid revenue share?

Yes, but revenue participation can increase scrutiny depending on structure.

Can I structure around disclosure?

Attempting to disguise control through side agreements, consulting contracts, or licensing arrangements increases regulatory risk.

Related Pages

• Who Must Be Disclosed to OCM?
• What Is a True Party of Interest (TPI) in NY Cannabis?
• What Counts as Ownership in a NY Cannabis Business?

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