Delaware Takes Action Against Formation of Cannabis Companies


Cannabis companies should be aware of a new development with the Delaware Secretary of State. Last week, we were verbally advised by the Secretary of State’s office that Delaware is now reviewing the names of entities being formed. If Delaware believes the entity might be cannabis-related, they will hold up the filing and ask the nature/purpose of the business. If they believe, based on the answer, that the purpose of the business is cannabis-related, they may exercise their discretion to refuse to accept the filing and refuse to allow the entity to be formed. Presumably, this exercise of discretion would be made pursuant to Section 101(b) of the Delaware General Corporation Law, which states that “[a] corporation may be incorporated or organized under this chapter to conduct or promote any lawful business or purposes . . . .” It is not yet clear whether Delaware may take any actions with respect to already-existing entities.

This new development is another reason to consider forming any entity that intends to operate under a state-level cannabis regulatory regime in the state, or one of the states, in which the regulated business will be undertaken.

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