State downplays concerns over putting brakes on incorporations of cannabis companies


The law firm of Dorsey and Whitney is warning that the Delaware Secretary of State’s office is casting a wary eye on cannabis companies seeking to incorporate.

The Minneapolis law firm has an office in Wilmington.

A blog entry from the law firm, which has a cannabis practice, reported it received a verbal heads-up from Division of Corporations over “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.”

“The Division of Corporations has always conducted internal review of new entity names that may raise concerns regarding illegal activity. Our review policies were recently codified in new regulations, and we have been fielding a variety of questions and feedback from the business services community,” said Department of State spokesman Douglas Dennison.

“The Division is not rejecting new entity names simply because they contain the word ‘cannabis.’ The naming regulations will have no impact on existing entities. The regulations took effect Oct. 1 and were published in final form in the Delaware Register of Regulations,” Dennison concluded.

In Delaware medical marijuana is legal, but efforts to legalize recreational use have gone nowhere.

The Division of Corporations, which has long been criticized for having lax incorporation rules that require minimal disclosure, has been taking a closer look at entities. It petitioned to cancel incorporations of LLC that have been tied to criminal cases that include drug and human trafficking.

More recently, the state recently got into a dispute with a Colorado company known as Illegal Pete’s over its name and the immigration issue. The small restaurant-bar chain that had the name before the firestorm over illegal immigation later prevailed.

Incorporation fees are a major source of revenue for Delaware, which is still considered a friendly spot for businesses, due in part to Chancery Court that handles corporate disputes.

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