Delaware may be known for being “business friendly”, but Delaware can be a buzzkill when it comes to blatant “marijuana” business names. The Delaware Secretary of State rejects certain names it administratively determines are not engaged in a “lawful business, purpose or activity.” Delaware does not mind if you want to export entity products, but do not put a marijuana label on it.
Colorado has a “fire sale” going on now, only charging $1.00 for a new business filing. Nevertheless, a number of Colorado dispensaries are being organized as Delaware LLCs for the same reasons that other business owners choose Delaware. Delaware is not the cheapest, but it is the best. Although Delaware does not fully legalize marijuana, it does not outlaw the formation of those businesses because their “external” activities are governed under Colorado law. The “internal” activities of the business are governed by the state of formation. However, Delaware will draw the line when it comes to the name of the business.
Recently at the registered agent quarterly meeting, the Secretary of State announced to Delaware Incorporation Agents it does not allow the word “marijuana” in the name of businesses formed in the state. Delaware informed the agent community that the word “marijuana” would only be acceptable with the word “medicinal” next to it. Their rationale was that although it may be legal in Colorado for recreational use, in Delaware and many other states it is legal only for medicinal use with a prescription. In reaction, the attendees asked if slang like “ganja” or “Mary Jane” were also banned, to which Delaware reserved judgment, but did not say they were banned outright. At this time, the synonyms do not appear to be banned.
Under Federal law, marijuana use and possession is criminal. At the state level, 26 states and the District of Columbia have a degree of legalized or decriminalized marijuana usage and possession. The federal government categorizes it as a Schedule I drug, defining it as highly addictive and with no current medicinal applications. This is one of the most watched conflict of law issues in the U.S. legal system at the moment.
Other than the effects of state law on the naming of a business entity, differences in state law between Delaware and the state in which the entity is doing business generally do not cause the State of Delaware to reject a formation. Many business savvy dispensaries set up their business in Colorado but do not want to incorporate in Colorado despite cost savings. Instead, the state most people think of as less-fun-than-your-mom’s-basement, Delaware, may be the new destination for those looking for the ultimate blend in good quality LLC law.