Raising Money With a Buyer at the Door: A Canadian Cannabis Fight With Lessons for California Operators

When a cannabis company raises money in the middle of sale talks, the new shares can keep the lights on or change the deal out from under the buyer. That is the fight Curaleaf and Aurora just took to a Canadian securities regulator. California operators face a variation on this choice under their own rules on member consent, fiduciary duties, securities filings, and cannabis ownership reporting.

On October 27, Cultivated reported that the Alberta Securities Commission had refused to stop Aurora Cannabis from selling shares through its at-the-market program during Curaleaf’s hostile bid. Curaleaf argued that Aurora had issued about 2.81 million shares below Curaleaf’s original US$4.00 offer, diluting holders by roughly 4.9% (Curaleaf’s application). Canada’s National Policy 62-202 does flag large share issuances during a bid for scrutiny. But Aurora announced the program in February, more than six months before the bid (StratCann), and Curaleaf says Aurora stopped using it on August 18 (Curaleaf’s response).

While few California operators will face a tender offer, the outlines of this tension are not unfamiliar in cannabis: a company needs cash, a buyer is circling, and every new unit or note changes both the deal’s price and what regulators must be told.

Where California law draws the lines

For an LLC, the starting rule is protective. After formation, a person becomes a member as the operating agreement provides or “with the consent of all the members” (Corp. Code § 17704.01(c)). Many operating agreements give the manager power to issue new units. Even so, a manager who issues units to itself or an affiliate runs into the statutory duty of loyalty, and everyone must act consistently with “the obligation of good faith and fair dealing” (§ 17704.09(d), (f)).

For a corporation, shareholders have no preemptive right to buy into a new issuance unless the articles expressly grant one (§ 204(a)(2)). Directors must act in good faith and in the best interests of “the corporation and its shareholders” (§ 309(a)). And majority shareholders “may not use their power to control corporate activities to benefit themselves alone or in a manner detrimental to the minority” (Jones v. H.F. Ahmanson & Co. (1969) 1 Cal.3d 93). A below-market round that insiders take for themselves, timed to dilute a holder who favors a sale, invites exactly that claim.

Either way, new units and notes are securities. A private California round usually relies on § 25102(f), which calls for a notice to the Department of Financial Protection and Innovation within 15 calendar days after the first sale in the state.

New money can mean new owners

The cannabis regulators keep a parallel clock. The Department of Cannabis Control treats anyone with an aggregate 20% interest, and anyone who manages, directs, or controls the business, as an owner. New owners and new financial interest holders, including most non-bank lenders, must submit their information within 14 calendar days (Cal. Code Regs., tit. 4, §§ 15003, 15004, 15023). In San Francisco, newly reaching 20% or changing control requires “immediate written disclosure” and a permit amendment (Bulletin 2026-03). A bridge loan from the buyer therefore puts the buyer on DCC’s disclosure list before closing, and a board seat attached to it can make the buyer an owner.

Practical steps for sellers, buyers, and minority holders

1. Know who can issue equity. Read the governing documents before the first buyer meeting.
2. Put interim covenants in the letter of intent. Buyers should bar new issuances without consent, with a defined carve-out for genuinely needed bridge money.
3. Make a record for any round priced below the offer. Minutes explaining the cash need, the alternatives, and why the price is fair are the strongest answer to a dilution claim.
4. Adopt financing plans before a deal is in view. Timing was Aurora’s lead argument, and a program in place months earlier is easier to defend.
5. Calendar both filings. DCC’s 14 days and DFPI’s 15 days pass quickly mid-deal.
6. Minority holders, ask for the books. LLC members can obtain records and tax returns under § 17704.10, and shareholders can inspect books and minutes under § 1601. Early questions are cheaper than later lawsuits.

The Alberta ruling settled one dispute under Canadian law. The lesson for California is broader: once a buyer is at the door, every capital decision is also a deal, securities, and licensing decision, and it should be made with all three in mind.

The Law Office of Shay Aaron Gilmore advises California cannabis and hemp operators, investors, and minority owners on mergers and acquisitions, corporate governance, seed and bridge financing, and ownership changes before state and local regulators.

Legal commentary, not legal advice.