By Dustin Robinson, CPA, Founding & Managing Attorney, LumaLex Law
There is a structure that shows up over and over again in the industries we work in, and most people never notice that it is essentially the same structure. A telehealth company cannot own the medical practice, so it forms a management services organization that contracts with a professional corporation.
A cannabis operator cannot get a license in a limited-license state, so it forms a management company that contracts with the entity that holds one. A fintech company cannot take deposits or issue cards, so it partners with a chartered bank and puts its own brand on the front end.
Three different industries. Three different regulators. One shared idea: the license or charter stays with the entity that is legally required to hold it, while everything else moves to an operating company that is not. That idea is not a loophole. It is how capital reaches regulated markets. But it only works if the structure is built correctly. The difference between a structure that survives regulatory scrutiny and one that gets unwound usually comes down to the same two variables: control and economics.
Healthcare: The Original Template
The corporate practice of medicine doctrine prohibits unlicensed people and entities from owning a medical practice or interfering with clinical judgment. The market response is the MSO/PC model: physicians own the professional entity, and a separately owned management company provides everything that is not the practice of medicine, including billing, marketing, HR, real estate, technology, and procurement, under a management services agreement for a fee.
Done properly, this is entirely lawful and has been for decades. Done sloppily, the professional entity becomes a shell, the MSO starts making clinical and staffing decisions, and the business is exposed to corporate practice violations, fee-splitting, anti-kickback issues, payor clawbacks, and licensure discipline.
States are increasingly unwilling to let the paperwork do all the talking. Oregon Governor Tina Kotek signed Senate Bill 951 on June 9, 2025, imposing broad restrictions on how non-professional parties participate in the ownership, management, and operation of medical practices. SB 951 codifies existing prohibitions, adds new limits on dual ownership in both an MSO and the professional entity it manages, and restricts equity transfer agreements, which are the exact mechanisms that made friendly-PC structures work. Governor Kotek signed a modifying bill, HB 3410, on July 24, 2025. The restrictions apply beginning January 1, 2026 to entities organized on or after June 9, 2025, and January 1, 2029 to pre-existing arrangements.
California moved in the same direction. SB 351, enacted in 2025 and effective January 1, 2026, applies to private equity groups and hedge funds involved with physician or dental practices doing business in California and prohibits interference with professional judgment. What both states did is instructive: they did not ban management companies. They wrote down a list of decisions the management company cannot make. Oregon’s law identifies concrete examples, including hiring and firing, staffing levels, compensation, schedules, clinical standards, coding and billing, rates, and payer contracts.
That is the whole game. The structure is fine. The allocation of decision rights is what is regulated.
Cannabis: The Same Problem, Different Statute
Cannabis licenses are scarce, expensive, and often non-transferable without regulatory approval. So the market did what it always does: the license sits in one entity, and the operational expertise and capital sit in a management company that contracts with it.
Florida cut that off directly at the statute. Under Fla. Stat. § 381.986(8)(e), a licensed medical marijuana treatment center must cultivate, process, transport, and dispense marijuana for medical use, and may not contract for services directly related to the cultivation, processing, and dispensing of marijuana or marijuana delivery devices, with a narrow exception permitting certain licensees to contract with a single entity for those functions. Florida’s vertical integration requirement is not just about who owns the license. It is about what the license holder must do with its own hands.
New York took a different approach. Rather than banning management agreements, it defined who counts as an owner. Under New York’s adult-use framework, a “true party of interest” includes any person who exercises control over a licensee, including management services providers, and any person receiving aggregate payments in a calendar year exceeding the greater of 10% of gross revenue, 50% of net profit, or $250,000. The Office of Cannabis Management has also stated that management services agreements must be based on a flat fee and may not result in a transfer of control from the licensee seeking the services.
Read those two rules together, and New York is telling you something very specific: you can manage, but if you take too much of the upside or too much of the control, you are no longer a vendor. You are an owner, with all of the disclosure, vetting, and cross-tier ownership restrictions that follow.
Fintech: The Bank Partnership Model
The same architecture drives much of modern fintech. A technology company builds the product, the brand, the underwriting model, and the customer relationship. A chartered bank holds the deposits, issues the card, and originates the loan. The fine print says it plainly: “[Company] is a financial technology company, not a bank. Banking services provided by [Bank], Member FDIC.”
Why bother? Because the charter carries privileges that cannot be replicated by contract. Federal preemption under Section 85 of the National Bank Act and Section 27 of the Federal Deposit Insurance Act, combined with the rate-exportation principle from Marquette, lets a bank’s home-state interest rate travel nationwide and let fintech avoid a fifty-state lending license patchwork.
And here is the part that should feel familiar: the doctrine that unwinds a badly built bank partnership is the true lender doctrine. Regulators and courts look past the name on the note to ask who holds the predominant economic interest and who actually controls the credit decision. If the answer is the fintech, the bank was a conduit, and state usury caps and licensing requirements come rushing back, potentially voiding loans and triggering restitution. Colorado, the District of Columbia, and the CFPB have all pursued versions of this theory.
Substance over form. Same test, different vocabulary.
The common thread
Across all three industries, the analysis collapses to four questions:
- What is the licensed function, and is it staying with the licensee? Clinical judgment. Plant-touching activity. Credit approval and BSA/AML. These are non-delegable, and every regulator has its own list.
- Who actually decides? Not what the agreement says — what happens on a Tuesday. Hiring, pricing, vendor selection, and the ability to remove leadership are the tells regulators look for.
- Where does the residual economics land? A management fee that sweeps essentially all profit is the single most common reason a structure gets recharacterized. New York put a number on it. Healthcare fee-splitting rules get there by a different route. True lender analysis asks the same question.
- Can the licensee actually walk away? Termination rights, equity transfer restrictions, and put/call arrangements are increasingly where states focus, because they reveal whether the licensee is independent or captive.
The Layer Most People Miss: Your Accounting Is a Legal Admission
I am a CPA as well as an attorney, and this is the part of the analysis that gets skipped almost every time.
Operators often treat the legal structure and the financial statements as separate workstreams handled by separate advisors. They are not separate. Your books make a factual claim about control, and a regulator can read them.
Four places this shows up:
Revenue Recognition and the Principal-Versus-Agent Question
Under ASC 606, whether you report revenue gross or net turns on whether you control the good or service before it transfers to the customer. Management companies routinely book the licensee’s gross revenue as their own because it makes the top line look better to investors.
Think about what that says. You have just represented, in audited financials, that you control the delivery of a service you are legally prohibited from controlling. That is not a footnote. It is a document a plaintiff’s lawyer, a state regulator, or a buyer’s diligence team will find.
Consolidation and the VIE Analysis
Under ASC 810, a management company consolidates the licensed entity as a variable interest entity when it has power over the activities that most significantly affect the entity’s economic performance and the obligation to absorb its losses.
That is nearly the same test a regulator applies to determine whether the licensee is independent. Consolidation may be the correct accounting answer, but if you consolidate, you should know in advance that you have created a written record aligning with the regulator’s theory. Your legal file needs to be built to explain the difference.
Transfer Pricing and the Arm’s-Length Standard
Between commonly controlled entities, IRC § 482 requires the management fee to reflect what unrelated parties would charge. This cuts both directions, and both directions hurt.
Set the fee too low, and you have parked income in the licensed entity, often for a reason that will not hold up. Set it as a residual sweep of all profit, and you have both a § 482 problem and the recharacterization problem, because no arm’s-length vendor takes one hundred percent of the upside.
A contemporaneous fair market value analysis, prepared by someone qualified to prepare one, does double duty here: it supports the tax position and it supports the legal position that the fee is compensation for services rather than a disguised return on equity.
Cannabis Operators Have a Fifth Problem: § 280E
Separating a management company from the plant-touching licensee is often motivated in part by the hope of preserving deductions the licensee cannot take.
But if the management company is found to be participating in the trafficking business, § 280E follows the activity, not the entity name on the letterhead. The tax motive and the regulatory motive can pull in opposite directions, and the version of the structure that is most tax-efficient is sometimes the version most likely to be recharacterized.
That trade-off should be made deliberately, with both sets of consequences on the table.
The practical takeaway: the management services agreement, the fee schedule, the FMV support, the chart of accounts, and the audited financials should all tell the same story. When they do not, the inconsistency is usually discovered by someone with subpoena power or a signed LOI. By then, it is expensive to fix.
The Point: Structure It Right, Don’t Avoid It
None of these structures are inherently improper. MSO/PC arrangements are the backbone of American healthcare delivery. Management agreements are standard in cannabis. Bank partnerships power a substantial share of the payments and lending market, including some of the fastest-growing companies in fintech.
What is improper is unexamined structure: a form pulled off the internet, a template borrowed from a different state, or a deal built by someone who understood the business but not the specific statute, regulation, or agency guidance that governs it.
That is where operators get hurt, and the damage is rarely just a fine. It is a license revocation, a rescinded transaction, a failed diligence process, or a purchase agreement that dies three weeks before closing.
The right approach is to design for the maximum commercial flexibility the applicable rules actually allow, document it honestly, align the accounting with the legal position, and then operate consistently with all of it. That requires counsel who knows where the lines are drawn in your state, in your industry, and, increasingly, in the version of the rule that takes effect next January.
LumaLex Law advises operators, investors, and management companies across healthcare and telehealth, cannabis, peptides and compounding, and regulated financial services on entity structuring, management and services agreements, tax characterization, and licensing strategy. If you are building or buying into a licensed business, we would welcome the conversation.
Disclaimer: This article is provided for general informational purposes only and does not constitute legal advice or create an attorney-client relationship. Health, Licenses, and Cannabis rules vary by state and change frequently. Consult qualified counsel about your specific facts.
