State Licensing Requirements: Are You Prepared?

Securing FDA clearance or approval is a major accomplishment for medical device and pharmaceutical companies, but it’s not the final step. Before selling your products in most states, you must navigate state licensing requirements—a critical yet often overlooked process. In most states, companies must apply for and obtain the correct type of state license(s) before they can legally sell their products. This process goes beyond standard tax registrations or business filings.

These requirements are complex, vary by state, and can be challenging to interpret and navigate. To add to the complexity, many states are ramping up enforcement efforts to generate revenue.

Facility Licensing: One Size Does Not Fit All

Each facility—whether a warehouse, distribution center, or manufacturing site—may need a separate license based on the activities conducted there. Companies with both drugs and devices may require multiple licenses for each facility to comply with state-specific regulations. The challenge grows if the organization has multiple subsidiaries, as each entity may also need its own licenses. Careful planning and proactive management are essential to avoid compliance gaps and ensure uninterrupted operations.

The Consequences of Noncompliance

Failure to comply with state-specific licensing requirements can lead to:

• Fines and penalties
• Orders to halt product sales in the state
• Disruptions in of mergers and acquisitions (M&A)
• SEC enforcement actions
• Shareholder lawsuits

M&A agreements frequently require companies to confirm compliance with state licensing laws. Noncompliance discovered during due diligence can jeopardize entire transactions. For publicly-traded companies, noncompliance could also have significant implications for SEC and shareholder compliance. If the violation is severe enough to impact the company’s financial performance or reputation, it may be considered a material fact requiring disclosure. Failure to disclose such information could expose the company to SEC enforcement actions and shareholder lawsuits for making false or misleading statements in public filings, further compounding the risk.

The Complexities of State Compliance

Navigating state licensure requirements can be daunting. Many states require extensive documentation and disclosures, including:

• Federal and state-specific background checks
• Fingerprinting
• Personal information and work histories of officers and directors
• Significant surety bonds
• Facility photos and detailed operational information
• Educational transcripts for designated representatives

These burdensome obligations underscore the preparation needed for compliance, especially as state regulatory scrutiny intensifies.

Steps to Minimize Risk and Ensure Compliance

To ensure compliance and minimize risk, companies should:

1. Audit state licensure requirements to identify applicable obligations.
2. Address compliance gaps proactively.
3. Plan for renewals—most states require licenses to be renewed annually or every 2–3 years.

Katy Herman, Associate Attorney at Gardner Law, explains: “State licensing requirements can be daunting, with varying rules across states and ever-changing forms and requirements. Staying compliant requires careful planning and consistent upkeep. We can help simplify the process, helping you navigate these challenges, avoid compliance headaches, and ensure your operations stay on track."

Contact Gardner Law

Gardner Law has extensive experience guiding medical device and pharmaceutical companies through the complexities of state licensing requirements. From conducting gap assessments to supporting applications and renewals, we can provide tailored support to help you stay compliant and avoid costly business disruptions. Contact us today.