Cannabis legalization is happening at lightning speed, and multiple states are currently, or soon will be, accepting applications. Most of these states have merit-based application and lotteries, as the number of licenses are limited with numerous applicants. Many of these applications are well-funded by investors, or have partnered up with existing cannabis businesses, or are existing cannabis businesses expanding into other states. This makes the licensing process very competitive, expensive, and time consuming. Also, many license application fees are non-refundable, meaning that developing a winning strategy from the beginning is critical. It can be a very stressful process, but there are ways to mitigate the stress while creating a winning strategy.
Deciding to apply for a license for a cannabis business is a major decision that takes a significant amount of time and resources. Oftentimes, first time cannabis business license applicants are caught off guard with the amount of manpower, money and time involved in applying for a cannabis business license. The regulatory framework for licensing is arduous by design. The State agencies want to see the best, well prepared, well capitalized applicants move forward reducing the likelihood of failure. This means that applicants must be well capitalized and staffed early in the process to show the most likelihood of success after being awarded a license.
Merited applications are often broken down into two sections, one that is pass/fail and one that is graded on a point system. Those that do not meet the pass/fail requirements are immediately discarded and almost always include basic requirements like background checks, capitalization reports, and real estate requirements. The graded sections are based on operational procedures and other varying requirements, such as diversity and community impact plans. Graders are very specific in what they are looking for, and it is not always what people may assume and requires a high degree of technical knowledge.
Sticker shock is not uncommon for those new to applying for a cannabis license. It costs a significant amount of money to complete a cannabis application. Total application soft costs can easily exceed $250,000 excluding real estate. Being well capitalized is not only necessary to fund the application process, it is essential to operate a highly technical, compliance heavy organization. Also, regulators want to see that after a license has been awarded, the company still needs to have capital reserves to burn while becoming operational as well as enough funding to keep up with frequent, costly regulatory changes. All in all, applicants can expect start-up costs upwards of $2.5M to become operational with state requirements of north of $10M in capital.
Where to begin? First, it’s important to start with a well-developed business strategy, which includes a business plan and pro forma, as well as business formation and supporting documents. Acquiring real estate is also a critical first step because all plans – operational and business related, are contingent upon having leased or purchased real-estate in a properly zoned area that meets all regulatory requirements. Location and zoning are usually pass/fail and may make or break the application. Obtaining real estate is a major challenge in highly competitive states due to limited availability because of zoning restrictions, and real estate that is available are at premium costs. Team building for the application development and for the operations are next in executing a well-written cannabis business license application.
Don’t go overboard in elaborating too many irrelevant details, which then looks like over-selling. People grading applications are looking for specific answers, not to be sold. This means creating plans to ensure that the operation will be compliant and safe. Sections should reference statutes to show an understanding of regulations and a plan to be compliant with those regulations. Compliance is 100% related to survivability once a license is awarded, and it is imperative to show that the organization has operating procedures consistent with states laws.
Many applications require diversity or community impact plans. These are ways that the applicant will give back to the community by creating diversity programs and community impact plans to show good faith to the community at large. Diversity plans must be meaningful and action oriented. Leadership, and not just staff or proxy leaders, must be comprised of a diverse team of people from protected groups, minorities women, veterans, LGBTQ and persons with disabilities. There must be diversity training plans and action plans, such as workforce utilization reports, to show that the company is serious about creating a diverse organization. Diversity should resonate throughout your application including owners (investors), executives and operations staff.
A well-developed and experienced team is critical to success. Regulators are looking for individuals with proven experience in running a cannabis touching business, or similar highly regulated industry like pharmaceutical and banking industries. It is also an absolute must to have people on your employee and management team with experience cultivating and processing cannabis. Careful partnering with an existing cannabis business may improve chances of being awarded a license. Previous licensing awards have shown this to be an effective strategy.
Finally, getting help from a cannabis expert is a critical part of the application process. Things to consider when deciding on who to choose to help you write your application. First, it really helps to have someone who understands how to operate a compliant cannabis business with industry experience either directly working with the plant or cannabis consultant – very helpful if they have previous experience operating a licensed cannabis business. When it comes to writing the application and supporting operating plans, it’s best to work directly with the experts with technical and business aptitude who understand how to develop and manage compliant cannabis businesses.
As new states come on board, the process is going to become more competitive as new businesses and existing business vie for limited licensing. Existing businesses have the experience in negotiating the cannabis licensing process, but that is not to discourage newcomers from entering and being successful in the industry. It will take a well thought out strategy, great team, capital and hard work to achieve success in winning a cannabis business license. Being prepared will put you on the path to towards winning that highly coveted cannabis business license.
Source: Larisa Bolivar at TCMS Global
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