Is Your Cannabis Business Properly Licensed?
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This article is part of Entrepreneur’s series on How to Start a Cannabis Business. We seek to promote financial inclusion through marijuana. In previous articles, we’ve looked into numerous aspects of getting into the marijuana industry, including questions you should ask yourself before jumping in, factors that could determine your success and how to decide whether you’ll touch the plant or not.
Understanding the different licenses
Once you’ve decided to get into the industry and gone through the planning phase, the next thing you’ll need to do is start setting up your business. One of the first steps we recommend you take, before spending any money on things like branding, offices, stores, etc., is getting all the necessary business licenses.
All cannabis businesses require a business license, and those touching the plant need a cannabis-specific license on top of the regular one. So you'll need to properly license and register the actual business that’s going to apply for a marijuana license. “For all license types, at least in California, one of the basic requirements is to have some kind of business formation, even if it’s a sole proprietor,” says Amelia Hicks, senior environmental scientist at California’s Bureau of Cannabis Control.
Once you’ve completed your business registration, you’ll be ready to move on to your marijuana license application. The cannabis licensing process varies from state to state, and even from municipality to municipality, so you’ll need to get acquainted with your jurisdiction’s rules, regulations, and requirements. To make things simple, let’s divide the processes into competitive and non-competitive processes.
States with competitive processes (like most of the East Coast states) will offer a limited number of licenses and require applicants to prove they’re the best suitable candidates. Think of it as a government-style procurement process. This is how the application process works in states like Florida, Ohio and New York.
Noncompetitive processes (usually found on the West Coast) tend to put no limits on the number of licenses that can be handed out; all that matters is that certain criteria are met. This is the case in Colorado, Washington and Oregon.
Taking into account that the cost of a license and the thresholds to get one are usually lower in noncompetitive states, numerous industry insiders recommend you try and get your first cannabis business set up in one of these.
The outliers: California and Arizona
Somewhere in between purely competitive states and non-competitive ones, there are places like California, where the process isn’t competitive on the state level but does become competitive on the local level -- and local approval is necessary to get a license. In fact, the Bureau of Cannabis Control (one of the three cannabis business licensing agencies operating in that state) states on its website, “Local jurisdictions may ban, in whole or in part, medicinal and adult-use commercial cannabis activity.”
“The local authorization piece is probably one of the most challenging pieces. In California, we have 58 counties and 400 municipalities (cities or towns), and each of those local jurisdictions is authorized under the statutes to create its own rules and regulations for the cannabis business activity and can even ban these activities,” Hicks explains.
Finally, states like Arizona demand dual licenses. For example, a marijuana grower must hold a cultivation license and a dispensary or retail license, even if he decides not to get into retail.
Another thing to keep in mind is that licensing fees diverge considerably. Some states charge an application fee of $250 and annual renewals of $1,000, while others ask for $25,000 to apply, another $200,000 if and when the license is granted, and a renewal fee of $100,000 each year. And those numbers fluctuate depending on the type of cannabis business you start.
Procuring a Cannabis license
Although each jurisdiction’s cannabis business licensing process and requirements are unique, there are a few things most regulatory agencies want to see in applicants, Jay Czarkowski, founding partner at cannabis consulting firm Canna Advisors, says. These are:
- A realistic, achievable, “well-thought-out” business plan
- A sound financial model and the capital necessary to execute on it
- A strong, professional team -- especially at the management level
- A plan that will not only generate money for you, your investors, the businesses that will interact with you and state taxation agencies, but also bring benefits to the community in which it will operate, the state and/or the patients
- A very detailed, long-term operational strategy
- A compliant physical location
In addition to having a compliant location nailed down, you’ll need a letter from the landlord saying she’s aware that the space will be used for cannabis. This usually requires that the landlord owns the building and has no bank debt on it as well.
“You should consider reaching out to the regulatory agencies and ask questions about the licensing process,” adds Hicks. A few good questions to ask are:
- What are the general, personal conditions I need to fulfill to apply for a license?
- Are there any limitations regarding who can and cannot apply for a license?
- Are there any water-usage or energy-usage limits or regulations?
- Are there any security aspects at my business’s chosen location that need to be taken care of before applying for a license?
- What documentation do I need to get from my landlord?
- Which type of advice should I get? Do I need a lawyer? A CPA? A licensed architect?
As the license application process becomes more complex, regulators want to see additional features in applicants. “You have to show expertise around not just cannabis, but also banking, security, regulations. Getting a new license might sound like a pretty straightforward thing, but it’s actually a complex process,” Hadley Ford, managing director at iAnthus Capital Management, says.
Applying for a license requires a lot of attention to detail. This includes being very careful about who your partners and team members are. Sometimes, having a person with a DUI in your team can be enough for you to get rejected.
One final tip: Don’t volunteer information. Providing more information and legal documents than the regulatory agency requires can get you in trouble. There is such a thing as being “too compliant.” Imagine, for instance, that you disclose the seed money for your cannabis business came from your mother; in the eyes of regulators, your mother is involved in your business, even if all she did was lend you money. “Additional information tends to convolute things,” Amelia Hicks concurs, suggesting you submit only the required documentation and nothing more.