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3 Questions to Ask Before Picking the Right Licensing Partner

Choosing a licensing partner is essential if you want your cannabis business to cross state lines.

Opinions expressed by Entrepreneur contributors are their own.

Among the many complications facing today’s leading cannabis brands is finding a way to execute a multi-state expansion strategy. Federal law prohibits interstate cannabis shipments, so product manufacturers are faced with a dilemma: Either own the licensed facilities in the states to which they wish to expand or partner with other companies that are licensed in those states.


The latter is a common solution to the problem. It's more cost-effective and allows canna-businesses to in essence ‘rent out’ their intellectual property--detailing how to design, create and commercialize their products--to chosen partners in new states. These partners can then get the cannabis products on shelves in new markets, with the original business maintaining ownership of the methods, technology and brand.

While most brands choose the partnership route, this licensing arrangement comes with its own myriad problems. Here are the most important questions to take into consideration when evaluating and selecting an ideal licensing partner:

Related: Is Your Cannabis Business Properly Licensed?

1. What are others saying about this company?

In an effort to seal the deal, your prospective partner will naturally boast about its strengths and assets. Don't believe the hype. You'll need to do some independent investigating to come to your own conclusions. How do you do this? Pay attention to testimonials from other partners, and reach out to trusted industry professionals outside of the organization to see what they know and have heard about the company. Real-world, anecdotal accounts and reviews will give you a more informed perspective on who you're actually working with.

2. Are they transparent?

Transparency is paramount when considering a new licensing partner. This means they must be willing to open their books and disclose to you their operational procedures. Trust your gut instinct: If it feels like they are hiding something and want to avoid the public eye, that's a red flag and you should move on. An honest and dependable partner will demonstrate how they run their business. They're unafraid and eager to showcase what they bring to the table in an authentic and realistic way.

Related: Marketers Are Overcoming Unique Challenges to Build Campaigns for the Nascent Cannabis Industry

3. Are they fully compliant ?

While following the law might sound like a given, many companies -- particularly those that have evolved out of the black market -- still skirt requirements and fail to follow their state’s regulations. A good rule of thumb is to find a company that has hired a knowledgeable CPA or CFO to ensure that they are operating in compliance at all times, and are fully prepared for the likely event of an audit. It’s simple: A company at risk of penalties and shutdown is a poor choice for a partner.

All of that being said, don’t be afraid to seek partners who have come to cannabis from outside the industry -- these are the individuals who will bring in fresh ideas and know how to both operate a business efficiently and manage it in an organized manner. Some of the most successful cannabis companies are led by professionals coming from vastly different sectors, who have borrowed best practices from other industries and drawn on their unique experiences.

Above all, it’s crucial to find a partner that you trust 100 percent with your products. Your perfect partner is out there, but don’t be afraid to be selective. At the end of the day, they, too, are representing your brand and therefore must share your values and vision.

Related: Building a Solid Foundation for Your Cannabis Brand Is Step One to Success