5 Crucial Questions To Ask Before Applying For A Cannabis License
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“This is a lot harder than anything we’ve ever done.”
This is a common refrain among our clients about the months-long cannabis licensing process. These are not newcomers to the business world, either—they're serial entrepreneurs who are stepping into the cannabis industry well-prepared and equipped. But little could prepare them for the realities of the expensive and complex process of applying for cannabis business licenses. Although these clients ultimately won licenses, it required a lot more work than they expected.
At Canna Advisors, we’ve worked with clients in more than 30 states. We’ve seen that even the best-laid plans and most prepared teams face challenges of time, resources, and unexpected roadblocks. Frequently, the window from when a state releases its license application requirements to the time they’re due is short and frantic—a race to put together the most compelling case for your business while also being sure to dot every “i” and cross every “t.”
You and your team need to be as focused as possible during that period. License applications are technical and expensive to assemble in the best of scenarios. By planning ahead, you’ll ensure that you can put together the best possible application in the most efficient way.
Here are the five most important questions we believe you need to answer before you write a single line of an application.
1. What license should you apply for?
From testing to transportation, there are many different business licenses to apply for, and you can’t apply for everything, How do you choose which one is right for you?
Simply having a passion for cannabis or for business is not enough. You’re most likely to succeed if you know your strengths and understand how to turn those into competitive advantages.
Before choosing which license to pursue, companies need to study up. Considering cultivation? Take a dive into plant science and commercial horticulture. Want to open a dispensary? Be prepared for the staffing, marketing, and inventory management challenges of retail. Have a great infused product or extraction to bring to market? Understand the upfront investments and supply chain management it will take to get your business off the ground.
Too often, entrepreneurs jump into the cannabis industry without carefully considering where their best opportunities lie. For a more thorough examination of industry segments and how to find your fit, check out the Business Types section of the Canna Advisors website.
2. Who do you need on your team?
Every state’s license requirements are different, but all of them evaluate your application in part on the experience and knowledge of your team. Does that mean you have to staff up completely to submit a winning application? No. But you should be thinking about how your team matches up with the skills and expertise that will make both your application and your business successful.
If there’s a gap in your expertise, consider filling it with a specialist on a consulting contract. It’s an additional investment upfront, but it can pay off in application scoring and help you better prepare your business operations.
Your state’s social equity licensing provisions may also shape the way you assemble your team. In order to ensure that some of the economic benefits of legal cannabis accrue to the communities who have been most negatively affected by the drug war, many states are now incentivizing teams that include applicants from those communities. If you’re not eligible for those incentives yourself, consider broadening your team. Again, the benefits are twofold: a boost for your application and a leadership team with the kind of diverse viewpoints and experience that leads to better decision-making overall.
3. How will you raise money?
Opening a cannabis business is expensive. There are all the start-up costs that any new business has—property, equipment, software, inventory —and the extra expenses of a technical application process and rigorous compliance requirements. Unless you’re sitting on your very own pot of gold, you’re probably going to need to raise money.
Today, that’s easier said than done. After a heady rush of capital into the cannabis industry over the last few years, reality has come crashing in. The “dumb money” —millions of dollars poured into companies with little oversight and shoddy business planning— has largely dried up as those companies have underperformed.
The “smart money” is still out there. But how do you find it?
“Smart investors see a downturn as an opportunity to invest in good companies at a lower price,” says Ken Cera, founding partner of the law firm Schwartz & Ceraand counsel to leading venture capital firm General Catalyst Partners. “Show them why you are going to make it happen. Show them how you will be ready when the time is right. This is a time full of opportunity. Valuations may be lower, but I still see many deals going forward.”
4. How long can you afford to operate without a profit?
So you’ve assembled your team, you’ve lined up some early investment, and you’ve done everything you need to do to submit a killer application. How long can you keep all of that together without turning a profit?
Unfortunately, many states’ legal cannabis programs have taken much longer to begin or ramp-up to full capacity than expected. And once your doors are open, it can take time to build up a customer or client base that delivers substantial revenue. During those lag times, cannabis business owners still have significant expenses, such as salaries and consultant payments, legal fees, even lease or mortgage payments in many cases.
Running financial modeling allows you to understand your pre-operational cash flow and make plans accordingly. When we helped one Canna Advisors client recognize the cost of signing a lease, then waiting several months for the application process to play out, they were able to take that model to the prospective landlord and negotiate a reduced rate for those pre-opening months.
If you don’t run the numbers and plan for worst-case contingencies, you could be setting yourself up for a crash before you ever make a single product or serve a single client.
5. How will you help the industry and the people it serves?
Even in today’s rapidly evolving environment, running a cannabis business is a radical act. Political engagement at the local, state, and federal levels isn’t just an option. It’s a necessity.
And this isn’t just about protecting your own business interests (although that’s certainly part of it). The cannabis industry has been built on a foundation of social activism decades in the making. Long before people were seeing dollar signs hanging from every plant, advocates were seeing a chance to expand our freedoms, reform an out-of-control Drug War, and provide beneficial (and in some cases life-saving ) products to people around the world.
Without the movement, there is no industry. And without support to continue the social progress we’ve made, the industry can’t continue to grow. How will you do your part?
In addition to political advocacy, we also have a responsibility to build an industry that takes care of its people—the patients and consumers who rely on us for quality products, the employees who make our businesses successful, and the broader community that our businesses are a part of.
If your business plan doesn’t include ways to be a part of something bigger than yourself, then you are missing a critical component of what makes this industry so exciting and mission-driven.
Cannabis licensing success is a game of details and planning. Even the most experienced business people can find themselves tripped up by the complexities, technicalities, and compressed timelines. It will almost certainly be “harder than anything you’ve ever done.” But with the right partners, good ideas, and well-considered answers to the questions we’ve laid out, you’ll find it can be more rewarding than anything you’ve ever done either.