So, you’re thinking about getting into the cannabis business. You’re definitely not alone.
There are now 20 US states with legalized adult-use cannabis programs and many more that permit and regulate cannabis for medical use. Each year, new states join the industry, passing regulations, and opening a licensing process. Depending on the state and locality you’re applying in, the process could be easy and fairly open, just an application and a check. In others, the process is highly competitive requiring a rigorous application and licensing process that costs hundreds of thousands of dollars. New York, for example, made headlines last month when it issued its first recreational cannabis licenses to 52 business owners.
We’re not going to sugar-coat it. Obtaining a cannabis license in most US states is a challenging undertaking. In Massachusetts, it has taken many applicants more than two years to work through all the steps and requirements. Expensive months when money is flowing out, not in.
The problem lies in the highly-competitive nature of the cannabis market. With soaring valuations, many entrepreneurs want to make their mark before it’s too late. If you’re looking to stake your cannabis claim, you need to know how to obtain a license to get ahead. Sounds fairly easy, but the process can be tricky, time-consuming, and expensive, but we’ve got you.
Here are five tips, as well as answers to frequently asked questions from cannabis applicants, to get you started on the road to becoming a legal cannabis operator.
Tip 1: Master Legal Issues and Compliance
A key consideration to keep in mind if you’re looking to break into the cannabis industry is that cannabis laws and regulations vary by region, by state, by county, and in some cases, even by the city or town where your proposed facility will be located. Because cannabis is still federally illegal, the first step to obtaining a cannabis license and running a successful business is mastering the legal rules and regulations that apply to the facility type for which you are applying, in the locality where you hope to locate it. Note that there are different rules for each facility type. Cultivators and processors, for example, follow different rule sets than retailers or delivery/transport companies.
Compliance is key when it comes to working in the cannabis industry. Licensed businesses can be subject to fines, license suspensions, or even license revocations for noncompliance. Understanding the full scope of the legal parameters, and the importance of compliance is key to running a successful and profitable cannabis business.
In short, understanding the rules and regulations and making compliance work for, rather than against you, is quite possibly THE most important requirement to set yourself up for success. Find a way to work with trusted partners and advisors who can streamline this process; cannabis is definitely a team game.
Tip 2: Consider What Type Of License You Would Need
It’s one thing to say you want to get into cannabis; it’s quite another to choose a license type and get to work. Do you want to grow the plant? Extract cannabinoids? Manufacturer cannabis-infused products? Sell or deliver cannabis products? Take time to research your options in the town, city, and state where you’d like to operate.
In California, there are 17 license types regulated by the Medical Marijuana Regulation and Safety Act. These license types run the gamut from the traditional verticals (cultivation, processing/manufacturing, and retail/dispensary) to cannabis event planners and delivery operators. Another example is Massachusetts which has three types of licenses for transport/delivery alone (courier, transporter, delivery operator). Choose the right one for your desired business.
Tip 3: Manage Your Expectations and Timeline
Just as legal regulations vary from state to state, each state and region has their own licensing process and timeline. As we mentioned before, in states like Massachusetts, getting a license can take upwards of two years. Other states, like Ohio, run a lottery to award licenses from all the applications that have passed designated criteria. Understand the process and timeline; manage expectations and plan ahead to be successful.
Tip 4: Secure Funding
Securing funding is one of the most important steps in obtaining a cannabis license. Keep in mind that funding requirements vary by state. Without adequate funding, you could be denied your license, even if your business plan was well thought out and compliant. While making an investment in your future cannabis business can be rewarding and offer many perks down the line, it’s important to remember that the industry is still highly competitive. In some states, the capital required to obtain a license, or even apply, can reach well into six figures. However, in states like Utah, application fees can be as low as $500.
Tip 5: Plan Expenses, Inventory, Equipment
In order to write your business plan, which is required in most state cannabis license applications, you’ll need to consider and plan for other expenses, including rent and utilities, legal fees, insurance, construction and/or property renovation expenses, staffing and training, and more.
Depending on the type of business you are starting, you will need to pay for the necessary inventory upfront. If you are opening up a cultivation business, you will need seeds, grow media, nutrients, and more. If you are opening a dispensary or retail shop, you will need cannabis and cannabis products.
Cannabis facilities need computers, security systems, HVAC systems, safes, and more. Equipment to support cultivation, processing and testing operations can cost hundreds of thousands of dollars before facilities become operational. Figure out which equipment you’ll need and how to pay for it as early in the process as possible.
Here are two of the most common questions we hear from those attempting to get a cannabis license. If you can’t find the answer you need here, you can always contact our cannabis experts or schedule a free demo using our regulatory software.
• Can I purchase a cannabis license or transfer cannabis business ownership?
Maybe, maybe not. Each state has its own rules regarding the sale and transfer of cannabis licenses. At a minimum, most states require new owners to pass a background check and submit an application if they wish to alter the current ownership structure of a cannabis business. A new owner will typically need to be pre-approved before any transfer can occur. As with many other aspects of the cannabis industry, these processes vary by state and region. Check your state’s cannabis regulatory agency website for resources and guidance.
• Can I continue to operate a business while the ownership is transferred?
Whether or not a cannabis business can continue its daily operations depends on whether any of the current owners are staying or leaving the company. Normally, a business may continue to run if at least one of the original owners is staying with the company or if the exiting owners plan to leave their shares to the other current owners. If the original business owner(s) will not be staying on, it’s likely the business will have to cease all operations until the relevant regulatory authority has processed and approved the new owner’s application.
While this guide is meant to be a resource to help you jumpstart the process of becoming a licensed cannabis operator, it is certainly not inclusive of all you may encounter during the application and licensing process. Those looking for a cannabis license and starting a business in the industry may face other costs specific to their company. For instance, tax rates in the industry are famously high.
Understanding how to get a cannabis license is challenging, but those who persevere just may find themselves with a highly valued company in a burgeoning industry.
If you’re struggling to stay on top of compliance regulations in your area, ProCanna can help. Contact us today to learn more about our suite of regulatory and operational solutions for cannabis businesses!