How Do Entrepreneurs Get ?Business Licensing in the Cannabis Industry?

Cannabis business licenses are becoming a hot commodity across the U.S. Medical or recreational cannabis business licenses can be difficult to obtain, which gives the license a unique value, particularly in markets where the number of given licenses are limited. The license is more like a certificate, demonstrating that the facility and the team behind it have the wherewithal to build and operate the facility in accordance with stringent legal and safety requirements. While there is a market for these licenses, buying and selling licenses involves ensuring that they purchasing party is qualified.

Licensing requirements vary in complexity from being relatively straightforward in states like Oregon, where over 1,000 licenses have already been granted, to states like New York or Illinois, where just a handful of businesses are selected based on merit and applicants have to go through a highly competitive application process. While each state is different, there are some common themes. We are finding that as each new state comes online, they rely on the lessons learned from prior states to develop the application and selection process.

What’s Involved in Applying for a License?

License applications can range from a few dozen pages to hundreds, and even thousands of pages long. They commonly include a detailed business plan with financial projections, detailed operating plans, a detailed security plan including property and site drawings with all the security features indicated; plans for ensuring that the business will operate in compliance with all of the state and local rules; and descriptions of the employees and the company’s training programs. In most cases, employees, principals, and investors are subject to FBI background checks. In many states, individuals with felonies, or who “are not of good moral character,” will be disqualified.

The licensing process doesn’t stop just at preparing a document. The process includes careful selection of sites for the operation and ensuring that the neighbors and local jurisdiction approve the location, along with the activities that will be performed there. Applicants are encouraged to develop relationships with the local and even state legislators and law enforcement to ensure that there is buy-in from all stakeholders in the community.

Many applications also take into consideration local community and economic impacts ranging from odor, light and traffic nuisances to job creation and economic stimulus. Many cannabis businesses also pledge to give back to the community through volunteering or charitable contributions to the local community. For example, some of Signal Bay’s clients pledge 5% of earnings to contribute to education and rehabilitation programs in the local community. Over time, that can mean hundreds of thousands of dollars in contributions.

Merit-Based Programs

Several states and local jurisdictions limit the number of licenses that are allowed. New York, Massachusetts, Nevada, Maryland, Pennsylvania, and Illinois are examples of states that determined the limited number of entities that could operate facilities based on the merit of their applications. Applications are scored, much like a request for proposal, in some cases by state employees, such as at the health department. In other cases, cannabis industry experts are relied upon to score the applications. The applications scored based upon the applicant’s ability to demonstrate the facility will be built and operated in a secure manner, that the applicant has the technical and business capabilities to operate the facilities, and that they have the financial backing required to build and operate the business.

The Role of Consultants in Licensing Process

A number of boutique firms have emerged that provide support for obtaining cannabis licenses. Consultants can help business owners navigate through the process of obtaining the licenses, and also provide the policies, procedures, and responses to the questions asked by the states. However, at the end of the day, it is the applicant themselves, their expertise, business acumen, along with the properties selected that will be a key driver to determining who will win a merit-based application. Preparation is the most important component of the process, and having an experienced, trusted team to assist could prove invaluable.

California

California is a unique case for the license application process, but with half of the cannabis market located in one state – the implications are significant. California has operated under a construct of not-for profit collectives for many years, and it was relatively easy to start a cannabis collective. More recently, local jurisdictions have begun allowing companies to apply for business licenses that have far more stringent requirements. Some of the jurisdictions are undergoing their own competitive selection process. The details of the application requirements vary from jurisdiction to jurisdiction. New rules will emerge in 2018 that will likely standardize the process across the Golden state.

The Value of a License

Once earned, licenses immediately have substantial value for its owners. Even prior to a business opening, licenses can be worth hundreds of thousands to millions. Robust secondary markets for licenses have emerged in several states, and we anticipate this trend will continue. For example, dispensary licenses in the Las Vegas area sold in excess of one million soon after the provisional license winners were announced. Similarly, in Maryland, Stage I (provisional) dispensary licenses are also being bought and sold prior to the final licensing process.

Cannabis business licensing is a huge land grab that will occur for the next 3-5 years. Thereafter, federal deregulation and subsequent entrance by large international companies are expected to drive massive consolidation, ultimately changing the landscape for future cannabis businesses. Companies that attain and activate licenses today will be in a great position to leverage continued industry growth.

Lori Glauser is founder and COO of Signal Bay, Inc. (OTC:SGBY), a publicly traded analytical laboratory and advisory services company that assists cannabis entrepreneurs across the US to attain cannabis cultivation, processor, wholesaler and dispensary licenses. She can be contacted at [email protected]