With the advent of more and more states opting out of federal prohibition, there has been a rise in immensely complicated and extremely long marijuana license applications (i.e., like the application processes we’ve seen in Nevada, Illinois, Minnesota, Maryland, and New York). In turn, commonalities regarding client questions and application strategies have emerged; how and when to apply, how much it costs, what the competition will be like, and on and on. Over the past five years, we’ve handled licensing applications in more than a dozen states with more to come on the horizon. And we have developed some best practices for potential applicants that make sense no matter what the jurisdiction. Today we share several of them with you:
Start early. If there’s just one piece of advice we could offer, this would be it. To distinguish your application, you want to ensure it has fewer mistakes, more robust content, and is more polished than the competition. More importantly, the competitive license applications in particular can be tedious and time consuming, requiring the compilation of business plans, financial reports, and background checks. You don’t want to be rushed for time in putting it all together.
Even if the regulations or the application itself are not yet available, there is plenty you can do to prepare your application in advance. Our experience is that the application almost certainly will require information and documentation concerning your business plan and team (owners, managers, and company agents), finances, security plans, standard operating procedures, proposed product lines, quality assurance and safety, and location. Specifically, you should be working on the following sooner rather than later:
- Get your corporate ducks in a row. Register an entity, sort out stock options and equity shares, and set tentative capital contributions and sweat equity expectations. We say tentative because there may be requirements or advantages/disadvantages to certain allocations based on the eventual requirements of regulations and the actual application (like having investors who are also residents of the state).
- Identify your main players and experts. This obviously includes officers and managers but also, for example, your head horticulturist, security officer, chemist, etc. Consider those who will actually have an ownership stake or will get a salary as well as outside expert/consultants who may be utilized on an independent contractor basis (regulations permitting). With the latter, you’ll want plenty of time to review consulting agreements; we’ve seen 15-20 page contracts for such services with aggressive non-competes and confidentiality provisions.
- Vet your vendors. There are still relatively few reputable vendors for things like security and traceability, but that number is growing. Watch out for snake oil and those that claim to possess significant experience in your state (especially if your marijuana regime is brand new and not even implemented). You’ll also want to make sure that your vendors have clean backgrounds where, if they become an agent of the company, state law may require that they submit themselves to a criminal background check.
- Scout locations. Even if your state will not require you to pin down a specific location or secure a lease for your prospective grow operation or retail shop, it behooves you to look early and often. In most states, the location of any kind of marijuana enterprise is so tightly regulated, applicants may be vying for limited qualifying spots in out-of-the-way pockets. In addition, landlords, because of federal asset forfeiture, are still risk averse when it comes to renting to marijuana businesses, making a local search potentially a long, hard journey.
- Check your local laws and take your neighborhood’s temperature. Make sure local law (ordinances, zoning rules, etc.) will allow you to operate a cannabis business in your desired locale. Also, if you are facing strong local resistance, it may be best to look elsewhere where NIMBYs won’t hesitate to ruin your plans with a lawsuit. Feet dragging and lawsuits aimed at preventing you from doing business will only slow you down and cost you money. You don’t want to be the town pariah anyway, as that isn’t good for business and will only bring further unwanted (and likely unwarranted) scrutiny to your marijuana start-up.
Once the application is in your hands, you should narrow your focus to what is realistic, not just what is possible. If you haven’t read your state’s regulations already, do so now. Even if you’ve hired a consultant or attorney to complete your application, you too must understand the scope and tenor of the rules because you’re going to be the one making the actual business decisions about the company.
That said, an application will have a lot of moving pieces that require tracking:
- Background checks. Background checks rank high on the list, because if you don’t do them or members of your team don’t pass them, your application will be dead in the water. If your state will be tapping the FBI database, those checks can take time, so get your fingerprints in early. States’ approaches to background checks vary – some partner with a third-party vendor to fingerprint and submit forms, while others have you going directly to the state for submission.
- Score the big points. If the state is a scoring state (which is becoming increasingly common), the state will give you at least a rudimentary understanding of how the application will be scored; some will disclose the weighting rubric as well. Don’t ignore small-point categories or pass/fail questions where you can pick up a few easy points, but focus your efforts first on the big, important categories. In our experience they usually are business plan, finances, security, cultivation and processing methodologies, patient interaction and education at the retail level, employee training, and seed-to-sale tracking. If you don’t have solid information in each of these categories, your application probably won’t stand a chance of being competitive.
- Double and triple-check all mandatory forms. Along with your application, you will probably submit a good number of forms. These forms often cover attestations by team members that they understand cannabis is still illegal under federal law, promises to conduct strictly intrastate business, and possibly declarations from a prospective landlord that if you are awarded a license, you will be allowed to grow or sell marijuana on the property. Forms are certainly not optional, and they must be done correctly. Have a second and third pair of eyes on these forms – inevitably a checkbox, date, or signature will get missed somewhere, and since many forms are notarized, correcting mistakes is not quick or something to leave to the last minute.
- Assume the application will be a moving target. Rules, timelines, and state-issued FAQs will all be tweaked throughout the application process. Check the relevant state agencies’ websites frequently for updated information and be prepared to deal with some changes along the way. Many states set up an email account to field questions, So, don’t be shy about asking for clarification about the process or the application itself.
- Remember your reader. The person or persons reviewing your application materials will ultimately be laypeople. Therefore, no super dense chemical, technical, or legal lingo is advisable. You want your application to be understood and get to the point of the state’s goals according to its scoring methods.
So, prepare early and check the rules often. Failure to do so could mean a wasted investment and a missed opportunity for one of these highly coveted state marijuana licenses.