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So You Think You Can Run a Cannabis Business?

A note from Attorney Smith: Since 2019, I have had the pleasure of exploring opportunities in the cannabis industry (encompassing hemp, legal in all 50 states, and marijuana, which remains a Schedule 1 drug according to the federal government) for diverse clients in Illinois, Georgia, Virginia, and New York. Inspired by interest in the intersections between cannabis and banking, I learned early on that access to capital and traditional financial systems created insurmountable barriers to entry for many; especially those hailing from communities disproportionately impacted by the war on drugs. Enter social equity programs.

In the years since my submission of nearly half a dozen social equity applications in Illinois, as an Associate at Dinsmore and Shohl LLP (many of which were successful), alternative applications and programs to promote social equity in a white, male dominated cannabis industry have promised to level the cannabis playing field. Yet, women and people of color continue to be largely underrepresented. Thankfully, with education and coalition building the most difficult tasks are possible to complete. Using New York's recently launched application as a point of reference, the following will outline what you need to know if you're interested in running a legal cannabis business and how our Firm can help.

  • Do your research. The cannabis industry is highly regulated, so it's important to understand the laws and regulations in your state or jurisdiction before you get started. You'll also need to learn about the different types of cannabis businesses, the products and services they offer, and the target market for each.

While a firm like ours can support with these efforts, it's best you have an independent, baseline understanding of the laws and regulations in your state before consulting with an attorney. A great source to reference is the website for the agency in the state or jurisdiction in which you wish to do business. If you're looking to apply for an NY cannabis license before the December 4, 2023, 5 PM EST deadline, visit their Office of Cannabis Management and review the frequently asked questions (FAQs).

  • Develop a business plan. Your business plan should outline your business goals, strategies, and financial projections. It should also include a marketing plan and a plan for managing compliance.

While doing this may seem like an obvious first step, many cannabis applications challenge you to submit detailed plans covering every facet of your business operations. In 2020, complete Illinois applications required submission of substantive plans representing exhibits A-T (yes, 20 exhibits). For this reason, an average business plan may not suffice. Doing your research, and having an understanding of what cannabis regulators are looking for can ensure you're fully prepared when applications launch; or at least in a better position to meet the associated deadlines.

  • Secure funding. Starting a cannabis business can be expensive because of nonrefundable application fees and the cost of hiring professionals to support in creating competitive applications, so it's important to secure funding before you get started. This could involve taking out a loan, raising money from investors, or using your own savings.

Taking out a loan and raising money is much easier said than done, especially when you consider that most plant touching businesses don't enjoy federal deposit insurance coverage, and as a result, many banking institutions don't provide essential services to legal cannabis businesses. Moreover, customers from historically marginalized backgrounds continue to experience discriminatory lending and other banking practices. As such, private investment tends to be the primary option for entrepreneurs in this industry; yet private equity continues to favor white men, who hold the majority of American and global wealth. As such, it is essential for marginalized owners to position themselves strategically for investment by the few women and BIPOC Venture Capitalists (VC) that exist, or majority VCs focused on the most promising founders in their industry, across race and gender.

  • Get a license. Most states and jurisdictions require cannabis businesses to obtain a license. The application process can be complex and time-consuming, so it's important to start early.

One way to stand out from the crowd when seeking investment is to obtain a provisional or final cannabis license. Under NY's most recent application guidelines, you can obtain a provisional micro-business or retail dispensary license if you meet all requirements except demonstrating control over the premises where you will operate (i.e. - you have not yet signed a lease or deed). Because having these licenses in hand make it easier to secure premises, it also makes it easier to convince investors to support you in your efforts. Note: this exception only applies to micro-business and retail dispensary applicants; cultivators, processors and distributors must secure premises before applying.

Reach out to us today to learn more about qualifying for a provisional license.

In the event you do have control over the premises on which you plan to operate, this will make you a more competitive applicant and capable of obtaining final approval and non-conditional license allowing you to begin operations sooner. While you may not need an investor to secure the premises, you may still require additional funding for renovations or day to day operations; a final license will ensure investors are waiting in line to support you.

  • Build a team. You'll need a team of experienced and qualified professionals to help you run your cannabis business. This could include budtenders, growers, processors, and marketers.

Part of the application, regardless of which state you apply in, will require you to disclose existing and future team members. In NY, they require disclosure of True Parties of Interest (TPI) once your application has been submitted. In Illinois, you were required to outline who maintained ownership interest in your cannabis business. While the criteria varies, the key is to demonstrate that you are prepared for success; and if you are applying as a social equity applicant, that you truly meet the standards established to level the playing the field. Failure to do this properly and disclose accurate information will undoubtedly jeaporadize your success.

For support with developing a competitive team, reach out today.

  • Find a good location. The location of your cannabis business is important for a number of reasons. You want to be in a place that is convenient for your target market and that is compliant with all applicable laws and regulations.

Again, easier said than done. However, depending on what state you are applying in, zoning constraints and your goals in terms of community engagement, where you locate your business is essential. Yet, in light of the ability to btain a conditional license in states like New York, find the perfect location is not a prerequisite to applying. In fact, applying may reveal the most attractive locations. As such, be flexible in what the definition of a "good location" is and focus on the other aspects of your business plan, including the floor plan of any location you ultimately choose, to be competitive at the outset of your venture.

  • Market your business. Once you have your business up and running, you need to start marketing it to potential customers. This could involve using online and offline marketing channels, such as your website, social media, and print advertising.

Once you have a license in hand, the fun begins. However, because of the highly regulated nature of the cannabis industry, you must be mindful of restrictions on inadvertently advertising to youth and proper product labeling standards established by the Food and Drug Administration. Moreover, trademarking of plant touching business names, logos and slogans presents various challenges considering trademarking is a federal process and the federal government continues to classify Marijuana as a Schedule 1 drug. For this reason, consulting an attorney specializing in these matters is essential to navigating the marketing of your legal cannabis business.

If cannabis business operation intrigues you, leave a comment and let us know what more you'd like to know about running a legal cannabis business. Ready to take the leap? Book a consultation or legal strategy session today, and allow us to help you begin your journey toward cannabis business operation.

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