11 tips for winning a marijuana cultivation license

Getting a license for a marijuana cultivation business is one of the most difficult early steps in doing business in the evolving cannabis industry. The biggest issue is understanding the complex, and often confusing, rule-making of a state licensing board that is unfamiliar with the industry. To help navigate this twisting and slippery road, Greenhouse Management sister publication Cannabis Business Times reached out to six licensing consultants, growers and cultivation-business owners with proven track records of success in winning licenses for their tips on how to create a winning marijuana-license application.

Here is the advice they have to offer those preparing or planning to apply for a cannabis business license.

1. Understand the features that make your application stand out.

Jay Czarkowski: “Passion for the industry is not enough to win a license. It is getting … a lot more competitive. ... The ultimate bellwether is the amount of effort we need to put in to win. In addition to winning application narratives, the team needs to be well-rounded and qualified, proper facilities need to be designed that manufacture great products, and good programs that benefit the community need to be put in place.

Some of the top indicators are:

• A great team: well-rounded, showing expertise in finance, facilities management, controlled environment horticulture, manufacturing, retail operations, health care and security, to name a few.
• Strong local support: a strong relationship with the community. ...
• Excellent application narratives and financial modeling: Detail how you intend to build, run and maintain your business, including strong financial governance.”

2. Understand the increasing complexity of getting a license and each state’s licensing quirks.

Chelsey Joseph: “Each state issues a different application with different content requirements and submission periods. In Maryland, applicants had 30 days to submit applications. In Illinois, we had only 21 days. ... The application process is very competitive, and depending on the time allotted, the process can be a bloodbath from beginning to end.”

Adam Cohen: “We are ... starting to see groups that were successful or unsuccessful in one market ... beginning to look at other states. The level of competency within the groups that are applying for a license is really increasing dramatically.”

Avis Bulbulyan: “Regulations and licensing requirements vary from state to state. For example, some states have … ‘vertical integration,’ where marijuana business owners must operate from seed-to-sale— … [so] they must not only cultivate, but also process and sell what they grow. Some states do not require this, and instead offer separate licenses, so a hopeful marijuana business owner could apply for a cultivation license, a processor license, and a retail/dispensary license. Some states may allow businesses to apply for more than one type of license; others may not.”

3.Put together a great team, and vet all your operators, vendors and business partners.

James Lowe: “An absolute must is a good cultivation team — one with true commercial experience, not scaled-up, grow-in-your-basement experience, which is where a lot of the knowledge base comes from. There is nothing wrong with that, but there are just a lot of concepts applied to home growing that are not necessarily sound in a true horticultural, commercial operation.”

Van McConnon: “You want someone who knows how to get permits and knows how to get the facility built. Also, hire a strong attorney who knows the state regulations and can help you interpret them correctly. You should have your attorney review your application, as well, like any legal document. Applying for a competitive license is essentially preparing a document focused on the law and the regulations promulgated in the legislature and the controlling agency, such as the Department of Agriculture, Marijuana Enforcement Division, etc.”

Bulbulyan: “A lot of groups fall apart because someone has something to hide, like a felony record for arrest of a grower, for example. ... You are spending a couple hundred thousand on an application. You might as well spend a few thousand on a private investigator to do a background check on your partners. The state will likely do background checks on each team member, even vendors. So when you bring on new partners, or hire vendors or consultants that have a direct interest in your operation, or if you’re paying them six figures, you want to make sure ... that your partner’s background is not going to hurt your chances of winning.”

4. Be ready to pay for team members, if that helps you win the license.

Czarkowski: “You want to be able to recruit PhD-level horticulturists or PhD-level chemists. Those are the kind of team members you want that are experienced and work well on an application. Some of those folks may require a stipend to join.

“When it comes to building that winning team, the better-prepared applicants will start early. As an example, it is not OK to propose a past or present illegal or small-time cultivator as the person who will be running your multi-million-dollar cannabis cultivation facility. A winning team needs to propose high-level professionals on their applications. This can be a tricky situation as these applicants cannot yet commit to paying for a full-time position, since they don’t know if they will win a license. At the same time, these high-level professionals may currently be employed [elsewhere]. We typically handle this by recruiting the best people, but making that employment contingent on a license being awarded. And for the time and effort this person helps out pre-license, we’ll pay them for their time and willingness to go on an application.”

5. Raise enough capital and maintain good cash flow.

McConnon: “Your budget per application in a regulated market should be about $200,000 to $250,000. And part of it is just paying the professionals to get it done. You will have a consultant or partner with experience in the marijuana business, one or two attorneys, an architect, mechanical engineers, electrical engineers, and state and local lobbyists. You need someone with cannabis knowledge, but they are part of a larger team. Do not overvalue cannabis knowledge. Your local partners and professionals will have as much to do with your success as your marijuana consultant. Most competitive license applications require a complete plan.”

Cohen: “Cultivation centers tend to be the most expensive in terms of allocation of dollars because they either have to renovate or build a new cultivation facility. To build an indoor cultivation facility from scratch will run several million dollars to as high as $10 million. And you need to be prepared for four to six months or heavy operations without income as the plants grow.”

6. Get to know people in the local municipalities as well as officials on the state level.

Lowe: “The state’s licensing boards typically have advisory panels … on specific topics, such as pesticides, packaging, licensing, etc. Regulators generally seek out advice from people in the industry for those panels. You want someone from your company … on those advisory panels if there is an opportunity ..., whether state or local. … This helps when you include in your application a list [of] the ... panels you were involved with and extracurricular activities you did.”

7. Be sure you have the right real estate with a license that allows for expansion.

Lowe: “Do the due diligence on the building, including checking the available power supply. ... There are guys who get in there with a 5,000- or 10,000-square foot building, and they think it’s big because it’s going to cost them a million bucks. And there is no room for expansion. In your license application, you have to specify the size of your space, as well as the location and the mortgage and title of the property. So they are kind of stuck with that sized space.”

Cohen: “I think the best play is having a lease with an option to purchase. That way you can minimize your upfront cash needs. But sometimes, to raise cash, you need to secure [financing] with the real estate. … There are many different ways to structure investments into marijuana companies.”

8.Remember: It’s a long process from license application to opening a cultivation center.

McConnon: “From the time the law is passed to when you put roots in the ground will take a year and a half to two years. From the moment of application to roots in the ground will take a year to a year and a half. And you have to have the funding that can go that entire two years. … You need money for the application or applications, construction, and an operating budget for six months until you start generating revenue. Do not hire permanent staff until you are two months away from completing construction.”

9. Keep on top of the evolving regulatory landscape.

Cohen: “Rule-making is messy, the industry is still new and evolving, and laws and regulations change frequently. For example, the original license-award process for Florida’s high-CBD program involved a lottery system. The state was sued by various stakeholders, and a judge tossed out that program and made the state revise it. Ultimately, license applications ... are supposed to be qualitatively judged on [merit]. So they had to go back and redraft the rules and change the framework.”

10.Keep in touch with consultants about new states coming into the industry and their rules.

Joseph: “Rule-making groups are diverse teams responsible for drafting and revising the state’s program rules. Typically, the first draft is built through cut-and-paste [of programs sections] from states [that legalized] before them. … A public commenting period will follow the release of the first draft, allowing the public to … ask questions or make suggestions for improving policies. Engaging a qualified consultant to guide you through the legislative and application process will ensure your operation plan is comprehensive, fits the regulators’ preferences, and the necessary due diligence is executed.”

11. Protect the license.

Lowe: “Plan ahead, from the beginning, for the long run. If you get a license, you will need to have a compliance team in place. … If you are not actively protecting [your license], you are losing it. There are so many rules that a compliance team is necessary to keep you … compliant, even after you receive your license.”