Most states utilize a “dual licensing system.” This means that cannabis entrepreneurs are required to obtain both state and local licensure to start a cannabis business. Local jurisdictions are often authorized to write their own cannabis regulations within the parameters set by state law. Put another way:
Even if cannabis is legal in your state, therefore, your local government may not allow commercial cannabis activity at all, or may not offer all license types. Do not invest time and/or money into obtaining a cannabis license until you confirm that the specific license type sought after is offered by your local jurisdiction.
Moreover, most state cannabis applications require that you provide evidence showing that your local government is okay with you running your cannabis business in their jurisdiction, so you will not get very far in the licensing process is you skip this step.
Here are some additional practical implications that arise a dual licensing system:
- Both your state and local city/town/county must allow commercial cannabis activity
- You must obtain all necessary state and local permitting and licensing to operate a cannabis business
- Both your state and local city/town/county must offer the cannabis license type sought after
The cheapest and quickest way to obtain state and local cannabis information is to merely google the following: “X Locality cannabis regulations.” Once you get a handle on which license types are offered, give your local jurisdiction a call and confirm that the information on their website is up to date. It never hurts to set an in-person meeting with local regulators to allow application evaluators to put a name to a face.
One of the most difficult parts of starting a marijuana business is finding property that is in the proper zone. Prior to signing a lease or purchase contract, a cannabis entrepreneur should make sure their property is zoned properly for commercial cannabis activity.
Most jurisdictions allow cannabis businesses to operate in commercial and/or industrial zones and prohibit cannabis businesses in or near residential zones. Many jurisdictions also mandate that cannabis businesses be anywhere from 300 to 1,000 feet from schools, parks, and churches, commonly referred to as “buffers.”
Even if your potential property falls outside buffers, it’s often a good idea to contact nearby schools, park administrators, and churches. Let them about your project and see if there’s anything that can be done to address any potential concerns.
The last thing you want is for one of these entities to oppose your project after you’ve signed a lease or purchase contract.
How to Figure Out Your Property’s Zone
Most local regulations specify which zones a cannabis businesses may open their doors in. However, the regulations usually don’t tell us much about where cannabis-friendly zones are within a given jurisdiction. To bridge this gap, go to your jurisdiction’s local website. Often times, the planning department will have the zoning answers we’re looking for.
Localities often publish maps showing cannabis friendly-zones on their website, and some even offer searchable databases that allow a cannabis applicant to type in a property address to confirm the zone it sits in. Once you confirm that your property falls in a cannabis friendly zone, be sure to call or email your local jurisdiction to confirm your findings. Cannabis regulations change frequently, and information of local websites can be outdated at times.
Local Cannabis Licensing & Permitting
Marijuana Land Use Entitlements
“Land Use Entitlement” refers to a property being authorized to conduct a specific type of commercial cannabis activity. These authorizations are typically issued by local government are sometimes referred to as “Conditional Use Permits” (“CUPs”) or “Use Permits.” These applications consist of architectural/engineering drawings that focus on the building’s bones more so than the business or individual apply for it.
After confirming that a property is in the proper zone with a local official, cannabis applicants should also vet timelines, costs, and potential issues associated with obtaining a CUP or any other necessary land use entitlements before signing a lease or purchase agreement. Included in this due diligence should be an evaluation of any necessary interior or exterior modifications as modifications can be both expensive and time consuming.
While not a requirement in all jurisdictions, obtaining a CUP can take anywhere from 3 to 9 months, and can cost tens of thousands of dollars. CUP applications require the submission of site, floor, electrical, plumbing, etc. drawings which often necessitates hiring an architect and/or engineer. Before spending money on drawings, be sure to ask the landlord or seller if they have any drawings from past projects as this can save time and money.
Cannabis Business License
Local business license applications are often similar to state application requirements. They typically request information about the business’s ownership structure, business plan, standard operating procedures. Some jurisdictions, such as Massachusetts, go as far as requiring an applicant to enter into a contract (referred to as a Host Community Agreement”) with the local municipality they apply to.
Where do I find cannabis licensing requirements?
Finding the requirements is as simple as Googling “XYZ Jurisdiction’s Cannabis Licensing Requirements.” If that search doesn’t get you anywhere, try using the term “marijuana” rather than “cannabis” (or vice versa) as some jurisdictions use one or the other.
If you’re having trouble finding or understanding the requirements, consider the following before spending money on an outside consultant or attorney at the outset:
- Keep reading! We’ll go through many of the common application requirements in this course.
- Check out any State guidance or application if you’re having trouble understanding local requirements. State licensing entities often release FAQs, tutorials, and fact sheets that will in all likelihood will address your question(s).
- Google application requirements, or even submitted application(s), in other jurisdictions as they may have explained things in a clearer way.
- If all else fails, contact your local jurisdiction or a local cannabis attorney with your question(s).
Common Cannabis Application Requirements
A premises diagram is a floor plan (referred to as a “layout” by some jurisdictions) that specifies where each component of your cannabis operation is located will likely be required as part of your cannabis application(s).
The layout of a cannabis business is critical to maximizing operational efficiency. It’s important, therefore, to put time and effort into a premises diagram and make sure operational components are strategically placed. This diagram will serve as the base for standard operating procedure(s), and can expose potential workflow hiccups that might not be apparent while physically walking your property.
Common Premises Diagram Requirements
A premises diagram is different from the extensive site, electrical, plumbing etc. plans an applicant may have to submit as part of a land use entitlement application. While the labeling requirements are specific to the license type an applicant is applying for (i.e., a cultivator doesn’t have to worry about including a “Retail Sales” area on their diagram), premises diagrams tend to label the following areas and activities:
- Limited access areas
- Security Camera Locations
- Inventory and Storage
- Loading and Unloading
- Packaging and Labeling
- Cannabis Processing
Cannabis businesses are being broken into on almost a daily basis, due in large part to the amount of cash the industry is forced to handle. Whenever a premises diagram is submitted to any government agency, a request should be made that it be kept confidential and not be subject to public records requests. Public access to these diagrams is a serious security risk–be sure to check with your jurisdiction prior to submitting, or even consult with a local cannabis attorney.
Going through the drudgery of physically writing (as opposed to thinking through) a business plan out word by word may come across as overboard, but some semblance of a business plan will likely be required on a cannabis application. Beyond it being an application requirement, it’s important to physically write out a business plan and think through the future of a cannabis business.
Comparing writing a business plan to dieting illustrates the importance of writing one. You basically have two choices when it comes to dieting:
1. Wing it and guesstimate how many calories your’re consuming
2. Track and record your calories to ensure that you’re in a caloric deficit
Which approach will yield better results? Just as you are more likely to lose weight if you track and record calories, your marijuana business is much more likely to be successful if a business plan that contemplates the overall cost(s) of doing business is put together.
Common Business Plan Requirements
We’ll dive more deeply into these topics in future lessons, but here are some general topics that might show up on your cannabis application:
1. Ownership and Management Structure. Who will own and run the business? What are their backgrounds? Make sure that you’ve thought through the business and operational expertise required to run marijuana delivery service before making these decisions.
2. Funding. How will start-up costs and ongoing operating expenses be funded? Will the business take on outside investment? Answering these questions requires a breakdown of the costs that will go into starting your business at a minimum. Be sure to consider the following: real estate costs associated with leasing or buying a property, insurance, payroll, operational costs (lease or purchase price of delivery vehicles, maintenance of vehicles, etc. etc.), professional services (lawyers, accountants, other consultants etc.), marketing/advertising costs, and so on.
3. Marketing Plan. How does your business plan on distinguishing itself in an increasingly saturated market? Will you hire a consultant to design a website or implement asocial media campaign? Have you learned enough about online marketing on your own to not get ripped off?
4. Operations and Compliance. Your license is only valuable if your business is run efficiently, and only if it’s kept it in good standing. Outline your plan to ensure operational efficiency and strict compliance with state and local regulations.
Ownership & Financial Interest Disclosures
The Ownership & Financial Interest Disclosure cannabis application requirements have found its way into the mainstream media in the past year. Multiple companies have found themselves in hot water with regulators after skirting regulations surrounding license ownership caps and social equity programs. In general, though, cannabis regulators just want to have a grasp of exactly who is opening a cannabis business in their jurisdiction.
A cannabis applicant, therefore, should expect to disclose all individuals and entities that either own or otherwise have a financial interest in the applicant’s business. Pay very close attention to how these terms are defined by both the state and local regulations, as the definitions typically vary by jurisdiction.
Ownership is often defined in two different ways:
- An individual or entity is an owner if they own X% of the applicant’s business
- An individual or entity is an owner if that manages or otherwise controls applicant’s business.
Similarly, individuals or entities that have invested or otherwise share in a cannabis business’s profits will likely need to be disclosed. Once a financial interest holder has been identified, double check to make sure that the individual or entity doesn’t qualify as an “owner” by virtue of their equity stake or control over the business.
Here are a few ancillary concerns when it comes to these disclosures:
- Be sure to look into your jurisdiction’s disclosure requirement(s) prior to taking on a new investor as some investors may not be comfortable with the disclosure.
- Thoroughly vet any new owner and how many licenses they own in your jurisdiction. Some jurisdictions limit the number of licenses an individual or entity may own–make you aren’t party to a violation.
- Research what impact, if any, taking on a new owner or investor would have on your status as an equity applicant, if applicable.
Cannabis applicants should expect to submit to background checks, and may have to complete them at both the state and local level. Cannabis background checks focus on an applicant’s criminal history and typically consist of questionnaires in addition to an applicant submitting fingerprints at a local police department or live scan location.
Locating live scan locations in your jurisdiction should be as easy as Googling “Live scan locations in X city/town.” A cannabis applicant may also be asked about prior civil and/or administrative penalties, or to the denial, suspension, or revocation of a license.
The most common question asked in this context is the following:
“Will my [insert past criminal conviction] conviction prevent me from receiving a cannabis license?”
The answer to this question depends on the jurisdiction an applicant is applying in. While an applicant must consult their jurisdiction’s regulations to answer that question, the following prior convictions may cause issues:
- Serious and/or Violent Felonies
- Convictions involving Fraud and/or Deceit
- Convictions involving Minors
Reductions and Expungements
If a cannabis applicant has a prior criminal conviction, they should consider the following prior to applying for a cannabis license:
- If the conviction is a prior felony, consult with a local attorney to see if the prior conviction is eligible to be reduced. Some felonies are “wobblers,” meaning that they can be charged as either as a felony or misdemeanor. A petition to reduce and maybe and expunge your conviction may be an option.
- If you have a prior felony that can be reduced to a misdemeanor, file a petition in the court where you received the conviction to both reduce the conviction and have it expunged simultaneously.
- If you have a prior felony that cannot be reduced, look to see if it can be expunged or if other relief is available.
- If you have a prior misdemeanor, petition the court to have it expunged.
Filing reductions and/or expungements is a straight forward process which consists of filing paperwork and paying a filing fee with jurisdictional quirks here and there. It’s usually a good idea to also include reference letters and/or a statement explaining what was going on in your life at the time of your conviction, as well as what you’ve been doing since.
Reporting Past Convictions
Cannabis applicants should consult with a local attorney about their obligation to report a reduced and/or expunged criminal conviction. Whether a reduced/expunged conviction must be reported on a state or local cannabis application will be determined by the specific information requested within the application(s), as well as state law.
Even if a conviction must be reported, the applicant puts themselves in a better position to not have their application denied if it is reduced and/or expunged.
Standard Operating Procedures
“SOPs” are critical to the success of any business, but particularly cannabis businesses. All too often, however, companies write high-level SOPs for the sole purpose of making it through a license application.
This is a huge mistake. SOPs are critical to any cannabis business that plans to scale since the ability to replicate operations is crucial in terms of quality control and uniformity across locations. SOPs also provide a foundation for employee training and operational efficiency.
Unfortunately, it’s tough to provide a general guide when it comes to SOPs because they should specifically tailored to:
- Your jurisdiction’s regulations,
- Your license type, and
- Your premises
SOPs typically include, but are not limited to the following procedures:
- Quality Control
- Cash Management
- Other procedures specific to a business’s operations
If you’re looking for a place to start, be sure to look at your jurisdiction’s regulations as they set the guidelines a business must operate within. After establishing a baseline knowledge of relevant regulations, begin to consider the unique challenges that your specific property and overall business model represent and how to best comply with the regulations in light of your business’s specific circumstances.
Put another way, do not rely on canned SOPs or SOPs from another business and hope for the best. It may not be cheap, but attorneys or consultants with operational experience are worth their weight in gold when buttoning up SOPs prior to opening a cannabis business.
It is critical that any cannabis business submitting an application not only work with someone who has submitted prior applications, but also with someone who has industry experience. Attorney Kocot has submitted countless successful applications and has operational experience. Operational experience is key to a successful marijuana business application because it ensures that the application demonstrates a well-rounded understanding of how to run a cannabis business compliantly and profitably.
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