Applying for a Cannabis License – Everything You Need to Know

According to projections, the U.S. cannabis industry will be worth around $39.85 billion in 2024.

This number is yet another indicator of the rapid growth that this relatively young industry has been demonstrating for over a decade now, and with new states legalizing medical/recreational cannabis every couple of years, it shows no signs of stopping.

Over the past couple of decades, the attitude toward cannabis has seen a significant shift as well. What was once considered a dangerous drug has quickly become a safer, more natural alternative to alcohol for millions of Americans. This newfound perspective and the distancing of cannabis from its much more dangerous chemical counterparts has certainly impacted consumer demand.

Aiming to satisfy this demand, hundreds of cannabis businesses started cropping up across the country. After all, this is one of the fastest-growing business sectors in the U.S., so it’s no surprise that so many people would like a piece of the revenue. However, with licensing restricted to a certain number of businesses, it can be easier said than done.

In this document, we’ve compiled expert advice and general best practices to help you navigate the procedures and prerequisites that will maximize your chances of obtaining a license.

Getting Started

The first thing to consider before applying for a license is location. Where you decide to open your business could affect the simplicity of the licensing process, your customer base, and potential profit.

We suggest choosing a location close to your residence since many applications award extra points to locals. Make sure to do some research on the regulations of the region you’re planning to operate in, especially when it comes to state and municipal taxation in the area.

But at the end of the day, if you want to maximize your chances of winning the application, hire a lobbyist who can help you navigate the legal and ethical intricacies of the region. A professional can help you meet the often unique state requirements necessary to obtain a license.

License Types

Cannabis licenses can be categorized into two types: Plant-Touching and Non-Plant-Touching. 

Plant-Touching Licenses

These licenses are meant for the aspects of the supply chain that deal with the product directly.

Cultivation – With this license, you can grow and harvest cannabis plants.

Processing – With this license, you’ll be able to trim and dry cannabis for subsequent product manufacturing.

Manufacturing – With this license, you’ll be able to produce cannabis derivatives (concentrates, edibles, topicals, etc.) and package cannabis products.

Distribution – With this license, you can distribute your products to retailers.

Micro-Business – With this license, you can complete the entire process on a smaller scale. Growing, processing, and selling cannabis on your premises, both at retail and wholesale levels, will be permitted.

Non-Plant-Touching

Retail License – This license allows you to sell cannabis products to consumers. This can encompass stores, delivery services, and online platforms.

Application Type

The recipient selection process can be categorized into Merit-Based and Lottery-based.

Merit-Based

The merit-based selection process focuses on identifying businesses with the highest likelihood of success. Each aspect of the company is evaluated (experience, compliance, and available assets), so you’ll be in for a challenging yet fair fight.

The upside of a merit-based system is that it evaluates objective criteria. This means you can improve your chances of securing a license by pouring more time, money, and effort into your future business.

The downside of a merit-based system is that securing an application becomes a much longer, more expensive process, and smaller retailers might get priced out by established businesses that can afford to spend more money on completing prerequisites.

Lottery-Based

The lottery-based selection process selects applicants from a predetermined list at random. The business is not evaluated during this process, so you’ll have a random chance of getting a license each time.

The upside of a lottery-based system is that chances are truly equal between all participants, and it takes much less effort and investment to get your application ready.

The downside of a lottery-based system is that the business plan itself needs to be considered, which means more work doesn’t translate into a higher chance of winning the application. In addition, you must pay each time you participate in the lottery, and the costs could add up quickly for smaller businesses.

Preparation Time

If you’re looking to enter the cannabis business, you must learn to play the long game. We recommend starting the work to obtain a license at least a year or two before the municipality opens the application window.

Depending on your current circumstances, bringing your idea to fruition could take up to five years. Of course, the timeline will be shorter if you already have investors and industry connections.

Speaking of industry connections, starting early gives you plenty of opportunities to make some. You’ll be able to scope out real estate for your future business and get a better deal since commercial real estate prices tend to jump when cannabis is legalized. Other roadblocks that inevitably occur during the conception phase of a future business venture will also present themselves earlier, allowing you to tackle them with relative ease. 

Resources

The cannabis industry is a resource-intensive field, and that’s true for the application process. You’ll need a considerable amount of resources to score a license. 

Human Assets

Suppose you’re serious about becoming a licensed cannabis retailer. In that case, you will need a team to draft a bulletproof application. 

We recommend comprising your team from an Attorney(s), Lobbyist, Real Estate Consultant, Project Manager, Architect, and Cannabis Compliance Specialist. It can be helpful to look out for professionals with prior experience in the cannabis field since they’ll have a deeper understanding of the potential pitfalls that need to be avoided.

These people will help you sort out the most critical aspects of the business and get you on track to that much-needed license.

Funding and Real Estate

As with any business, starting a successful cannabis operation is associated with significant costs. You must secure total funding for your venture before submitting your application; having a substantial amount of overhead in your budget is essential to account for unexpected costs.

Regarding real estate, you must have space before submitting your application. Finding a suitable space with minimal holding cost will put you on track to a successful application.

Funding

Proper funding sets the stage for a successful business. You must account for all necessary costs with proper overhead to ensure you have enough money during the application process or soon after.

Here are some necessary costs to account for:

• Application fees to the city
• Non-refundable deposits on real estate acquisition
• Real estate holding costs while waiting for approvals
• Application writers 
• Construction of a suitable space for your business type (whether it be cultivation, distribution, or retail)
• Contractors to complete the work
• Labor costs (dispensary staff)
• Economic impacts (interest rate fluctuations, inflation, cost of labor, etc.)

Preparing Your Budget

After calculating the costs mentioned above and leaving sufficient headroom for unexpected expenses, you’ll have a rough estimate of how much your budget should be.

Please remember that this business will be costly in the current economy with higher inflation, rising labor costs, and astronomical rent prices. We recommend having at least two to three hundred thousand dollars before applying before acquiring a property. If you want the maximum amount of headway for unforeseen expenses (there will be many), you’re looking at somewhere around four to six hundred thousand. 

Once again, this is not an industry where you can start cheaply. Many businesses get wiped out by expenses that must be accounted for in the planning stages. If these amounts seem too large now, consider other avenues.

Acquiring Funding

When it comes to acquiring funding, you have several options. You could take out a loan, contact relatives, make a cold call, etc. It’s hard to say the right way since that depends entirely on your situation, connections, and possibly credit history.

Here are some pros and cons for some of the most common methods of acquiring funding:

Loans – Business loans can help you acquire the total or partial amount for the business.

Pros:

• You have clear agreement terms and a set repayment schedule.
• Funds are usually received quickly. 
• You don’t have to give up equity in the future business.

Cons:

• Heavily dependent on your credit history.
• Tedious evaluation procedures.
• You might not be able to repay the loans if unforeseen issues arise.

Relatives and Associates – At first glance, this might seem like the safest option; these are your relatives. However, it’s usually more complicated.

Pros:

• You could secure some funds with relative ease.
• Negotiable payment conditions (you could promise equity in return for the investment).
• Leniency in case of total failure (within a certain margin, of course; most likely, many will want their money back).

Cons:

• Heavily dependent on your relationship with the person.
• Potentially strained family relations.
• Lower investment amount (obviously not applicable if they have much to invest).

Cold Calling – Cold calling can help you gather the necessary budget for your venture. Still, it can be tedious and time-consuming.

Pros:

• A potentially infinite pool of investors.
• Flexible repayment terms.
• It can help you prop up your application if many locals are invested in it.

Cons:

• Extremely time-consuming.
• Potentially irritating (both for you and the person who’s being cold-called).
• Lower chances of securing the necessary funds (people are weary of new cannabis businesses since so many of them tend to fall apart)

Real Estate

Depending on the state where you’re applying for a license, you might or might not need to secure real estate before submitting your application. In most states, secured real estate is mandatory when applying. However, outliers like New Jersey and Florida do not require real estate to approve an application. Research the spaces to operate and consider hiring a real estate agent experienced in working with cannabis businesses.

Working Around Zoning Restrictions

When securing real estate in the right place, your best bet would be hiring a consultant. They can compile green zone areas even before they’re announced and help you avoid the cannabis premium later on. They can also guide you away from unacceptable zones (near a school, park, or a residential area).

Necessary Space

The amount of space you’ll need will depend entirely on the intended purpose of the facility and the production scale you’re looking for.

Retail – For retail cannabis sales, you don’t need that much space; a good number to aim for would be somewhere in the neighborhood of 2,500 to 5,000 square feet. However, smaller businesses can get away with about 1,500 square feet.

Distribution, Manufacturing, and Testing – You should be eyeing larger spaces for these types of businesses. Usually, they range from 2,000 to 5,000 square feet.

Productions With Larger Packaging – If you plan to manufacture cannabis beverages or any item with a larger footprint, you’ll need even more space. We recommend aiming at 10,000 square feet.

Cultivation – Despite training, trimming, etc., a well-maintained cannabis plant can have a large footprint. So, growing spaces should be at least 10,000 square feet to accommodate the plants.

If you’re starting, acquiring a smaller space at first might make more sense and expand when needed; however, that depends on your plans and available finances.

Mitigating Cost

Regarding real estate, you can expect to pay 10-20% more when you run a cannabis business. These extra costs must be accounted for in your budget. Otherwise, you’re risking getting a worse space than you expected or not being able to secure a space at all.

Please get in touch with an experienced real estate agent with a proven track record of securing cannabis deals. Landlords can be strange regarding cannabis businesses, so having an experienced person in charge is helpful.

Consider making the business multi-purpose and running several establishments from a single space; however, please consider local laws and regulations before taking this approach.

Social Equity 

The war on drugs impacted many marginalized communities and shaped intergenerational trauma that can still be felt by thousands of people today.

It’s no wonder that some states want to offset the negative impact on these communities by implementing social equity programs in the cannabis industry.

So, if you’re in one of the states with this program (New York and California), you’ll need a social equity partner. This should be a person who was either directly or indirectly affected by the disastrous drug war legislation. Ideally, they should be well-known and respected in the community, and most importantly, they have to be a partner with decision-making powers (owner/business partner). 

The Importance of Social Equity

As mentioned above, the disastrous effects of the war on drugs have been felt by marginalized communities for decades. These policies were often used to keep down the “undesirables,” and those undesirables often turned out to be people of color and the economically challenged.

The deeply rooted injustice of getting arrested for a joint that was meant for personal use and serving more time than some murderers will indeed remain in the minds of many Americans for years to come.

For now, the only thing that can be done to at least attempt to right these wrongs is a diligent approach to social equity. This would encompass hiring individuals with a prior history of cannabis-related violations, hiring people from low-income communities that were usually hit the hardest, and ensuring that you maintain a fair and compassionate approach to all of your employees, whether they’re part of a marginalized community or not.

If you want to heighten your chances of securing a license, we recommend bringing on community leaders and well-known individuals as business partners; this will help you get the necessary credit with the community itself and ensure diverse and equitable employment for everyone involved.

Application Tips

The initial instinct for many people is to get the application out of the way and focus on setting up aspects of the business. This is an attractive approach but needs to be revised. You must give yourself time and resources to create a meaningful, outstanding application.

Be very specific in your application; this is not the type of document that welcomes esoteric thought. Try to focus on the business’s specifics and create the most understandable, approachable, yet detailed document you can.

Hiring a writer will make this part of the application much more accessible; try to find someone who’s worked on similar documents before and will have the necessary understanding to strike the correct tone.

Don’t just check off the list of requirements and call it a day; your application must stand out if you’re planning to get that license. Try getting community leaders involved to generate some local buzz and give detailed compliance descriptions to illustrate how serious you are about regulations.

Approval Timing

Even after all this work is done and the application is submitted, you’ll have to wait long before getting an answer.

Usually, the state itself is quicker when it comes to this process. However, local municipalities might take anywhere from 6 months to a year to return an answer since these documents are about 500 pages long and are often short-staffed.

The Interview

So you’ve been invited to an interview; congratulations! But wait to get too excited. Most of the time, getting an interview doesn’t equal getting a license, and it’s usually as crucial as the application itself.

Ensure you properly prepare for the interview, thoroughly review everything, and choose the right people to accompany you. Seeing a team of people constantly correcting and talking over each other will leave a poor impression on the interviewers, so make sure you and your team are on the same page before going to the interview.

Remember, the business aspect is just a part of the whole deal; you must present as a likable individual with community credit to have a high chance of winning the license.

We recommend bringing certain community members with you so they can attest to your professional, interpersonal, and ethical qualities.

Operational Time Frame

Most cannabis businesses take anywhere from a year to a year and a half to become fully operational after winning an application.

This time frame works for most cannabis businesses (Storefronts, Delivery, Distribution)

Growers and manufacturers can expect even longer wait times since preparing the facilities necessary for these types of businesses usually takes several years.

Hiring

The right people can make or break a business; making the right decisions early on is essential, as well as ensuring your staff is aligned with the company mission.

A competent manager would be the right start. Given how competitive the cannabis industry has gotten over the years, it can be challenging to find someone who can manage employees, sales, and inventory all at once (these people usually already have a job that they’re satisfied with), so most likely you’ll have to make some concessions and hire someone who compliments your weak points, this way the two of you can fill in the knowledge gaps and build an excellent business. You could hire several managers for each facet of your business, but that can get quite expensive.

Frontline staff is arguably the most essential part of a retail business; they’ll interact with customers constantly, so choosing people with the right interpersonal skills is necessary. Try to assemble a well-structured, direct onboarding document that will clearly outline what’s required from the employee.

Most importantly, try to foster a friendly, inviting, yet responsible atmosphere so your employees are focused and have fun at their job (you can always tell when someone hates their job, and that can reflect on customer impressions).

Suppose you also offer competitive compensation packages on top of that. In that case, you’ll become a highly desirable employer.

Compliance 

The cannabis industry is one of the most regulated sectors of the economy; every part of the product’s journey is meticulously recorded and monitored by different track and trace providers. There are hundreds of rules when it comes to the proper handling, storage, and sale of cannabis.

Such a heavily regulated industry can be challenging to navigate even for experienced entrepreneurs, and when you couple that with the ever-changing content of those regulations, keeping up becomes impossible.

If you want to navigate these tumultuous waters, you’ll need a compliance specialist. They will constantly keep up with regulatory changes and update company policies accordingly.

An experienced compliance specialist can put your mind at ease since you’ll always know that the regulatory aspect of the business is in safe hands.

Security

Keeping your store, employees, product, and revenue safe should be one of the critical considerations when you’re planning to start a cannabis business.

Since the goods you sell are still illegal under federal law, there’s a significant incentive for criminals to obtain and later sell your goods at a higher price (probably in a different jurisdiction). Couple that with the fact that most cannabis dispensaries primarily operate in cash, and you’ve got a perfect score for the aspiring criminal.

Thankfully, reasonable security measures can deter most perpetrators from even attempting a robbery in the first place. Most municipalities have strict requirements when it comes to security. We recommend that you research these guidelines and beef up security in areas you think are vulnerable.

Additionally, you could hire a security expert to evaluate your current security measures (if your budget allows for it, of course).

Actionable Steps

The first thing you need to focus on is 24/7 video surveillance. This is arguably the most crucial step of the security process and is required by certain states (New York, for instance). You could also hire armed/unarmed security guards as a deterrent and a last resort.

We recommend putting extra effort into the security aspect of your operation. It won’t be cheap if you maximize your security, but if something goes wrong, you’ll be glad you did it.

Additional Tips

Fostering a supportive environment for your employees and maximizing work on critical aspects of your business can put you ahead of the competition. Here are a few tips to maximize your chances of success:

Invest in Marketing

The cannabis business is highly saturated, and there are a lot of big players with even bigger marketing budgets. If you want to make as much of a dent in their market share, you’ll have to spend considerable money on marketing. Of course, you could constantly develop an inventive way to gain traction. Still, a solid marketing plan and budget are necessary.

Find the Right Real Estate

Finding a suitable space for your business can be challenging. It’s extra tough when entering a heavily regulated industry with a history of egregious rent pricing. Just make sure to negotiate when it comes to rent or lease pricing. Landlords frequently assume a cannabis business owner will pay more than other businesses. Breaking this perception early ensures you’re not overpaying for the property. A good realtor with a history of work in the cannabis industry can significantly simplify this process.

Hire the Right Team

The right team can make your business run like clockwork and increase revenue. Ensure you have a well-structured hiring process with clearly outlined, achievable goals. Foster your facilities’ caring and supportive atmosphere and offer a competitive salary/benefits package. If you follow these guidelines, you will have sufficient qualified staff.

Onboarding & Training 

Position your company as a growth opportunity for the young and inexperienced (most frontline staff usually are). You can teach them transferable skills and offer a clear roadmap of accession up the ranks. In that case, you’ll become a much more attractive employer.

It’s also important to remember that rewards should accompany challenges, so if you play your cards right, you can maximize productivity and employee satisfaction without massive costs.

If You Get Denied

Despite all the work that’s been done, you still might need to get your application approved. It could even be expected depending on the application type (Lottery).

If you’re in this situation, you have a few options:

Reapply – A failed application can be an excellent opportunity to understand what happened. It can help you iron out the minor issues that might’ve led to the denial and secure a license in a different jurisdiction or municipality.

Appeal – If you think your application was denied for specific reasons unrelated to its quality/ proposed business plan, you could appeal the decision.

Sue – We recommend avoiding this option since a lengthy legal battle with the government rarely ends well and doesn’t come cheap. Expect to spend nearly as much as you did on your business in lawyer fees if you decide to pursue this option. Most importantly, if you’re serious about suing the government, submit an appeal for the denial (your lawyers will need a paper trail).

Expected Losses

Unfortunately, in case of a denial, you should be prepared to lose a sizable portion of the money invested in the business. This could include any non-refundable deposits on property, expert fees, renovations, etc.

The most important part is to stay encouraged; denials happen constantly, but you can apply in different states and municipalities. Remember, different people are in charge of the review process in different municipalities. You could still secure a license in a slightly different area if you apply.

Keep an open mind and apply while you integrate the lessons learned from previous denials. If you don’t get discouraged and apply in different parts of the area, your chances of success will increase dramatically.