Despite a global pandemic, retail sales of medical and recreational cannabis grew more than 40 percent in 2020 and total U.S. sales could reach $37 billion by 2024. In the 21st century, cannabis is one of the fastest growing industries in the country, and only getting bigger as more states legalize the plant.
A total of 43 states and the District of Columbia have medical marijuana programs and 19 states include adult-use programs for recreational use. Last November, New Jersey, Arizona, Montana, Mississippi, and South Dakota all approved medical and/or recreational cannabis legalization measures, and in April Governor Andrew Cuomo signed a bill legalizing recreational use in New York. Alabama authorized medical marijuana, Connecticut recently added recreational marijuana, while Rhode Island and Delaware are on-track to usher in adult-use.
State by State
While the incredible growth in the cannabis industry is attractive, the fact that it is one of the most highly regulated arenas in most states make it a challenging sector for entrepreneurs to enter. Each state has its own regulatory nuances for operating.
Arizona was one of the fastest states to expand from medical marijuana to recreational use. Voters approved adult-use in Nov. 2020 and by Feb. 2021 dispensaries were catering to anyone over age 21. In Arizona there is a 16 percent excise tax and a 5.6 percent retail sales tax on all recreational sales. The sale, possession and consumption of up to one ounce of marijuana is allowed.
While Arizona moved quickly to implement the law, New Yorkers are likely to have to wait a year or two to see adult-use sales in the state. In New York, taxes are a scant 13 percent compared to Arizona’s 21.6 percent. Consumers can possess and use up to three ounces, but regulations and licensing are not estimated to be in place until 2023.
Then there’s Oklahoma, where the regulations are technically medical use only, but flexible enough that the state has almost 2,000 licensed dispensaries serving over 360,000 customers and accounted for over $800 million in sales in 2020.
How to Get a License
While laws for retailing vary from market to market so does the ability to secure a business license to operate a cannabis facility. Licenses are highly coveted and akin to winning the lottery for the companies that are lucky enough to procure one. Cannabis business licenses differ from one state to the other. Some allow for multiple operational functions such as growing, manufacturing and dispensing under a single ‘vertical license.’ Other states require separate licenses for different aspects of the operations. For example, New York’s adult-use marijuana program allows you to apply for a cultivator or a dispensary license, but not both; while Arizona allows you to apply for a single license that allows each licensee to open a retail facility, off-site cultivation and a manufacturing facility.
Most states tend to offer only a limited number of licenses and many states have also allocated a portion of those licenses for what is called social equity.
Arizona, New York, and New Jersey all include a social equity component with their recent adult-use legalization. A social equity program is the state’s way of ensuring diverse business owners (minorities/women/veterans). Those who were adversely affected by the past persecution of marijuana offenses can also get a share of the cannabis pie.
Federal Confusion
Because marijuana is still illegal at the federal level, the rules for interstate commerce and multi-state operators become complex. For years there have also been big issues around banking and cash processing. The SAFE Banking Act however, could be a huge benefit to cannabis businesses if it passes as expected.
Because of the financial industry’s leeriness to work with cannabis companies due to it’s federally illegal status, businesses have had issues transporting and processing money. The SAFE Banking Act was reintroduced to the House and Senate in March and with bipartisan support, is expected to pass. The Act creates a “safe harbor” that will protect credit unions and banks from federal prosecution if they work with marijuana companies in states where it is legal. Passage of the SAFE Act would remove the cash-only status of the industry, making it easier for businesses to get loans, and creating a safer operating environment for dispensaries.
More federal reform on marijuana could be in the works as Senate Majority Leader Chuck Schumer and Senators Cory Booker and Ron Wyden are putting together new legislation. As majority leader, Schumer has the power to bring bills to the floor so there is no doubt federal reform will be dealt with at the legislative level soon. What is unclear is whether President Biden would sign any cannabis reform bill into law.
Getting Involved
For entrepreneurs and businesses looking to get involved in cannabis retail, cultivation, manufacturing or distribution — it all starts with securing a license.
As discussed, each state and local municipality have their own idiosyncrasies, understanding them is one of the most important elements to the success of your application/licensing.
Typically, a state will establish their cannabis program with a mission in mind, to resolve an ongoing health or equality issue the state currently faces. Make sure your mission and vision for your proposed business aligns with the state where you are applying. For example, Maryland issued additional medical cannabis business licenses to ensure minority participation in ownership. In West Virginia, the medical cannabis program is geared toward reducing opioid related deaths, while Illinois is looking to rectify social injustice through their social equity program.
It’s imperative that you build a strong team to help you secure a license. This often includes cannabis consultants, legal counsel, and like-minded business partners.
States will also want to see that you have given careful consideration to a dispensary, cultivation, or manufacturing/processing location. You want to ensure you select a site that is zoned for a cannabis business, which means paying attention to rules that prohibit operations within a certain distance from schools, daycare facilities, parks, churches and more. In retail, you also want to have your pulse on the community to understand if a dispensary would be well received by the local population. It’s also better to choose a freestanding building to control security and parking rather than in a strip mall or group business setting.
While cannabis is a lucrative industry, getting started takes hefty capital investment. Expect to spend at least $30,000 just for the license application. Pending on professional services and the state’s application fees and requirements, applications can cost up to $250,000. Currently, there are no small business loans available for someone operating in cannabis. That may change if the SAFE banking act becomes law, but in the current climate you will need enough capital to open and support your first year of operation. It’s helpful to put a three-to-five-year financial projection plan together to understand these operational costs to determine funds needed.
Cannabis Consulting
With all the intricacies and nuances in the cannabis industry, it can be very helpful to engage a consultant to help you navigate your market entrance, operations, and multi-state expansion.
At The Cannabis Business Advisors, we help those wishing to acquire licenses, and also those with active licenses in dispensary retail, cultivation, manufacturing, processing, delivery and other segments of the highly regulated industry. Led by Founder and CEO Sara Gullickson and President Maxime Kot, The Cannabis Business Advisors have over 20 years of combined industry experience with in-depth compliance expertise to help entrepreneurs succeed in the growing cannabis space.
Our team is well versed in each state’s specific regulations and has secured licenses in over 17 markets while also assisting on international cannabis program development. With a keen understanding of cannabis market trends, we evaluate new opportunities and build complex business cases encompassing opportunity sizing, competitive strategy, functional requirements, and execution timelines for license applications.
Opportunities Abound
The cannabis industry is still in its infancy and offers huge growth and upside to entrepreneurs who are willing to shape the industry and wade through its tangle of regulations. For more information on how to get involved, visit TheCannabisBusinessAdvisors.com.
About The Cannabis Business Advisors:
Based in Phoenix, Arizona, The Cannabis Business Advisors (“CB Advisors”) is a multi-faceted consulting firm providing strategic business guidance for cannabis license applicants and current license holders throughout all stages of growth.
CB Advisors is led by CEO and Founder Sara Gullickson and President Maxime Kot. The consulting team brings more than twenty years of combined industry experience, spanning across the U.S. and around the globe. CB Advisors offers a comprehensive suite of services, including application and licensing preparation, operational analysis, merger and acquisition support, policy and procedures, exit strategy guidance, and business development planning.
CB Advisors is located at 4203 E. Indian School Rd., in Phoenix, AZ. For more information visit thecannabisbusinessadvisors.com or phone 602-730-2986.