By Noelle Skodzinski
Diane CzarkowskiDiane Czarkowski
If you're looking to open a dispensary or cultivation facility in a state where medical or recreational marijuana is legal, you might need to spend hundreds of thousands of dollars just to put your hat in the ring. It is "not atypical" to spend such a large chunk of cash preparing to submit your state application, says Diane Czarkowski, managing partner for Canna Advisors, a marijuana consultancy that has helped prepare winning applications in five states.
Here's what Czarkowski and her team say you'll need all the money for, along with some additional pre-application considerations for marijuana-business hopefuls:
1. Financing. Get your funding and financial plan in place. State organizations that review applications will want to know not only that you're well-funded, and that your funding sources are stable and legitimate. No state will risk awarding a license to a business that can't fund itself through opening or whose funding sources are questionable in any way. Keep good records. Show the state where the money is coming from, the terms, and that you are authorized to use the money unconditionally toward your proposed business. Some states additionally have required the winning applicants to submit a hefty bond to receive their permit–another requirement to prove your venture is financially stable.
2. Real estate. You will need to have your location identified, and purchased or rented before you apply for your license. And, if you're renting, the proprietor must sign a statement that they approve of the proposed business at their property. You also need to contact local officials to make sure your selected location is in an area that is zoned for legal marijuana businesses. Even if a state has legalized marijuana sales, municipalities have jurisdiction to ban marijuana businesses, and many have done so. Other zoning considerations include proximity to schools and other locales frequented by children, and includes places of worship, such as churches and synagogues. Do your due diligence with local officials before investing any money.
Also consider how long it takes to find a property and negotiate a lease. Do not take this lightly. Many components of an application cannot be completed until a property is secured: financials, security layouts, vault specs, operating procedures, etc. Being the early bird for real estate can be crucial. “Land grabs” can and do occur, especially for warehouses and other spaces large enough to locate a cultivation facility.
3. Attorneys. Attorneys are an absolute must for any new business, but especially for a marijuana business. In states where there is no existing marijuana industry, it is important to find an attorney who is on or has worked with the regulatory agency assigned to manage the licensing process. Knowing and understanding the regulators' overall temperament and communication preferences is critical to understanding what emphasis needs to be placed in particular areas of an application. If there is a current marijuana industry, it's advisable to work with an attorney who is experienced in the marijuana industry, as he or she will be up to date on regulation and compliance issues, as well as know the ins and outs of this constantly evolving (and still federally illegal) business.
4. Facility design. The state wants to see that your facility is professionally designed, and that you have the support to build it once you receive a license. From architectural plans to build-out, this can be one of the most expensive aspects of preparation. Facility design is especially challenging for cultivation businesses–few people have the expertise to design a commercial cannabis greenhouse or indoor facility. Be prepared to pay a professional’s fees. Your facility design and standard operating procedures will significantly impact your bottom line.
5. Application and licensing fees. You need to account for application fees, licensing fees and annual renewal fees. Application fees for marijuana business licenses can cost a chunk of change in themselves, ranging from a couple hundred dollars to tens of thousands of dollars. (And you won't get that money back, even if your business is not awarded a license.) Once your business is selected from the pool of applicants, licensing fees will cost you anywhere from $1,000 to hundreds of thousands of dollars.
As Cannabis Business Times reported in its "State-by-State Guide to Marijuana Application and Licensing Fees":
"Washington currently has the lowest fees, with a $250 application fee for retailers or wholesalers/processors, a $1,000 annual fee (initial and renewal), and the same fees applying to manufacturers, for up to 30,000 square feet of dedicated plant canopy.
Illinois currently has the highest fees, charging cultivators a $25,000 application fee (nonrefundable), a $200,000 licensing fee, and a $100,000 annual renewal fee. For dispensaries, the fees are slightly lower, but still among the highest charged: a $5,000 application fee (nonrefundable), a $30,000 licensing fee, and a $25,000 annual renewal fee."
6. Security. Your business will need to comply with state regulations that specify where security cameras need to be located (e.g., anywhere product is stored or cash is handled), how product must be secured, as well as how surveillance footage is stored and for how long. Systems cost thousands of dollars, and as with most things, you usually get what you pay for. Also, complying with regulations can be different than security, as security expert Noah Stokes of CannaGuard Security has explained. For starters, state inspectors may approve camera layouts that are established prior to the business being in operation, but once plants/product, employees and–for retail shops–displays and customers are on the scene, camera views can become obscured.
7. Consultants. Many consultants specialize in specific aspects of launching marijuana businesses. If you decide to tap the expertise of of a consultant–whose services range from extractions and infused products to facility design and marketing–you'll need to include the costs in your budget. Make sure they are properly vetted for actual experience and success in the licensing process.
8. Headhunters. This is an often-overlooked, but often-needed service, especially if you're interested in opening a cultivation facility. You may need assistance finding the right team. State application-reviewers require background information on everyone who will be involved with or employed by your business. (You can expect to pay registration fees for each employee as well.) For example, you may need an extraction specialist and have no idea where find one–or the one who best fits your business.
9. Time. Czarkowski says she cannot stress enough to her clients the amount of time the application process will take. The most underestimated time sink: formatting, printing and assembling the application. It may sound like a simple process compared to actually writing and completing all the required documentation, but producing the physical application is quite a chore. Application instructions can be very explicit, specifying certain fonts, spacing, and binding restrictions, and states usually want several copies–some of them redacted of all identifying information. On the application deadline, at the government building where the applications must be submitted, you’ll find several other applicant groups scrambling to finish.
10. Networking. Build the cost of networking into your budget–usually a few hundred to $1,000 or so. Industry organizations have yearly fees, but you can make powerful connections. Getting to know and getting advice from others who are experienced in the industry can be priceless.
