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How to Navigate a Marijuana Business License Application: Part 1

by Sarah Cawthon September 24, 2020

This is part one of a two part series. To view part two, click here

The $6 billion cannabis industry is booming, and as more states begin to legalize the use of cannabis, the industry could see revenues near $30 billion annually by 2025 — nearly five times what the industry is worth today.

Additionally, requirements vary not only from state to state, but by business category (i.e. cultivation, retail, testing) and by the city or county in which you are interested. In order to operate legally, it is essential that you meet all necessary regulations.

To help you navigate the application, we have selected key steps to highlight as you begin preparing for a marijuana business license. With that being said, it is important to be familiar with the requirements and laws in the state in which you plan to apply.

Prepare
License holders who do not have a solid business plan and funding are unlikely to succeed. With continual regulatory changes, entrepreneurs need to be well prepared. To begin preparing, start by researching the cannabis market and the laws in whichever state you plan to apply as well as the license application requirements, which can be found on the regulatory department’s website.

Because the cannabis industry is heavily regulated, licensing for cannabis businesses can be particularly complex and competitive. Typically, for every license that is awarded, about seven to ten people will apply to compete for that one license. That means, depending on the number of available licenses in that particular application process, hundreds of people could be working against you for a seat at the table.

You are able to stand out and increase your chances of winning a license by preparing for the process — educating yourself on the marijuana industry, selecting the right team, securing the best location possible, allocating the appropriate amount of funds and crafting a solid business plan, among other things depending on the state, to show the state that you are the best applicant possible.

Once the application period is set, typically around 30 to 60 days, the applicant will need to collect all the necessary documentation needed to complete the application. Being prepared before the application process opens is always a best practice. However, it is more than possible to complete the application from beginning to end during the application process.

Write a Business Plan
The application requires a complete business plan, which will comprehensively lay out the blueprint of your cannabis business. Through executive summaries and financial projections, you will establish the viability and expectation of success for the business.

Write out your entire business plan considering the laws in the state where your business would operate and how those laws might change in the next several years. The cannabis industry is evolving rapidly, so you need to make sure your business is built on a solid foundation yet is agile enough to grow with the market.

Keep in mind that the purpose of a business plan is both for the application process and to show investors, leaders and other potential stakeholders how your company plans to turn a profit.

Depending on the specifics of your business, you’ll have to use your best judgement and the application guidelines to determine which elements you include and which elements you leave out. As a general rule, elements that will help you to plan the launch of your business, or convince an investor to fund your business should be included.

A business plan typically includes an executive summary, company description, market analysis, organization and management, products, marketing, growth and financial projections. You should also provide the benefits and impact to the local community as a best practice.

To get started on your cannabis business plan, our Marijuana Business Plan Template is an excellent place to start.

Build Your Team
You will need to bring in partners and key employees — building the right team is essential to stand out in your application process and as you try to appeal to investors to help secure the capital needed to launch your cannabis business.

Showing that you have knowledgeable, experienced leaders who increase the business’ chance of success will make them more likely to consider investing.

Additionally, the people who review your license application want to see that you have the right expertise and skills on your team to launch a business that will be reliable and successful. For example, a cultivator application would look stronger if a highly experienced, expert master grower is leading the grow operations.

Owners, officers and board members will need to provide, among other things, an organizational chart, proposed titles and percentage of ownership.

Create a Financial Plan
The applicant will need to provide and disclose all relevant financial information for all those with ownership interest in the cannabis business.

The applicant will need to provide a detailed budget for pre-opening, construction and first year operating expenses along with proof demonstrating the applicant has the adequate funding to carry out these expenses.

Additionally, applicants should prepare for permit fees from the state and city in which they are operating, design fees, building improvements, the lease or mortgage and office equipment.

Because cannabis is still considered federally illegal, traditional banks are unlikely to loan you money for your business. So, you will need to plan to use your own savings and investments to get you started.

Regardless of how you obtain funding, one thing is certain – you’ll need more money than you think you will, and you’ll need to prove that you have access to it in your license application.

Our Financial Plan Template was developed by an experienced CPA and includes information you will want to include with your application, and will give you and your investors a comprehensive 3-year projection of what you can possibly expect when selling marijuana.

Secure Property
In the cannabis industry, some local governments are able to exercise great authority with the law even with the state setting the statutory framework. 

Some municipalities are able to opt in or out of allowing cannabis businesses to operate within their borders. Additionally, they may also be able to determine which types they choose to permit and how many are allowed to operate in that jurisdiction.

You will want a copy of the current relevant local zoning ordinance and verification from the local zoning office that the proposed facility location is in compliance with the local zoning rules or restrictions.

Many states require that applicants already have real estate secured for their businesses when the application is submitted. That means you need to find a property that meets the licensing requirements in your state, get approval from the landlord and owner to use the property for a cannabis business and get approval from the municipality where the property is located to use it for cannabis business operations.

Typically, an application will call for the submission of a detailed description and floor plan of your proposed facility. Use our Suitability of Proposed Facility Template to receive an outline of all the information you should include.