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Marijuana Industry News September 13, 2019 MJ Shareholders
As new states legalize and regulate cannabis, prospective business owners looking to set up shop in these new markets must first navigate the license application process. How can entrepreneurs craft winning licensing applications to set their business plans in motion?
While all eyes are currently on Illinois’ adult-use market, which is set to launch Jan. 1, there are many similarities across all states’ licensing application processes, and core strategies can be carried over and modified based on a specific state’s application, according to Derek Sigman, director of licensing for SIVA, a full-service cannabis business development firm that provides full state license application support, among other services.
Here, Sigman outlines his top tips for securing a cannabis business license in Illinois and beyond.
1. Perform a self-assessment of the team.
The first step of the license application process should be an honest assessment of the team members that make up the group of applicants, Sigman says. This includes identifying everyone’s unique skillset, as well as the team’s overall vision.
“Part of this process is making sure that you guys have a well-rounded team, that you have people who have experience in cannabis, compliance, marketing [and] operations,” Sigman says. “What you’re going to do when you put the application together to stand out is not just demonstrating, ‘Look, we want to open up a retail facility. Here are our SOPs. Here’s our environmental plan.’ You want to be able to tell a story about your group, what you represent and what you want to accomplish within the community.”
While the most important area of a business license application used to be a company’s operating procedures, over the past year or so, that’s been supplanted by the question of who the applicant actually is.
“What’s your professional experience? What have you done for the community?” Sigman says. “A lot of that … comes back to the self-assessment, where you’re always going to have a couple people that really stand out within your ownership and your management group, and you want to be able to highlight those individuals’ skillsets and experience as you start crafting some of your answers.”
2. Establish a solid employee training plan.
A business’s training plan for its employees should be clearly demonstrated on the application, Sigman says.
“Your training plan really is a core component of your business, and we always encourage applicants to offer training that extends beyond what is required by the state,” he says. “Being able to offer your employees training related to personal and professional development not only demonstrates your commitment to providing meaningful employment opportunities, but it also sets up your business to be able to hire and promote from within so that the people who may be working in a dispensary for the first time today can become your store managers tomorrow.”
3. Work with someone who has experience in the cannabis licensing process.
There is no question that the cannabis business license application process can be daunting; if a state does not implement character or page limits on its licensing applications, applicants could submit up to 700 pages, detailing every detail of the business, Sigman says.
Therefore, once a group of applicants has identified its specific strengths and weaknesses through the self-assessment process, it may be time to hire a consultant experienced in cannabis licensing, or at least turn to another cannabis business operator for guidance.
“We always encourage people to work with somebody in the industry, whether it’s a consulting agency or whether it’s somebody who just has extensive experience,” Sigman says.
Working with a third-party also offers a fresh perspective, he adds. “Oftentimes, groups … will become personally vested in how their business is presented, which is a good thing, but it can also be difficult to truly and impartially analyze the strengths and weaknesses of your business and your applications. Working with a third-party consultant can help ensure that you have a group of people that are able to provide that neutral and essential feedback throughout the development of your application.”
4. Implement—and adhere to—internal deadlines.
As prospective business owners go through the license application process, Sigman says it is vital that they implement internal deadlines for completing the various sections of the application—and that they actually stick to those deadlines.
“When you go to submit, there’s always something else you could’ve done, whether it’s adding an individual to the group that strengthens a portion of your management group [or] establishing a relationship with another civic or local organization—there are always ways you can improve it,” Sigman says. “What you don’t want … is a situation where, leading up to the final days of submission, you’re still waiting for a formal relationship to be established. Every change that you make is going to impact multiple layers of the application. You want everything to read cohesively.”
The application timeline will ultimately be determined by the state, based on when regulators release the application and begin accepting submissions, but even before the application is released, there is work to be done, Sigman says.
“We always encourage people to give it four to six months, and a lot of that goes back to being able to develop relationships in the community,” he says. “Even when you’re looking at a situation when the application window is only a month, the process really needs to be started several months prior, and that’s why we’re encouraging people who are serious about submitting applications and going in on this particular bid [in Illinois] to start putting together your groups and start contacting people as soon as possible so you can get those relationships in place.”
5. Select a location where you already have ties.
When deciding on a location for your business, it is more important to consider areas where you already have connections than to look at regions that have less competition, Sigman says.
“The way Illinois is doing it, there are only a certain number of licenses available in each particular region,” he says. “If you’re trying to play the odds, your odds are higher when you apply to areas that have a higher population and [a] higher [number of] retail licenses available. That being said, those are also the areas that are going to attract the most attention and have the most competition. So, it really comes down to why you want to locate in a particular region. If you have a group of people who have ties to a particular region, whether they grew up there or they’re currently working there, I would highly recommend that people start focusing on those particular areas.”
6. Build relationships in the community as soon as possible.
Once a group settles on a location, Sigman says it’s time to start generating ties with the local community. This process should begin almost immediately upon a group deciding that it wants to pursue a license in a particular area, he says, as it is the most time-consuming aspect of the licensing process.
“When you start talking about the application, when you’re going through making the written responses, the time that it takes to complete those is in your hands. It’s something you have a great degree of control over,” Sigman says.
Applicants should consider working with certain leaders and stakeholders in the community, he says, whether its collaborating with local law enforcement on a security plan or reaching out to educational and religious business leaders to establish relationships and receive feedback.
“Ultimately, … you want to be a part of that community, not just a business that’s located there,” Sigman says. “The people who are going to be able to provide important feedback are the people that are located there. You can do things such as establishing community advisory boards, where you get people who live near the dispensaries [and] different stakeholders and leaders within the industry who have a connection to your business and meet on a regular basis to provide feedback. Give back to the areas that the members of the community say are most needed.”
7. Clearly define your approach to social equity requirements.
The aspect of Illinois’ adult-use cannabis licensing process that stands out to Sigman most is how the state set up its social equity program. When applying for a license in states with social equity requirements, it’s imperative that businesses define a clear approach to how they will meet these requirements.
“Illinois is implementing a new set of criteria for Social Equity Applicants that really extends opportunities to businesses and individuals throughout the state,” Sigman says. “One of the unique components of this particular program is that it extends the qualifications of social equity to family members of individuals that have been impacted by the prior criminalization of cannabis rather than just the individual that was convicted. It’s an important step toward acknowledging the negative impact that criminalization has on entire families and communities.”
In most states’ social equity programs, an applicant must have a certain percentage—usually 51 percent—of equity and control reserved for entities that qualify for that particular state’s equity program. In Illinois, however, there are additional ways that applicants can qualify as Social Equity Applicants.
“With Illinois, the applicant also has the option of having 51 percent or more of their employees living in disproportionately impacted communities if they employ 10 or more people,” Sigman says. “This indirectly incentivizes applicants to find locations that are in or near these disproportionately impacted communities so that they’re located in an area where they can offer employment opportunities to the members of these communities.”
When applying for licenses in Illinois and beyond, applicants should thoroughly understand the state’s social equity requirements and clearly articulate how they will apply under the social equity program, if applicable.
8. Maintain excess capital reserves.
Finances always play a part in the application process, Sigman says, although the actual importance of a business’s financials varies state to state, depending on how much weight regulators apply to this particular area.
To find success in this area, businesses should take an honest look at their sales projections, Sigman says. “You want to make sure that your projections are actually based on assumptions that are realistic and defensible. … The state knows when you’re inflating your overall revenues to try to demonstrate a high amount of tax revenue.”
The amount of cash an applicant needs on hand will largely depend on the area in which he or she plans to locate, he adds, and operating expenses also need to be considered.
“Real estate is always going to be one of your biggest up-front expenses, and when you start looking at how much capital you actually need … and how much you need to demonstrate in the application, you want to be able to at least show that you have … 20 percent [more capital] than what your anticipated operating costs are,” Sigman says. “When states start looking at groups for preliminary approvals for awarding a license, they are going to be wanting groups that are going to be able to enter the market quickly.”
9. Go beyond the minimum requirements.
“One of the things that we always encourage people to do is to make sure that the business plan you’re putting together, you use the regulations as a guideline, but those are really the minimum for what you need to do,” Sigman says. “Everything you put together is going to have to be in excess of what the state actually requires, and having a clear vision of what you represent and what kind of business you want to be, that really guides the entire application process.”
Security plans, for example, are one area where businesses should exceed expectations.
“A lot of the security standards are going to be dictated by the regulations, but when you put together your application, you’re going to need to demonstrate your plan extends beyond just hitting the regulatory requirements,” Sigman says. “You’ll need to incorporate mechanical security systems, virtual security systems and standard operating procedures that show a tremendous amount of forethought and understanding of the risks facing cannabis retailers.”
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