In the marketplaces of the future, applications are the most affordable ROI for new cannabis companies to enter new markets. As well, entering new states creates opportunity for existing operators to expand their licensed footprint. Most new markets focus on merit-based scoring. This type of scoring requires substantial time, effort, energy, and expertise to effectively compete and win a cannabis license. This article reviews important aspects of generating multi-state applications.
When our clients apply in a new state, we often help operators, investors, and business owners understand what they need to know, how they must structure their teams/business, and how to best prepare for winning a cannabis license.
Teamwork Makes the Dreamwork
The first step forward means defining the team that will present to application assessors to leverage as many points as possible. Commonly, applications ask for experience in related industries to cannabis such as agriculture, pharmacies, and pharmaceutical or food manufacturing. Additionally, cannabis experience relevant to the application(s) also act as important factors.
Defining Roles & Responsibilities
As such, applicants should structure their ownership team and entity to leverage these required skills. This means developing defined roles and responsibilities to leverage as many points as possible. Depending on the organization, the following positions remain critical to consider:
- Experienced cannabis operator(s)
- Finance and investor(s)
- State-specific merit point applicants
Often, merit point applicants include people of color, women, residents, and veterans who have preferential points awarded to the application. These points are often rewarded for the merit of who they are and what they bring to the organization. In these cases, applicants should structure operating agreements that do not disenfranchise these applicants in the overall organization.
Avoiding Pitfalls in Multi-State Applications
Regulators increasingly review operating agreements in detail. They wish to ensure that these merit point applicants aren’t being positioned as straw men/women that simply appear to have control and influence in the organization. As well, regulators want to ensure applications are positioned to be bought out if and when they can’t bring their contribution to the table.
Many companies used to “running the show” can feel entitled to exercising their financial and operational power over these individuals. This type of control will show upon review of the application. Rather than creating and submitting predatory applications, companies should vet these potential partners. Companies need to ensure their partners have the skill sets necessary to their contribution in the company. As well, an honest compensation agreement for partner contributions bolsters strong applications even more.
Talk the Talk, Walk the Walk
For existing operators expanding on their out-of-state businesses, many new markets want contribution back to the communities in which they will award licenses. Understanding the local community becomes critical to speaking the commitments in giving back. By researching and understanding the community, many businesses set themselves apart as the best operator for the job.
Community engagement also becomes critically important to the on-the-ground success of a cannabis business. This is especially true for businesses coming into a market with little to no cannabis experience. Often, potent resistance occurs if relationships aren’t made early on and if the community’s buy-in is not considered. Applicants need to research the demographics, history, and needs of the community first and foremost. After developing a clear understanding of the community, businesses can communicate to community organizations committed to cannabis industry engagement.
If, for example, a community has a high rate of unemployment, the applicant should consider how they will best bring jobs to the community and increase the upward mobility of its employees. Similarly, if the community is heavily veteran-oriented, owners need to consider how the organization will address PTSD and provide resources to combat the effects of combat. If a community faces issues of poverty or drug addiction, how can a cannabis business best offset these common issues with the right strategic partners to do so?
Social Equity is a growing concern for policy makers and applicants alike. Operators in a State that never considered diversity, inclusion, or social equity should be asking themselves if they are walking the walk in their existing markets. Winning a license in a new market can become easier if operators engineer and implement with regard to social equity. This serves to illustrate that the programs already have a proven track record of success in within originating communities.
Finally, even if approved in winning a license, regulators expect the walk to be walked. How a program implementation actually occurs in a community, when and with whom, needs to happen the way a company represents and warrants in the application. Companies have to balance the desire to do good with real-life budgetary and business considerations to be careful not to overpromise and underdeliver.
Capitalization is Key
Cannabis businesses aren’t cheap, and in many new markets, licenses are worth millions of dollars. Generally speaking, regulators expect companies to establish operations and survive 1 to 2 years without revenue to qualify as viable. Many people hoping for a license spin their wheels and fail at winning a license due to insufficient funding.
Budget for Expenses for any Multi-State Applications
Application writers alone can be an expensive proposition to win a license. Companies must also budget for attorneys, accountants, and consultants in any new market to give them the best chance for success. Many markets require a possession of premises, so we urge consideration for rents paid for months while waiting for approval, buildout, and other expenses. For social equity and merit-based applicants, this barrier to entry is significant. Only a handful of markets offer loans or grants to self-start a cannabis business.
Finding investors who understand the careful balance needed becomes critical to ensuring the success of an application. This means showing a proof of funding that meets detailed budgets, projections, and marketing plans often required for merit-based applications.
Even if all of these ducks are in a row, applicants must still edge out competitors by mere points to win a license. Applications often require Standard Operating Procedures. Tailoring these documents to legislative requirements and any rules and regulations published by regulators in emerging markets creates transparency.
Reviewing existing SOPs, proposed operational plans relating to books and records management, inventory controls, security plans, diversion prevention plans, and other application requirements stand as essential to ensuring the success of an application. Most applications take 300 to 500 hours to complete. These applications often require a clear-cut project plan that assigns requirements and responsibilities to various applicants and authors. They also need to complete each piece in a timely, comprehensive, and complete manner.
Additionally, having third-party validation to the SOPs, plans, and application requirements helps regulators differentiate applicants. This also shows regulators that an applicant is going above and beyond most of their competition. iComply reviews applications for compliance considerations, leveraging points, and includes a compliance management plan for applicants looking to stand out from the competition.
By ensuring regular monitoring of all aspects of compliance infrastructure and management, investors, partners, owners, operators, and regulators can literally read from the same page that ensures integrity and transparency in the application and subsequent licensed operation. Planning ahead to ensure compliance exists as an integral part of training plans, operations, and ongoing management. This planning becomes significant in leveraging points. As well, building in compliance infrastructures leaves regulators with peace of mind that they’ve chosen right application for licensure.
For more information on authoring cannabis business multi-state applications, reviewing applications for compliance, or third-party validation representation in an application, contact us at www.icomplycannabis.com.