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Many people contact us asking how to get a dispensary license in California and the many other states where cannabis has become state-sanctioned. We have provided some industry insight and the following brief overview to help you understand the process of setting up your cannabis business legally, as well as a detailed legislative history within our home state of California, which we believe will serve, and is already serving to some degree, as a model for many states going forward.
Guidance for 2019 & Beyond
As this post was originally published in early 2018, we have added some more recent commentary to help guide you.
Cannabis is a Real Estate “Game” first.
California and other states, such as Michigan, are permitting their cities and counties to decide for themselves locally if they will permit cannabis businesses inside their borders (or even next to them in some situations), and if so, what type, how many and most importantly where they will be able to operate.
When you lay the applicable zoning over a map along with the restriction zones for schools, parks, youth centers and other sensitive uses, very few parcels are actually available to start a business. Additionally, if a city then makes its applicants compete for a limited number of permits, the impact of this scarcity escalates exponentially, resulting in rents and asking prices through the roof. When an applicant is forced to pay rent through a lengthy approval process, much of a small business’ startup funds can be exhausted.
Your Best Bet
Negotiate a lease with an option to rent at multiple times standard rates, ifyou are approved, and get the landlord’s permission and participation as needed. You may even want or need to trade some equity to pull this off, but it could be well worth it.
We have been fortunate enough to work with many entrepreneurial clients who won this “lottery” and decided to venture into the cannabis space themselves. If this describes your situation or if you are not so lucky and need help identifying potential sites or due diligence on a site, connect with our experts today to discuss our property suitability services.
Brands Are Already Critical & It’s Time to Find Your Niche
As commercial cannabis matures faster than any other consumer packaged goods ever, making up for a lost 80 years of evolution, brands will be key at several links in the supply chain.
How you name, design and staff your storefront and related delivery service will be key to customer attraction and retention. As the market evolves, dispensaries will self-align and identify with pockets of the market, from an average consumer to senior citizens and everywhere in between. Perhaps most important to your long-term success will be your team’s culture and your marketing professionalism. In short, how well matched your dispensary’s brand is to your market niche, community and ultimately your loyal clients may have the biggest impact on the financial success of your operation.
In the competitive and political scene for most cities as they distribute local permissions, your branding may even determine whether or not your operation is given a chance to begin, let alone succeed.
Branded Products & White Labeling
Compared to most packaged goods like beer, wine or spirits, there aren’t really any known or leading cannabis brands at this time, especially in the more niche markets like wellness, senior, sleep aid, or “chardonnay moms”. Those brands that have been developed are also typically tied to a single or small number of states due to licensing restrictions.
Some trends have emerged that deserve mention. A leading California brand, Canndescent, was one of, if not the very first, to create products based on “effects”, instead of the more commonly, and very difficult to brand, strain names, which themselves tend to be off-putting, confusing and even scary to large parts of the market. MedMen has recently “adopted” this approach with its [statemade] brand.
You should look to align your dispensary with brands that appeal to the widest, but at the same time tailored audience segments as possible or createyour own with partnerships with cultivators and manufacturers.
Required Investment Levels Vary Tremendously by Community
The follow up question to “How Do I Open a Dispensary?” is always, “How Much Does It Cost to Open a Dispensary?” We plan on addressing this in an additional blog post in detail, but one thing is certain – the investment amount required is always higher than you would imagine and can vary tremendously by market and in accordance with the local ordinances.
The double whammy of large populations and limited licenses produces an investment level that exceeds most single investors budgets unless they were fortunate enough to have rights in green-zoned properties before the rent escalation. Some of the mega-funded operations have been known to sweep in and buy the land to avoid the competition and hassles of a landlord.
The lower budget entry options are outlier cities with leadership anxious for the tax revenue and jobs created by dispensaries, which is maximized by their ability and focus on delivering products into adjacent communities without local dispensary options or with less polished operations.
In early 2019, there is still amazing amounts of opportunity available to those people who can put together a combination of capital, professionalism and a little bit of luck related to real estate. Working together with a firm like BeGreenLegal, you may be able to turn a six-figure investment into a million-dollar asset in a matter of months.
Please enjoy this detailed history of the licensing of dispensaries in California.
1. Brief review of California’s marijuana laws, including the following:
a) The Compassionate Use Act (CUA) (Proposition 215)
b) The Medical Marijuana Program Act (MMP) (SB 420)
c) The Medical Cannabis Regulation and Safety Act (MCRSA) (AB 243, AB266, SB643)
d) The Adult Use of Marijuana Act (AUMA) (Proposition 64)
e) The Medical and Adult Use of Cannabis Regulation and Safety Act (MAUCRSA) (SB 94)
f) The Federal Controlled Substances Act (CSA)
g) The Cole Memo and Farr Rohrabacher Amendment
h) Takeaway Message
2. How operating a dispensary has changed under California law
3. Steps you will need to take to get a dispensary license in California
4. Anticipated marijuana dispensary start-up costs
1. Brief Review
Over past 21 years, California has experienced a major shift in policy related to production, distribution, possession, and use of marijuana. While it will be legal in 2018 to produce, distribute, and possess both medical and adult use marijuana, it is important for any cannabis business to understand the evolution of state law and how it is radically changing the industry.
- The Compassionate Use Act (CUA) – Starting in 1996, California voters approved Proposition 215, also known as the Compassionate Use Act (http://www.canorml.org/medical-marijuana/patients-guide-to-california-law), which exempts patients from prosecution for a controlled substance if they obtained a recommendation from their doctor to use marijuana for their medical needs. This law marked the first time in U.S. history that a state legalized marijuana in opposition to the U.S. Controlled Substances Act. However, no supporting requirements were included indicating how much or where this marijuana would be grown, whether patients could distribute marijuana to other patients with a doctor’s recommendation, what permits or licenses would be needed, whether taxes should be paid, and many other questions.
- The Medical Marijuana Program Act (MMP) (http://www.canorml.org/laws/sb420.html) – The MMP was subsequently passed in 2004 by California legislature (http://www.legislature.ca.gov/). The law allows each patient to possess up to eight ounces of dried marijuana and cultivate six mature or twelve immature marijuana plants, unless a local ordinance, or doctor authorizes more. In addition, the MMP established the right to collective and cooperative cultivation of medical marijuana. In 2008, then State Attorney General Jerry Brown issued a white paper (https://oag.ca.gov/news/press-releases/atty-general-brown-issues-medical-marijuana-guidelines-law-enforcement-and) further clarifying that a collective or cooperative could only be considered legal if it incorporated as a California mutual benefit non-profit corporation. The California State Board of Equalization, now known as the California Department of Tax and Fee Administration (DTFA) (https://www.cdtfa.ca.gov/industry/cannabis.htm) also determined that marijuana providers would need to first obtain a seller’s permit and then pay sales tax for retail transactions. Yet this system still did not address how marijuana businesses should interact with each other, or with the city and county governments in which they were located. The latter issue culminated in a California Supreme Court decision in 2013 (http://www.canorml.org/medical_marijuana/RiversideRuling.pdf) giving local governments the power to zone medical marijuana dispensaries and other cannabis businesses out of existence (http://articles.latimes.com/2013/may/07/local/la-me-medical-marijuana-20130507).
- The Medical Cannabis Regulation and Safety Act (MCRSA) (http://www.canorml.org/news/A_SUMMARY_OF_THE_MEDICAL_MARIJUANA_REGULATION_AND_SAFETY_ACT) – In October 2015, California state legislators and the governor approved the MCRSA, a significant milestone in regulating marijuana. Essentially, the law established a robust dual licensing system that requires all cannabis businesses in the industry to obtain a state license appropriate to their activities. In addition, the MCRSA requires licensees to first obtain approval from the local government where their business is located (https://static.cdfa.ca.gov/MCCP/document/Comprehensive%20Medical%20Cannabis%20Regulation%20and%20Safety%20Act.pdf). After almost two decades of operating in a legal gray area, the MCRSA finally gave cannabis operators a clear path for legally operating their businesses at the local and state levels.
- The Adult Use of Marijuana Act (AUMA, Proposition 64) (http://www.canorml.org/news/what_will_be_legal_and_what_wont_after_Prop_64) – November 2016 marked a new paradigm for the cannabis industry in California with the passage of Proposition 64, or the Adult Use of Marijuana Act (https://www.cacities.org/Resources-Documents/Policy-Advocacy-Section/Hot-Issues/Adult-Use-of-Marijuana-Act/AUMA-FAQ_Final.aspx). This new law allows and regulates the adult use of marijuana for recreational purposes, distinguishing the entertainment value from those who use the drug for medicinal purposes. This new law approves a similar licensing structure as that proposed under MCRSA and allows users to purchase and possess up to one ounce of dried marijuana, or eight grams of concentrates, or any combination thereof.
- The Medical and Adult Use of Cannabis Regulation and Safety Act (MAUCRSA) – In June 2017, California legislators and the governor approved the Medical and Adult Use of Cannabis Regulation and Safety Act (http://www.calgrowersassociation.org/understanding_the_maucrsa). This law streamlines the policies for both medical and adult use into one system the only requires and M or A used as designation. While adult and medical licensees can only sell to other businesses with the same M or A designation, this law allows greater flexibility with regard to vertical integration opportunities.
- The U.S. Controlled Substances Act (CSA) – The federal Controlled Substances Act (https://www.deadiversion.usdoj.gov/21cfr/21usc/) The Controlled Substances remains in effect for the foreseeable future as the federal government continues to grapple with the debate over rescheduling marijuana. While cannabis is recreational and medical legal in half of the U.S. states, federal prosecution remains a concern.
- The Cole Memo and Farr Rohrabacher Amendment (https://www.justice.gov/iso/opa/resources/3052013829132756857467.pdf) (https://mjbizdaily.com/rohrabacher-blumenauer-amendment-extended-december) – These two significant federal legislative documents have served to relive cannabis businesses from federal prosecution if they adhere to state medical and recreational laws. The Cole Memo redirects federal policy away from prosecution of cannabis businesses in states with a robust regulatory system that polices the cannabis industry. Similarly, the Farr Rohrabacher Amendment has eliminated federal funding for prosecution of medical and adult use businesses in compliance with state and local cannabis laws.
- Takeaway Message – A well-defined and executed state and local regulatory system significantly reduces the likelihood of federal prosecution.
2. How operating a dispensary has changed under California law
a. Proposition 215
(http://www.canorml.org/medical-marijuana/patients-guide-to-california-law) and SB 420 (http://www.canorml.org/laws/sb420.html) created a business landscape for the California cannabis industry marked with limited legal structure, no access to institutional banking systems, minimal oversight except from police, and little incentive to pay taxes. The only legal entity structure was the collective and cooperative model, which has no established legal framework for transfer of goods and services between collectives. Consequently, every transaction between parties (grower selling to dispensary for example) is technically an illegal transaction unless they are both members of the same collective. With a small number of individuals, the collective model would work. However, with over 39 million people in the state of California, it is impractical for a collective to be liable for every cultivator from whom they receive products.
b. The state’s new licensing structure under MAUCRSA
(http://www.calgrowersassociation.org/understanding_the_maucrsa) establishes a clear framework for how businesses within the legal cannabis industry should operate and interact with each other. Three state agencies, including the Bureau of Cannabis Control (http://bcc.ca.gov/), Department of Food and Agriculture (http://calcannabis.cdfa.ca.gov/), and Department of Public Health (https://www.cdph.ca.gov/Programs/CEH/DFDCS/Pages/MCSB.aspx), are responsible for administering 26 license types issued to cannabis operators active in every activity involved with creating consumable cannabis products. Dispensaries now operate one segment of the industry devoted to retail sales. Cannabis is first produced by a cultivator who then transfers the harvested crop to a distributor, or manufacturer if slated to be extracted as a concentrate product. The distributor then conducts a quality assurance/control process, including facilitating testing with an independent laboratory, before transporting retail-packaged products to retailers.
c. While it was possible for cultivators to sell cannabis directly to the dispensary in bulk, 2018 cannabis regulations require products to be tested and packaged before they are transported to a retail store or delivery service. Cultivators wishing to retain the same control over packaging and distribution will need to obtain their own distribution license or conduct their own marketing programs and contract with a distributor for testing, packaging, and transport. At the same time, retailers will no longer have the option to package their own cannabis products, store and display bulk cannabis, or give away free products to adult users.
3. Steps showing you how to get a dispensary license in California
a. Local Approval – While it is now possible to get a cannabis license in California, operators must first obtain approval from their local city or county government to operate at their location. Cities and counties in California are the primary authority regulating the use of land. Cannabis businesses therefore need to obtain approval to operate on a property. A good cannabis consulting will have experience in obtaining land use permits, which require a business plan, floor plan, site plan, security plan, community relations plan, and financial analysis. Here is a great piece on how to convince your local government that you deserve a medical marijuana dispensary license.
EXPLORE WHERE YOU CAN LEGALLY OPERATE YOUR MARIJUANA BUSINESS IN CALIFORNIA:
b. Environmental Permits and Assessments – For cultivators and other cannabis businesses effecting change on the environment through land development, you will need one or more of the following:
- Water Board permit or waiver (https://www.waterboards.ca.gov/water_issues/programs/cannabis/),
- 1602 Permit or waiver (https://www.wildlife.ca.gov/Conservation/Cannabis)
- Environmental Assessment (http://resources.ca.gov/ceqa/guidelines/Appendix_G.html)
c. State License – Once you have received local approval, you can apply for a state cannabis license. Retailers, distributors, microbusinesses, and testing labs will need to apply to the Bureau of Cannabis Control (https://aca5.accela.com/bcc/Welcome.aspx). Cultivators must obtain a license from the Department of Food and Agriculture (http://calcannabis.cdfa.ca.gov/), while manufacturers need to apply to the Department of Public Health (https://www.cdph.ca.gov/Programs/CEH/DFDCS/Pages/MCSB.aspx)
4. Anticipated marijuana dispensary start-up costs
a. There are many steps needed to get a cannabis license in California and each takes significant time and effort. Here are four new cannabis licenses available for your marijuana business.You can complete these steps yourself if you have the skill and experience to do so, or hire a proven cannabis consultant to help you. Whichever way you choose, it is important to ensure that preparation of your permitting and licensing documents is completed accurately and with a strategy in mind of how your business will operate. Errors, omissions, or lack of preparation will lead to processing delays or rejections from regulatory agencies, as well as a poorly run business.
b. Costs for a cannabis dispensary license can be broken down into basic categories you can use to decide whether this is the venture for you:
- State cannabis license fee – $1,000
- State cannabis annual fee – $4,000 – $72,000 (Depends on income)
- Local approval fees – $5,000 – $30,000 (Depends on project)
- Environmental permits and assessments – $0 – $30,000 (Depends on project)
- Consulting fees – $20,000 – $, 40,000 (Depends on task size and quantity)
Project costs for other cannabis businesses vary, but follow a similar list.
For more information on how to get a dispensary license in California setup a half hour consultation with one of our expert cannabis consultants.