Legalizing marijuana is not a one-size-fits-all process for states.
Some cautious states are choosing to only legalize medicinally, while their neighbors leap at the opportunity to go full rec. Some states allow dispensaries to sell cannabis they grow themselves, while others require totally separate licenses for cultivation and dispensing. Some states, like California, have created as many as 20 different cannabis business-license classifications (like retail, distribution, cultivation, manufacturing, medical use, adult use, testing, etc.), while other states, like Alaska, offer just a handful.
One of the most significant policy distinctions between states with legal cannabis is whether or not they choose to restrict the number of cannabis licenses issued. If they do, that makes it incredibly competitive for hopeful business-owners to obtain a license and break into the industry. According to Jay Czarkowski, a founding partner at Canna Advisors, it also dramatically affects the shape and nature of a state’s legal cannabis industry.
“The fact that there was never any artificial limit on licenses in Colorado allowed for a true capitalistic program to develop where the strong survive — those that provide the best product at the best price with top notch customer service, thrive,” Czarkowski says. “And that’s how I always feel this market should be: an open market that lets the cream rise to the top.”
Czarkowski is a cannabis entrepreneur, investor, advocate and longtime Boulder resident. He co-owned Kind Care medical dispensary in Boulder with his wife and business partner, Diane, from 2009 to 2012, and he believes the unlimited license model is the healthiest, strongest approach to legalization.
Even so, he admits the “bread and butter” of his business at Canna Advisors depends on states doing exactly the opposite.
“The majority of the work that we do as consultants is actually competitive licensing,” he says.
When states limit the number of cannabis licenses, it can often box out smaller businesses and entrepreneurs in favor of applicants that have more resources. In Connecticut, for example, the state government elected to issue just four cultivation licenses for the entire state when it legalized cannabis. It was the first state to have a truly merit-based application process, Czarkowski says — and it was extremely competitive.
Most small businesses and entrepreneurs cannot compete on paper with established, well-resourced, firmly-backed big businesses or wealthy investors applying for the same licenses. And it really does come down to looking good on paper, according to Czarkowski.
He explains there’s four main components to a successful application in any state. The first is having a good team; the state will want to know that applicants have all the job positions lined up with qualified people. The second is financing. Czarkowski says the state needs to know that applicants actually have the capital necessary to get their venture started (and to check that they aren’t on any IRS naughty lists). Then the state looks at an applicant’s real estate. Because many municipalities or counties prohibit cultivation or distribution of cannabis, having real estate ready for business, in an area that will allow it, goes a very long way on a license application.
Finally, Czarkowski says, is the application itself.
“The application is typically a very robust document, many hundreds of pages, sometimes over a thousand, and it’s really important to put everything in that application: all the ways you’re going to do business and operate under the rules and regulations,” he says. “It’s a tedious job creating these applications.”
That’s where Canna Advisors comes in. The company offers consulting services for cannabis brand and business development, compliance advice and guidance for businesses growth, but it also helps groups in other states win these competitive limited license applications.
In fact, Canna Advisors’ first limited-license job was in 2013 for a group of entrepreneurs out of Westport, Connecticut — where the four-cultivation-license limit was implemented statewide.
“So we went to work with these guys and actually won one of those licenses,” Czarkowski says. “We were successful.”
That was just the beginning in a long sequence of successes. Canna Advisors helped win four more limited cannabis business licenses in Massachusetts in 2013; and in Missouri, Czarkowski says the firm helped secure 34 (roughly 10%) of the state’s limited licenses for their clients.
Canna Advisors still has a lot of potential business coming down the pike. Czarkowski says he believes New York in particular is going to be very competitive, as well as New Jersey and Alabama.