Would You Risk a Million Dollars Just to Compete to Apply to Own a Business?

05/23/2016 08:03 pm ET Updated May 24, 2017

At the Marijuana Business Conference and Expo in Orlando, Fla., there was a session on Regulations and Licensing presented by Kris Krane, President of 4FrontVentures. Many industry newcomers have trouble understanding how an individual is able to own their own dispensary, grow marijuana or make edibles. In a federally illegal market, each state's regulations are ambiguous and each has their own procedures and requirements. Being able to grasp your state's regulations is a task in itself.

First, business professionals will need a license and various permits which are granted state by the state and are usually determined by the Department of Health. In most states licenses are very complicated and expensive to compete; some applications can consist of hundreds to even thousands of pages.

In New York, entrepreneurs estimated paying one to one-and-half-million dollars just to compete for licenses.

There are several types of applications to get a license:

Arizona for instance held a lottery. Winners were chosen based on chance, with little to no attention paid to their industry qualifications. This process prevented the state from getting sued for choosing one application over the other.

In Washington there was a qualified lottery, meaning the owners were chosen at random but met high minimal standards.

A competitive process is more common in most states like Connecticut, DC, Delaware, Hawaii, Illinois, Massachusetts, Maryland, New Hampshire, New Jersey, New Mexico, Nevada, New York and Rhode Island.

Applicants are expected to submit a technical report that is typically hundreds or thousands of pages and the applicant is scored according to strength, quality, experience, understanding of security, local support, inventory control and operations plan similar to practices that pharmacies use, proof of capitalization, detailed policies and procedures that can run 200 to 400 pages alone, control of a secure property, relevant experience and a clean criminal record.

There are other states like Oregon that have a minimum standard and no cap on the licenses given. There is no limit on the stores, which can lead to lower revenue.

Application fees range from $5,000 to $50,000. If the prospective owner hires a professional writer and researcher to write their application, they may pay costs up to $100,000 to $250,000 and could also have to pay out in some equity too. Additionally, they may need to show they have access to the capital. In Hawaii, applicants needed $1.2 million in a bank for 6 months.

Industry newcomers will also need to assemble a team of experienced professionals with solid business experience in the cannabis field and/or health care, solid local and political ties, women, minorities, veterans, board members, officers, and an Advisory board is advised.

The employees will need to have clean criminal records, and know that tax liens, bankruptcies, and unpaid child support may hurt or reject the application.

And if that wasn't tough enough, most states give only 30 to 60 days in some cases to prepare and deliver the application.

By Wendy Robbins
Producer/Director of The Marijuana Show - "Shark Tank for the legal cannabis industry"
http://www.themarijuanashow.com