🔒With license application period approaching, recreational cannabis entrepreneurs race to line up business plans, investors, locations

In recent months, Aprelle Mintz, Jason Freeman and Anthony Robustelli have been juggling full-time day jobs along with finalizing details on their next dream: to open a retail cannabis store in their hometown of Bridgeport.

The partners said they are hoping to open adult-use cannabis dispensary Divine Artisans LLC, and they’ve been doing everything in recent months to get their fledgling business off the ground, from creating a business plan to collecting paperwork needed to file their license application.

“Little by little over the next few months we’re just trying to go down that whole checklist,” said Mintz, whose company is applying for social equity status, which provides certain advantages like reduced license fees and is reserved for companies with founders from underserved communities historically targeted by the government’s war on drugs.“It’s a challenge, but we’re pushing through it.”

Divine Artisans’ business formation efforts are now taking on greater urgency as the state prepares to accept license applications next month.

The Department of Consumer Protection (DCP) recently announced that the 90-day window for prospective retail dispensaries to submit license applications begins Feb. 3, a key milestone in the state’s efforts to stand-up the recreational cannabis market.

That means entrepreneurs like the Divine Artisans co-founders are on the clock to put together stacks of information like their tax history, job development plans, and residency and income data ahead of submission.

In addition to the plethora of paperwork needed for applications, legal and accounting experts say many prospective cannabis companies face financing challenges and uncertainty ahead of the process.

Preparation is key

Many requirements for adult-use cannabis enterprises are already public, but as of early January, entrepreneurs were still waiting for applications to be posted online so they could iron out final details.

“There’s just so many different factors that we don’t know yet,” said Tiana Hercules, who hopes to open a Hartford-based upscale retail dispensary — called Lady Jane — that highlights Black and brown businesses in the city.

With most of her business and social equity plans laid out, Hercules said she’s been working with consultants to narrow down a security company provider and location.

Hercules said she’s been referring to other states’ license applications and news from DCP about what information she will need to have ready. In some cases, that means collecting more information and doing more research than expected.

“I’d rather be over prepared than under prepared,” Hercules said.

Like others, Hercules said she hopes the state has some wiggle room if applications aren’t filled out perfectly, as the process has been “a little bit nebulous.”

Freeman said that all of the unknowns in the process have been a learning experience as his team navigates a new industry.

“For a lot of folks who are trying to get into this industry — some have been in business and some haven’t — it’s overwhelming and it can be daunting to look at this list of information you have to go through,” said Megan Budd, a CPA with accounting and consulting firm Marcum LLP.

‘Ducks in a row’

The application process is the first step to recreational cannabis business formation in the state.

Applications will be available for eight different business licenses — ranging from dispensaries, food and beverage providers, product manufacturers and transporters — on a staggered basis, beginning with retailers on Feb. 3; the application period for the first round of licenses will remain open for 90 days.

After that, DCP will hold two separate lotteries — for social equity and general applicants — to determine which businesses move forward in the process.

Lottery winners will be issued a provisional license and time to finalize their business plan, get financing in place, secure a location and take other steps needed to actually open.

DCP said it hopes to open the recreational market by the end of this year.

Accounting and law professionals said most of their clients are preparing retail applications, but regardless of licensing type, application uncertainty and financial questions remain common concerns.

Sarah Westby, a lawyer at Hartford law firm Shipman & Goodwin LLP, said she doesn’t expect the initial application phase to have a high bar in terms of filing plans and paperwork. But after the lottery process and provisional licenses are issued, business plans and other documentation need to be fully fleshed out.

“It’s certainly an advantage to have your ducks in a row: to have your corporation formed, to have your operating documents in place, to have your business structure set out, to start lining up investors, to make sure you have a location in mind and that you have a plan for how you’re going to obtain the relevant permits,” Westby said.

Besides paperwork issues, budding entrepreneurs say other major challenges exist, including finding retail locations.

Many Connecticut municipalities have adopted temporary moratoriums on retail cannabis sales, and cities and towns allowing dispensaries are restricting where they can locate.

Divine Artisans has been lucky so far in its effort to open in Bridgeport — that city will allow the retail sale of cannabis. However, Bridgeport has restricted recreational sales to neighborhoods zoned for adult entertainment, according to the CT Post.

“It’s important to stay on top of information about what [municipalities] are doing,” said Divine Artisans’ Robustelli.

Patrik Jonsson is the regional president of Curaleaf, which operates medical marijuana dispensaries in Hartford, Stamford, Groton and Milford. The Massachusetts-based company, which also owns a medical marijuana cultivation facility in Simsbury, will be applying for hybrid licenses so it can sell to both retail and medical cannabis customers, Jonsson said.

Curaleaf could decide to open new locations, or expand its current retail establishments, but some of that will be dictated by local zoning rules, which has created a waiting game of sorts. Curaleaf also has plans to triple its cannabis production output in anticipation of higher demand from the recreational market.

“That’s part of the challenge right now. We don’t fully know what we’re going to be allowed to do,” Jonsson said. “Our preference would be to have stores in towns that have opted-in day one, because having that uncertainty on whether or not it’s a year from now, or not at all, or three years from now is not ideal. So we’re trying to figure out our strategy for where we can have four stores open on day one.”

Finding investors

Robert Lickwar, a partner at national accounting firm UHY LLP, said financing is one of the top challenges prospective cannabis companies face when entering the industry, particularly as traditional financial institutions like banks largely ignore the sector since marijuana is still a federally illegal drug.

Social equity applicants have to maintain at least 65% ownership of their business, requiring startup capital that many entrepreneurs don’t have. That has been an obstacle for getting some investors on board.

“Most of the social equity applicants that I’ve spoken to have the same major concern, and that’s access to capital and fundraising,” Westby said.

Hercules said she’s still working to finalize some investors for Lady Jane, but the process is arduous.

“It’s tough … you want to have some investors, you have to, but at the same time it’s so contingent on licensing,” Hercules said. “Some people will tell you, ‘Okay, we will come back when you have the license.’”

Budd, the Marcum accountant, said she’s heard similar stories from clients she’s worked with. She’s working to clarify whether investors can be added or removed from applications during the licensing process, or if what’s submitted initially is set in stone.

“How many investors are you going to get who are going to pony up money before you even have a provisional license?” Budd asked. “So that’s a challenge for these social equity owners.”

In most cases, social equity applicants are going to need investors throughout the process, Budd said, which can be a struggle in a new, highly-regulated industry.

“You’re essentially asking folks to write a check without knowing that the business is even going to be a thing,” Hercules said.

Divine Artisans’ Robustelli said putting up money to identify and purchase a property without even having the guarantee of a business license is a huge financial risk.

Lickwar said state angel investor tax credits available to cannabis industry investors could help entrepreneurs finance their businesses.

Jonsson said partnerships can also be a way for social equity applicants to navigate financial challenges. He said Curaleaf is hoping to partner with up to six social equity applicants that want to open adult-use retail dispensaries. Curaleaf would help build out the storefronts and get the businesses up and running.

Those retail dispensaries would be operated independently but share some affiliation with Curaleaf through the partial ownership agreement.

“Our goal is to maximize our footprint and find some really good social equity partners and create a lot of opportunities for them,” said Jonsson, adding Curaleaf has already identified one social equity partner it would like to work with.