The Cannabis industry is one of the fastest growing markets in the United States, with an estimated worth of $52 billion. However, almost 87% of these sales are conducted in the elusive black market (source). With the legalization of Marijuana in states across the country, the budding new industry is piquing the interest of investors and consumers alike. Although an unconventional means of business, there are high profit margins and growth opportunities to be explored.
Despite being highly lucrative, there is a reason many investors have decided to avoid the cannabis industry. With difficult government regulations and complex paperwork, many find it almost impossible to navigate. This is where PDB can help clients invest in cannabis without fearing the risks of project delays and confusing regulations. Our experience working with California agencies in the cannabis sphere, make us perfect project managers for any of your upcoming cannabis investment endeavors. Although there are many steps in creating a successful cannabis business, for the purpose of this post I will be specifically explaining the licensing and land development portion of the process.
Different Types of Cannabis Businesses
The first step in getting started in the Cannabis market is determining which stage of cannabis development you would like to enter. Knowing which facet of the industry you would like to invest in will help determine which department of the U.S. government you need a license from and what the costs will be. Bellow is the list of different stages in cannabis development and their corresponding departments:
- Cultivation (Department of Food and Agriculture) - the growing of cannabis flowers
- Manufacturing (Department of Public Health) - extraction, infusion and packaging of cannabis product
- Distribution (Bureau of Cannabis Control) - supply chain management of cannabis product
- Testing (Bureau of Cannabis Control) - quality control
- Dispensary (Bureau of Cannabis Control) - retail stores, medical dispensaries
For a more detailed description of different types of development descriptions used throughout California see this list.
Once you have determined which stage of development you would like to go into, now comes deciding if you would like your business to be for adult-use or medical use. Adult-use is only allowed in states like California where Marjiuana for recreational use is permitted.
After creating a vision for your business comes working with your local agency to get licensed. Every city is different in processing cannabis licensing, so it is important to do your research when looking for where to station your business as some cities are friendlier to the idea of cannabis development than others and which type of cannabis business you are operating. For the purpose of this example, I will be using Cultivation licensing as an example.
Cultivation Licensing at the City level
Cultivation is a great place to get started in the cannabis industry and has a high margin of profit. There are many steps to the process at the city level and depending on where you are growing it can be more or less detailed than what I am outlining in this post. Here is a general outline of the business licensing process:
1. Choose a site
2. Create a site plan, floor plan and business plan
3. Apply for a Business License
4. Entitlements Processing
5. Pay your Licensing Fees (Annually)
6. Apply for a State Cannabis license
1. Choosing a Site
When choosing a site for cultivation, there are a multitude of things you need to consider. Some of the main points are: zoning, size of cultivation center and setback requirements.
When looking into areas for cultivation it is important to know that most cities do not permit outdoor cultivation. If this is a key part of your growing strategy, make sure to do thorough research on your specific cities requirements. Additionally most cities have pre-designated zoning ordinances for cannabis activities. Check with your specific city to see their guidelines. If your property is not in an already admissible cannabis zone, you must apply for a zone change or petition to the city to explain why your location is a good spot for cultivation. Generally it is advisable to look for property where cannabis cultivation is already encouraged to avoid the delays that come with the petitioning process
b) Size of Cultivation Center
Another important factor in choosing a location is the size of your actual cultivation center. Depending on the size of your indoor growing facility and the type of lighting you will use to grow your plants, you will need to apply for different license types. These license types help determine things like setbacks and the number of growing centers you are allowed to have on a plot of land. Check with your cities specific municipal code for exact definitions based on square footage. You can see this guide or the graphic below for more information on sizing definitions.
Since cannabis is such a highly controversial and at times dangerous entity, cities usually create setbacks for the buildings that will contain cannabis for safety and privacy. Setbacks are the minimum distance at which a building or other structure must be ‘set back’ from the property line. This usually varies with the size of your cultivation center.
2. Creating a Site Plan, Floor Plan, and Business Plan
After finalizing the location of your site it is time to begin mapping out how you would like to lay out your cultivation center! When beginning your site plans it is imperative to keep in mind regulations such as setbacks, screening walls, adjacency to schools, and slopes that are usually outlined in the cities municipal code. In addition to this site plan and floor plan of the rooms in the building will need to be submitted. This will allow the city to see the flow of your business and identify any potential areas for security breaches. Generally the architect and engineers will be aware of such guidelines and requirements but having the whole team on board will speed the process up. The state of California has created a very comprehensive guide to creating a cultivation plan which can help you organize your business and growing strategy.
In addition to a site plan, a business plan is a great way to organize the direction of your cannabis facility. Most cannabis applications will ask you for items like: proof of business, business plans, neighborhood compatibility plans, safety/security plans, and track & trace methods. It is also expected that the owners/employees of the facility will need to undergo a thorough background check. This helps the city ensure that the business will be conducted in an orderly manner with regards to the safety of citizens around the facility.
3. Applying for a Business License
Every city varies in its Business licensing process but generally you can find the application on the cities online website. Preparing your site plan and work plan help speed up and clarify the process as most applications will ask you for the things mentioned in the paragraph above. Reading the fine print is crucial to avoid delays in processing your permits so be sure to double check your submittals. Once you’ve applied for your business license it is time to start applying for CUPs and permits!
4. Applying for CUPs and Pulling Permits
Some cities will allow you to apply for a business license and permits at the same time; in this case we will assume that you may apply for your CUP once the business license has been submitted. If you are unsure of what CUPs (Conditional Use Permits) or permits are be sure to check out our prior blog posts for more information!
The first step in the CUP application process is gathering the correct documents. We advise you to reach out to your cities planning department to get the right applications. This way you can build a relationship with the planning department and avoid any delays from submitting the wrong paperwork. Once you have completed your application, you can combine it with your plans to submit to your city. It is crucial at this step to double or even triple check your submittals to make sure your application follows their requirements. Typically it takes 30 days to review this application. Depending on your jurisdiction, they will route your application internally or have you submit plans individually to each department such as building and safety, fire and engineering. If you have submitted everything to their exact guidelines, you are more likely to have a shorter timeline for review.
Following the review, the city will send you plan check corrections on items they would like you to correct. After correcting these items and resubmitting, the city can either accept your application or ask you to fix the corrections again. Once the application is deemed complete, you will be scheduled for a public hearing on your plans. If everything goes smoothly, you will receive a conditions of approval and resolution from your jurisdiction which you will use to create your construction documents.
The final step in this process is pulling permits to begin construction. Depending on your jurisdiction and the scope of your project you will need permits to do things like inserting floor drains and demolishing parts of your property. Be thorough in researching which permits you will need. Once this has been kicked off you can now start licensing your cannabis facility!
5. Paying for your Annual Fees
Once your license has been approved you may pay your fees and officially be licensed! You must pay these fees annually and there should be a portal where you pay these online. Over time there may be some legislature changes that will require you to modify your business operations, but like any business operations adapting to local policy is crucial in maintaining your business.
6. Applying for State Licensing
After your plans have been approved and the city has received your cannabis business license, it is time to work with the State department! Generally, you may start construction on your project to save time and money but you are not allowed to operate until the city and state business licenses have been approved. I will continue explaining how to get your State license in my next blog post.