Guide To Conditional Cannabis Businesses
Conditional Cannabis Can Be Your Ticket To Success
With new cannabis businesses in the process of opening across the country, you may have asked yourself “what is a conditional license?” or wondered how conditional differs from provisional, temporary, or annual licensure. Below is your guide to understanding, winning, and build on a conditional cannabis license the right way.
What is a Conditional Cannabis License?
Generally, a conditional cannabis business license is a permit from a state authority that allows the formation and activity of a cannabis business but may or may not allow plant-touching operations until certain standards are met. Typically, a company will first be issued a conditional license and after satisfying additional requirements from the authority, they are issued a final licensure that allows for cannabis operations, whether for retail/dispensary, manufacturing/processing, or cultivation/grower.
Who Can Apply for a Conditional Cannabis License?
Recently, “conditional” cannabis licenses have become popular because they typically have less requirements for an initial license application, appear to lower the barriers to entering the cannabis industry, and are a recent favorite for social equity licensing structures.
In some states, conditional licenses also favor residents, convicted non-violent cannabis offenders, veterans and minority owned businesses. Not all conditional licenses will be geared towards these groups, and typically we’ll see lottery-style licensing rounds with some kind of conditional aspect, so don’t get discouraged – conditional licenses could be for anyone.
The Spectrum of Conditional and Initial License Requirements
The vast majority of all initial cannabis business licenses are conditional, or contingent, on following through with application promises, verifying compliance with all the relevant laws, and paying application and licensing fees. Even after receiving final license approval to operate from the state, a cannabis business must still renew their license on a regular basis.
The difference is that some states require more or less information to receive the initial conditional license and subsequently the inverse level of information after initial licensure. Additionally, much of the information requested for an application, such as a business plan and financial plan,
Think of preparing your cannabis business as eating a pie—conditional licensure allows you to take a small taste at first, but eventually, you’ll still have to eat the whole dang thing.
Conditional Licenses vs. Provisional and Temporary
Conditional licensure is not a new phenomenon, but a proliferation of state-level cannabis regimes with their own terminology and licensing process requirements cause confusion, and it can be hard to keep the distinctions straight even when you deal with them daily. Let’s look at a few jurisdictions that utilize similar licensing and regulatory processes for new cannabis businesses but with their own unique definitions and quirks.
New Jersey’s Conditional Licenses
New Jersey’s conditional licenses went hand-in-hand with their “annual” license option, with conditional licenses offering a middle step for cannabis business owners who lacked property, local approval, or funding. In a rolling application approval and license award process, conditional applicants received priority for initial approval but would still need to convert their conditional license to a full annual license before becoming operational.
New Jersey’s adult use sales in 2023 exceeded $800 million. As of early 2024, applicants had submitted over 2,500 applications, 1,765 conditional licenses had been approved, 374 annual licenses approved, and around 100 new dispensaries were opened. New Jersey’s conditional licensing strategy may be paying off as annual licensees are 19% Asian owned, 18% Black-owned, 9% Hispanic-owned, and 1% Native American-owned.
New York’s Conditional and Provisional Licenses
New York’s adult-use cannabis roller coaster actually started in spring of 2022 with the opening of their novel conditional application periods, and their constitutionality is widely questioned. For New York, the initial conditional licensees were required to have prior regulated hemp cultivation or processing experience or to satisfy social justice criteria under the Conditional Adult Use Retail Dispensary (“CAURD”) program.
New York’s “conditional” licenses are no longer being offered and, barring codification, I doubt we’ll see them again. For applicants who are selected for licensure through the current application process, they receive provisional approval and have twelve (12) months to submit the remaining location information and documentation before being fully licensed and operational.
Maryland’s Lottery-Based Licenses
Maryland’s social equity lottery winners have a lot of work in front of them. After being selected in the lottery, applicants must still “verify” a list of information before they are even allowed the “conditional” license. Even with a conditional license in hand, businesses will still have a long list of boxes to tick off before they can produce or buy and sell cannabis products.
Minnesota’s Temporary Licenses
Minnesota already coined cannabis industry terminology with the snazzy-named mezzobusiness. Instead of sticking with ‘conditional’ licenses, regulators created a new-fangled “temporary” license structure for social equity applicants ONLY, which would give qualified applicants a head start on fundraising and preparing their facilities with a temporary license in hand. Minnesota’s proposed “temporary” license application, if passed by the legislature, will take effect immediately and licensing will begin Summer 2024.
The specifics of the conditional to final licensure process differ from state to state but are similarly related to compliance, buildout, inspection, and showing sufficient startup preparation.
Two Three Trends in Conditional Cannabis Licensing
1) Social Equity Qualifications
The latest trend is that conditional licenses can sometimes be reserved for a specific social equity or priority class licensure that requires less preparation up front. While the goal is to promote equity and reduce litigation, regulatory missteps, such as those in New York, make for a challenging cannabis program rollout that’s anything but equitable.
This is part of the recent tendency away from scored applications that give substantial points for qualifying for a certain social equity group. Nowadays, these licenses are commonly awarded by chance, via lottery.
2) Lottery-Based Cannabis Licensing
Conditional licensing is also part of the trend towards randomized drawings. Lotteries lead to more unqualified initial licensees, as they are not selected based on their qualifications but rather on chance. Conditional license lotteries increase competition by giving a mass of licenses to a sizable pool of applicants. Since lottery requirements are relatively simple, licensees may not be prepared or aware of the gargantuan effort needed to begin a cannabis business.
3) Oversupplying Conditional Licenses
The last trend to be aware of is to award more conditional cannabis licenses than the market needs or can support and to let competition run its course. In an industry that is already choked for funding, increased competition is keeping new cannabis markets from getting off the ground and giving the illicit market and existing medical operators (largely MSOs) an obvious advantage.
How to Plan for Conditional Cannabis Licensure
1) Understand Your Regulations
You’ll need understand what conditional licensure means in your local cannabis jurisdiction. Is it merely an initial cannabis license that leads to a full operational license after building out your compliant facility? Or is it a special license type for only qualified applicants? If that’s the case, you’ll have to check if you qualify for any of the special qualifications (which also differ in each state).
2) Determine Your Local Licensing Process
Next, you’ll want to understand the license structure (e.g., lottery, qualified lottery, or competitive license application). This will greatly impact the level of preparation required for the submission of an application.
3) Plan Before, Plan During, and Plan After
Other factors like existing and new license numbers, facility and financial requirements, and expected timeline need to be considered to make a comprehensive project plan. Consider starting with a financial model, business plan, and pitch deck to not only understand what it’s going to cost and how you begin operations, but to attract reliable investors looking to invest in cannabis.
4) Utilize A Conditional Licensing Consultant
As the aspects and even terminology of a conditional license can significantly vary state to state, it’ll be crucial to work with experienced consults prepared to take you from application through to operation. The cannabis licensing experts at Canna Advisors can help to guide you through every step of the licensing process and to make a plan specific to your business.
Reach Out or book an Hourly Consultation to see how we can help with your license pursuit, business planning, fundraising, and financial modeling needs.