Your Guide to Cannabis Microbusiness Licensing and Planning

A Unique Cannabis Business Model Worth Exploring

Microbusiness is a buzz word in cannabis licensing nowadays. Seen as an arguably equitable solution for small businesses that in theory allows a lower barrier to entry, fewer fees, and more flexibility in business operations, the “Microbusiness” is popping up from New York to Minnesota, California to New Jersey, and places like Michigan in-between. Minnesota, insistent on one-upping the rest, has even created a “Mezzobusiness” license to add retail options and another layer of confusion to the already complex cannabis market structure.

 

The Sordid Definition of the Cannabis Microbusiness

The goals behind these new cannabis license types, while admirable, are characteristic of the U.S. cannabis industry, and its identity crisis in terms of terminology. The word ‘microbusiness’ has a multitude of definitions and capabilities nationwide. The differences between micros across the country are about as disparate as you can get. 

For instance, a Microbusiness in some states may simply allow for a smaller version of the typical license types (e.g. a cultivation license with a limited square footage of flowering canopy, a manufacturer that can process a limited amount of biomass, or a retailer with a restriction on the number of employees).

Contrary to what the name implies, in some states, Microbusiness licenses may entitle the holder to run a fully vertical cannabis operation, albeit at a typically smaller scale, where the licensee may choose to do all or only a subset of the activities authorized under its license.

Microbusinesses are often allowed to enter the market first or at least in the first round, as a way to encourage the participation of small businesses, local residents, and social equity applicants.

 

Examples of Cannabis Microbusiness Licenses from State to State

Even with huge differences from state to state, we see similar quirks when regulators create these Micro license types. Put simply, the two main categories are whether the state allows Microbusiness to be vertically integrated or not.

Microbusinesses as a ‘Micro’ Version of a Single Operation

In New Jersey, regulators created Microbusinesses, which were smaller versions of their standard license types (cultivator, processor, retail). All microbusinesses were limited to 2,500 square feet for their facility, and micro-cultivators are additionally limited to 2,500 square feet of flowering canopy. This restriction tripped up designers and compliance teams in the planning phase until the state finally clarified that stacked vertical canopy is measured horizontally on each layer, thus allowing a 2,500 square foot facility to theoretically hold 2,500 square feet of canopy.

A few other states are following similar guidelines:

• Delaware seems to have liked Jersey’s structure so much, they adopted a strikingly similar approach. Also keep in mind that Delaware’s microbusiness requires 51% ownership by Delaware residents. 
• Maryland’s microbusiness structure shares similarities with Delaware and New Jersey, however, MD’s Dispensary Microbusiness is afforded the ability to deliver products to consumers but cannot operate a consumer-facing brick-and-mortar retail location.
• Missouri’s Marijuana Microbusiness Facilities can be either a microbusiness dispensary or microbusiness wholesale. Despite the name, MO’s micro-wholesale facilities are authorized to cultivate and manufacture cannabis products.

 

Microbusinesses with Vertical Integration

New York

A state with a cannabis program overflowing with so many foibles as to be downright overwhelming. The New York Microbusiness allowances are no different. New York is known, at least publicly, to be a staunch opponent of vertical integration—going so far as to say that a cannabis retailer could not also own a cannabis cultivation and to reference well-known alcohol supply chain restrictions. We all know that the current medical operators (aka Registered Organizations) and large MSOs, are vertically integrated and are allowed by the state to convert to adult use businesses. What may not be clear is that in addition to the vertically integrated RO/MSOs, New York’s “Microbusiness” license is also a vertical license that lets a business: cultivate, process, distribute, retail, deliver, and act as a cannabis event organizer, though at a limited scale. 

Minnesota

The Land of 10,000 Lakes (as well as borrowing the term “Office of Cannabis Management” from NY) is also utilizing NY’s “Microbusiness” moniker to describe a smaller-scale vertical operation that even allows a lounge. In addition to micros, MN’s new-fangled mezzobusiness will allow THREE retail locations but lack the lounge component. In New York, Microbusinesses are limited to cultivation canopy of up to 3,500 square feet indoors, while Minnesota’s Micros are limited to an indoor cultivation canopy of 5,000 square feet, and Mezzos are limited to a 15,000 square foot canopy.  

California and Michigan

Microbusinesses in both states have both have the option of vertical integration— though CA’s micros are limited to 10,000 square feet of plant canopy, and MI’s micros have a maximum plant count of 150.

 

Pros and Cons of the Microbusiness License

The differences between states discussed, it’s clear why knowing and understanding the nuances of your state’s cannabis laws and regulations is paramount. When first considering a microbusiness license, the most critical question to ask is where the Microbusinesses falls in the supply chain—who they are allowed to buy from and sell to and what operations they are allowed to perform themselves.

 

Know what you can do in your state specifically

We already hit on confusion at the definitions level, so read the statutes and regs in detail and don’t skip the definitions. Be sure you have someone on your team well-versed in licensing and compliance regarding cannabis business startup.

Flexibility is a double-edged sword

Too many options can paralyze the startup process when the ‘right’ path is mired to so many great ideas and possibilities. A rock–solid business strategy is paramount.

Smaller Business Means Smaller Profits

Especially at a small size, it can be hard (or impossible) to make a profit in a fully vertical business. Specialization is popular for a reason, allows businesses to scale, become efficient. In a constantly evolving industry, keeping on top of the curve in growing, manufacturing, and retail operations all at once is a daunting task even for well-equipped and well-qualified teams. Make sure your dreams and your finances are aligned. Again, a solid strategy is needed, particularly a financial model.

Competition is Fierce

The only other vertical competitors in the market are often converted medical licensees who can be overfunded multi-state operators. Entrepreneurs will need an investment strategy to be competitive and a pitch deck to raise funds and garner community support.

Plan for Your Future from the Start

Some states allow a microbusiness to convert into a full version of the license later, depending on interim compliance and market need. Be sure to consider future plans for expansion in your business strategy, financial model, and investor deck.

 

How to Stay Prepared for in a Microbusiness License Application

A license application for a microbusiness can be tricky. Whether it’s a mini version of a single license type or a vertical operation, there are always issues of which to beware. 

License application forms vary widely for Microbusinesses. Sometimes they are qualified lotteries (especially if equity focused) and sometimes full written applications requiring compliance details, SOPs, and experience for all permitted license operations. For a microbusiness, like any startup, a business plan and financial understanding of the strategy will be needed for the license application and/or investors, community engagement, and team building.  

Throughout the pre-license and application process, focus on understanding and exceeding the state’s expectations. For example, the state may expect all Microbusinesses to be majority owned by their residents or for Microbusinesses to open within “X” days or months of licensure.

Work with Cannabis Experts to Navigate Microbusiness Nuances

Planning for a Microbusiness can be similar to other cannabis startups—with inevitable wrinkles and myriad oddities from state to state—but with even greater opportunities for entrepreneurs with focused, compliant, and creative business strategies. Working with an experienced team is crucial when applying for this new license type and building a thriving business. 

Reach out to Canna Advisors to see how we can help you begin building your Microbusiness in any state or schedule an hourly consultation to get have your specific questions answered by our experts.