If you’re an active advocate in the cannabis community, you know that the road to cannabis legalization has been a long and arduous process. Despite what may seem like progress for cannabis legalization, many experts remain leery of the potential for corruption in state-regulated cannabis programs, particularly when it comes to the licensing application process. While the process for obtaining a cannabis business license differs depending on the state, the current situation in Connecticut certainly has the cannabis community’s attention.
Image via Julio Soriagalvarro’s LinkedIn Post
How Connecticut’s Licensing Works
After legalizing cannabis for adult-use in 2021, the Department of Consumer Protection (DCP) became responsible for licensing and regulating medical and adult-use cannabis establishments in Connecticut. The DCP made applications for adult-use licenses available as of February 3, 2022.
There are 14 different license types that applicants may choose to apply for, ranging from: growing, manufacturing, sales, and transport. Currently, only 56 licenses are available in Connecticut. Moreover, there are just 12 adult-use retailer licenses available–6 general and 6 social equities. Thus far, the DCP has received over 15,000 applications for these 12 licenses. Needless to say, competition is beyond fierce.
The Selection Process
Subsequently, the DCP will determine the license winners through a blind lottery, that will be operated by a third-party organization. As per the Department’s website: “Applicants may apply multiple times for multiple licenses and license types. However, DCP cannot award a license to any applicant selected through the lottery that already has two or more licenses of the same type, or in the same license category.”
Therefore, in theory, applicants seeking to win an adult-use retailer license in Connecticut may submit an application hundreds of times in order to increase their chances of being selected in the lottery. As a result, the Department stands to receive the funds generated by the licensing application fees. That totals to a whopping $8 million and counting, just from the adult-use retailer application fees alone.
Additionally, as Julio Soriagalvarro, a Cannabis Business License Consultant, pointed out in their recent LinkedIn post, “The State will continue to collect revenue from fees until June 11 and may hold additional rounds of licensing in the future.” Moreover, all application fees are final and there is no avenue for getting that money back. The Department does not expressly state where the revenue from the fees will be used.
Image via DCP Website as of 06/03/2022.
What are the Potential Problems?
There are many compounding issues at play here. Perhaps some of the most confusing topics facing the cannabis industry today, along with the most contentious topics. Not to oversimplify, but here are some reasons your antenna should be up.
1. Limited Licenses
Most people don’t know that 27 states operate with limited licenses for medical and adult-use cannabis. This effectively caps the market share of cannabis businesses in a state. Therefore, making these licenses extremely valuable and unimaginably difficult to obtain.
Whether you agree with limiting the number of cannabis licenses or not, its practical effect typically hinders small businesses’ ability to compete with larger corporations. Corporate cannabis operations have the capital to obtain a license and to maintain it. The cost of which is extremely high (annual licensing fees, production costs and losses etc.).
In fact, the Minority Cannabis Business Association (MCBA) found that limited licensing structures tend to “hamper social equity initiatives.” Moreover, MJ Biz Daily reported that: “The issue of license caps has exposed a fault line in the multibillion-dollar cannabis industry’s effort to be inclusive. Often pitting minority and entrepreneurial applicants against multistate operators better positioned to afford a pricey business permit in a limited-license market.”
According to the MCBA report, “The general rationale for limiting licenses is to limit crime, avoid excess regulatory costs and prevent an excess supply of marijuana that could be diverted to the illicit market.” Perhaps the situation in California will serve as a case study.
2. Lottery Process
State regulatory bodies typically choose who wins a cannabis license through lottery systems or scored systems. Conversely, some argue that lottery systems are more equitable, given that in theory everyone should have a chance to win. Even if it’s a small chance because someone else may be applying 1000 times.
Alternatively, a scored system functions somewhat like grading an intense business plan. Applicants are charged with submitting Request for Proposals (RPFs). These applications can be over 50 pages long and are meant to show the viability of your cannabis venture by laying out all of your plans for operation. These types of applications can cost thousands of dollars to put together. Typically, applicants need assistance from compliance and legal experts to complete the nuanced RPFs. To oversimplify, whoever gets the highest “score” and meets all of the criterion is awarded the license in this case.
Photo by Dylan Nolte on Unsplash
3. Hindering Social Equity Efforts
To further complicate licensing matters, along with general cannabis licenses, states have formed social equity licenses. This is in an attempt to remedy the shameful effects of formerly criminalizing cannabis, such as systemic racism, mass incarceration, barriers to re-entry, and more.
In theory, these social equity licenses are meant to allow those who have historically been disparately impacted by the War On Drugs to obtain one of these limited licenses first. However, as we have seen with programs such as the one in Illinois, this has not played out in practice.
Therefore, you can like see how Connecticut’s adult-use retailer lottery could be construed in a way that is not as advantageous for social equity applicants. Exhibit A: You can apply as many times as you want to. Given that there are only 12 licenses, it’s clear that with over 15,000 applications there are likely repeats.
If you want to go down the rabbit hole even further, head over to Brian “Box” Brown’s website. There, you’ll find meticulously executed maps of MSO’s and their subsidiary companies. It states: “These are the biggest cannabis corporations in the US. They are aggressively taking advantage of limited license markets, stifling competition, lobbying against patient protections, against homegrow and, in at least one case, AGAINST legalization because it didn’t benefit them enough. Vote with your dollars.”
4. Application Fees
Finally, the fact that the State does not expressly say where the revenue generated from the application fees will go is cause for concern. To reiterate, there are only 12 possible licenses for adult-use retailers in the Connecticut cannabis industry. The State has already generated over $8 million from the applicant fees. Shouldn’t those fees be used in efforts to enhance social equity in Connecticut’s cannabis industry? Perhaps that money could be used in efforts to pardon or exonerate non-violent cannabis convictions, or reentry from incarceration programs. At the very least, they should be donated to non-profit organizations and brands who work tirelessly to advance these efforts. Companies like 40 Tons or The Last Prisoner Project.
Moreover, the Minority Cannabis Business Association studied 36 state-legal cannabis markets and found that “so far, none of the 15 states with social equity programs have created an equitable cannabis industry.”
~Sigh.
Final Thoughts
With over 15,000 applications received, it will definitely be interesting to see how Connecticut handles the upcoming lottery process, especially with such few licenses available.
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