When it comes to buying cannabis licenses, there are two basic pathways you can take: applying for a new license or purchasing one that already exists.
According to the National Conference of State Legislatures, 36 states allow medical-use cannabis and 18 states allow adult-use. Thus, the state you intend to operate in will greatly affect the best option for you. Other factors to consider include upfront costs, the risks involved, and your future plans for the business.
Read on to learn more about the pros and cons of the two pathways for buying cannabis licenses so you can make the best choice for your business.
Option #1: Apply for a New License
Going through the licensing process comes at a gamble, as winning a license isn’t guaranteed. But with the right resources and planning — and the right location — it can be less expensive up front and give you more options for setting up your business.
Benefits of Applying for a License
Buying cannabis licenses through the application process gives applicants more flexibility to choose their location, as well as freedom to build their business from the ground up.
Most first-time applicants become interested in applying because they’ve heard that their home state is opening up, and staying local certainly has its advantages. The licensing and permitting process is smoother if you’re able to attend meetings and visit establishment locations in person.
Depending on the state you choose, applying for a new license could also save you money. Most applicants spend around $200,000 to $300,000 compared to the $1 million or more that an existing license can cost to buy. Also keep in mind that non-competitive states like Oklahoma are cheaper and easier to acquire licenses in.
Finally, while applying for a new license has a fairly steep learning curve, it’s a great opportunity to learn about the industry in-depth and make solid network connections for future growth.
Downsides of Applying for a License
A common mistake when applying for a license is waiting too long to start the process. This can weaken your chances of winning the license, thereby increasing the risk of losing not only money but also time, energy, and other resources.
High-competition states exacerbate the risk involved. In New York and New Jersey, for example, you have the potential to generate far greater revenue than in a saturated state like Oklahoma, but they’re also much more competitive and thus much harder to get into.
If you don’t have lobbyists behind you, your chances of winning shrink even smaller, as you’re likely going up against teams with plenty of time, resources, and as many as 10 or more lobbyists advocating on their behalf.
If you do succeed in winning a license, you’ll also have to expend more time, energy, and resources building the business from scratch. And if you’re entering a less expensive, more saturated market, you’ll need to create an exceptionally strong brand to stand out from the crowd.
Option #2: Buy an Existing License
Buying cannabis licenses from a previous owner removes some of the risk, since you’re directly paying for a license instead of hoping to win one. But the tradeoff is potentially higher costs and absorbing any mistakes made by the previous license holder.
Benefits of Buying Cannabis Licenses
If you can afford it, buying cannabis licenses eliminates the guesswork of the application process. And it can pay off fairly quickly: A license valued between $10 million and $40 million could be worth upwards of $100 million in five years.
But it is possible to find someone willing to sell their license at a reasonable price. Operators who are burned out or not doing well may be willing to sell for less than other license holders. Alternatively, you can buy from a company that has the ability to win licenses but no desire to operate a facility themselves.
At HYC, we’ve developed a model where we’re able to apply our expertise to win licenses and acquire cannabis-friendly properties, then make them available to our clients at affordable prices to help them get a foot in the door to the industry.
Our Dome project enables aspiring cannabusiness owners to purchase a license and cannabis real estate for as little as $3.5 million and build a potential $40 million-per-year company. It’s a perfect opportunity for people who want to operate but don’t want to go through the stress and hassle of securing property and winning a license.
Downsides to Buying Cannabis Licenses
Of course, if you purchase an existing license, you don’t necessarily get to pick the state in which you operate. And you have less control over your business’s operations and design.
You also have to deal with any restrictions that were placed on the license, such as time constraints or transfer restrictions. If the previous license holder was given a social equity discount for which you don’t qualify, you may even have to pay that discount back upon purchasing the license.
Worse, you may find yourself owning someone else’s mistake. Any compliance issues or bad history associated with a license — even those that happened under the previous license holder — may need to be disclosed when you renew the license or expand to another state.
Choosing the Right Path for You
The best thing you can do when considering which path you will take is find a consultant that you trust to help you navigate the process.
I previously worked with a client who was all set to buy a license. But first, I asked them to answer a few questions: What restrictions are on this license? Are there any liens or marks against it? Are the license holders under social equity, and who will be responsible for the price increase?
They couldn’t answer any of these questions and ended up dodging a huge bullet. That’s why, whether applying for or buying cannabis licenses, it’s important to get in with a consultant who really understands the process and requirements.
For more guidance on buying cannabis licenses, reach out to schedule a consultation.