The “budding” cannabis industry is growing exponentially, especially in California where you can buy both recreational and medical marijuana from any licensed dispensary. Similar to Michigan though, California marijuana law requires cities and municipalities to determine whether they permit cannabis sales within their jurisdiction. Add to that the restrictions against locating a weed business within proximity of schools, parks, daycare centers, and other protected areas, and your available locations become smaller. So your first consideration, before you even apply for a recreational marijuana distribution license at the state level, is to determine your geographic location first. In other words, it’s all about location, location, location.
Determine your location first
Do your due diligence to find municipalities that are embracing cannabis sales. This will be your starting point for locating your marijuana business. Now, find real estate within jurisdictions that allow marijuana sales. Find a zoning map and lay it on top of a map showing restricted areas like parks, youth centers, etc. This will help you narrow your search for a location to allowable sites. In addition, if your jurisdiction allots only a limited number of permits, you might be even more restricted.
Scarcity jacks up the prices of available real estate. Be prepared to pay a premium once you find a suitable location for your weed distribution business. But you can use this to your advantage. Find your location first and go into negotiations willing to pay a premium. Once the potential landlord sees your willingness to pay top dollar, the deal will swing your way. Just make sure your location is worth an elevated price. If you’re worried about potential locations, work with a real estate agent who specializes in cannabis businesses. He or she will know the best areas to look and help you find the perfect location.
You may end up paying several times the going rate for real estate in that area. Add to that the uncertainty of being approved, and you have a recipe for stress. A negotiating tool some use in this process is to offer an equity stake in the business to sweeten the deal with the landlord. Once you have a landlord on board, it might help smooth the licensing process.
Regardless, you must determine the local restrictions that municipalities institute. Some locations have their own conditions they place on marijuana businesses. It’s best to perform due diligence to learn everything you can before you apply for a distribution license.
Complete these before applying for a state distribution license
You need a business plan for a variety of reasons. First, you need to find investors to help you fund your new distribution business, but you also need a business plan to apply for licenses.
Visit your locality or municipality first to get a valid license in their jurisdiction. You’ll need this when you apply for a state license. Find out required documents you must include to apply for a license. Most localities like to see a valid business plan, a funding source, and a location that falls outside their restricted areas.
You must have your cannabis business permit before you apply for a seller’s permit with the State of California. Your seller’s permit will ask for your cannabis license number. You should start with your local city or municipality to get a license first and then get your state cannabis business permit.
Applying for a State of California license
Your city or municipality of choice will have requirements for what you should include in your application, but the State of California requires you to have:
- A valid driver’s license
- Social security number
- Your business name, address, and phone number
- Email address
- Verification you have the right to occupy the address and sell marijuana there (this requires a local permit or other authorization)
- Proof that your facility doesn’t fall within restricted areas such as schools, etc.
- A diagram of your facility’s premises
- Your supplier’s name and address
- Your accountant’s name and address
- Personal references
- Your type of business (see below)
- State of California business number
- Your products for sale
- Your projected monthly sales
- Your projected monthly taxes
- A $5,000 surety bond addressed to the State of California
One thing to understand, under California’s laws, you must have a SEPARATE cannabis tax permit as wells your seller’s permit. It’s best to apply for your seller’s permit first. Choose an “open basis” permit which requires no deadline or window for applying for your seller’s permit. California has a wonderful online system that guides you through the process and spells out what documents you need. You can also visit a California Department of Tax and Fee Administration for hands-on help with application. One caveat for going in person is you get your permit right then.
You might need to apply for the following licenses depending on your type of cannabis business:
- The California Bureau of Cannabis Control (BCC). This agency issues state licenses to distributors, retailers, and testing laboratories. Regardless if you’re selling recreational and/or medical marijuana, you’ll need a license from the BCC.
- The California Department of Public Health Manufactured Cannabis Safety Branch. This department issues licenses to manufacture and distribute marijuana projects in the state.
- The California Department of Food and Agriculture. You’ll need an agricultural permit if you want to open a commercial grow operation in California for recreational or medical marijuana.
Types of marijuana sales licenses available
California offers two types of licenses for those who want to sell legal cannabis:
- “A” license. An “A” license permits you to sell marijuana for adult use or recreational purposes. You can only sell to adults aged 21 or older, and they don’t need a physician’s recommendation to buy pot.
- “M” license. Obviously, an “M” license authorizes you to sell medical marijuana commercially. While patients need not be 21 or older, they do need a valid medical marijuana card from a licensed physician.
You can only have one license per your premise. So you must know in advance if you’re selling recreational or adult use cannabis before you apply. Of course, an exception to the rule is a licensee holding both “A” and “M” licenses for retail sales may sometimes have the same premises for both types.
Another stipulation is that the state issues licenses by type of business. You can classify your distribution business into one of three categories:
- Type 10. This is a retailer license authorizing the holder to sell cannabis products and to deliver cannabis products to customers.
- Type 9. This type requires no storefront to sell cannabis products. The location is not open to the public, but rather delivers their products to customers.
- Type 12. This comprises three out of the four following activities:
- Cultivating marijuana in less than 10,000 square feet
- Manufacturing products
- Distributing products
- Retail sales
Alternate licenses available include:
- Type 8. This is a testing laboratory license, one that does not include medical or recreational sales.
- Type 13. This is for a distributor who transports marijuana products only.
- Type 14. This category includes any and all cannabis event organizers.
Who can own a medical or recreational marijuana business?
The owner of the business must fall into one of the following groups to get a California cannabis distribution license:
- An individual who owns a 20 percent interest or more in the business and is the person applying for the license. However, the interest could be solely a lien, an encumbrance, or a security.
- The chief executive officer of the non-profit entity applying for the license.
- A Board of Directors member of the non-profit entity applying for the license.
- A hands-on individual who directs, manages, or controls the person applying for the license.
Having a criminal record doesn’t automatically disqualify you from owning a cannabis business. However, if your conviction involves any of the following, don’t apply:
- If you’ve been convicted of a violent felony such as murder or rape.
- If you’ve been convicted of a serious felony like most sex crimes.
- If you’ve been convicted of deceit, embezzlement, or fraud.
- If you’ve been convicted of giving a minor a controlled substance or coercing a minor to sell a controlled substance.
- If you’ve been convicted of drug trafficking.
Costs associated with applying for a recreational marijuana distribution license in California
If you’re looking for a temporary license, you’re in luck as there is no application fee. For everyone else, you must pay the following costs per application:
- An annual license (paid every year): $1,000
- A cannabis event organization: $1,000
- A temporary event license: $1,000
- Physically rehabbing a marijuana premises: $500
You must pay your application fee when you submit your application.
On top of the above application fees, if you’re planning on opening a retail business selling marijuana, you must pay an annual fee for a California cannabis sales license of between $4,000 and $72,000. For more information on the Code of Regulations, Bureau of Cannabis Control, click here.
This is on top of the other costs of opening a retail business, which depends on the size and location of your facility. Besides licensing and application fees, you’ll need funding to rehab the building or location and purchase the required equipment. You also must hire professionals to help you navigate the legal and financial landmines.
Final thoughts about opening your recreational marijuana distribution business
If you think this sounds easy, it’s not. You’ll need mentors or experts who can help you, particularly with the legal aspects. Please remember that marijuana is a Schedule 1 drug in the United States and, as such, is illegal under federal law. What does this mean to you? While you may be totally within the regulations and laws of the State of California, you’re still operating a business that violates federal drug laws.
While the Obama administration took a more relaxed stance on federal prosecutions in states that legalized marijuana, the Trump administration is taking a stricter compliance stance. In effect, they leave it up to federal prosecutors in each state to go after cannabis sellers they consider violating federal statutes. This is a risk you must know. If federal prosecutors feel your business is nothing more than a front for drug trafficking, they will probably take action. And they’ll be well within their federal jurisdiction.
Another reason to have an experienced marijuana attorney on your team before you apply for a recreational marijuana distribution license in the State of California.