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May 23, 2022

With cannabis business lottery application windows closing, what’s next?

HBJ PHOTO | STEVE LASCHEVER Department of Consumer Protection Commissioner Michelle H. Seagull (right) and Andrea Comer (left), DCP’s deputy commissioner and chair of the Social Equity Council.
By Skyler Frazer

Despite still being early in the licensing process — and having to sort through tens of thousands of applications from prospective cannabis entrepreneurs — retail marijuana sales could still begin by the end of this year, the industry’s top regulator said.

That’s the good news for budding marijuana entrepreneurs eager to enter the state’s adult-use market.

However, the industry will likely be dominated at the start by dispensaries currently serving medical marijuana patients, since they have easier access to the recreational market, compared to new industry entrants.

“That’s sort of what we’ve seen play out in other states — if you have an existing business it’s a little easier to expand than to start something new,” said state Department of Consumer Protection Commissioner Michelle H. Seagull, who oversees the cannabis industry.

Retail cannabis sales in 2022 are still possible, Seagull said in a recent interview, despite the fact that provisional licenses haven’t yet been doled out to companies.

“A lot of it depends on how long the process goes, but we still think that’s a possibility,” Seagull said.

Prospective cannabis companies not currently operating in Connecticut’s medical market must go through a number of steps — and get lucky — to enter the recreational industry.

Application windows for the eight different cannabis business license types have been closing weekly since earlier this month. After that, qualified applications will be entered into a lottery where a limited number of provisional licenses will be granted.

As of May 12, 26,052 lottery applications were submitted for all eight cannabis business license categories, but only 58 total licenses will be granted during the first lottery round.

Meantime, medical marijuana dispensary operators can bypass the lottery and apply for a hybrid license to expand into the adult-use market. They only need state and local zoning approvals to make the transition.

“There will be a review of their conversion application,” Seagull said of hybrid dispensaries. “For example, they’ll need to include their plans to protect the medical market and preserve that so those patients don’t hit supply disruptions, and they need to have a workforce development plan.”

Provisional licensing

The next step in the licensing process for new prospective market entrants is the lottery, which will be handled by an independent third-party company. DCP has not yet identified the company it has hired to perform the lottery.

There will be separate random drawings for general and social equity license applicants. Social equity applicants that aren’t selected for their lottery will automatically be entered into the general lottery.

Lottery winners are then vetted by DCP or the Social Equity Council. If they make it through that process, companies will be given a 14-month provisional license to iron out the details of their business.

Seagull said the initial application review is very preliminary — making sure candidates don’t have disqualifying convictions, for example — but the provisional stage gives companies a chance to finalize their full business plan and get other documents in place.

“Once you have that provisional license, you have a little bit more certainty that you’re on a path towards the final license,” Seagull said.

 

Megan Budd

That provisional license window is when companies will finalize their locations, get zoning approval and lock up any financing commitments, said Megan Budd, a Connecticut CPA and principal with accounting and consulting firm Withum.

“The next step once they get that provisional is to zero in on a location,” Budd said.

Budd said entrepreneurs should be researching towns they hope to open in, and find out whether they’ve put moratoriums in place. According to data from the DCP, at least 55 municipalities have instituted temporary bans on or prohibited cannabis sales.

“It’s going to be a little bit of a race to who can get into those top locations, get through zoning regulations and either purchase a building or get a lease going,” Budd said.

In addition to location, the provisional licensing period is also when companies can begin to hire employees, Seagull said.

Andrew Glassman

“People are going to have to start building out who they’re hiring,” said Andrew Glassman, a lawyer with law firm Pullman & Comley. “A lot of these applicants submitted internal organization charts, but in a lot of cases you don’t know who you’re hiring because it’s premature.”

Budd said the DCP will do reviews during the provisional period before final licensing to make sure facilities are up to standard.

“This is a highly-regulated market, so you need to set your business up in a way that you’re ready to comply with that,” Seagull said.

Since existing medical dispensaries already have locations and prior license approval, they won’t need to get a provisional license. Instead, they only need to get municipal and state approvals to convert. Those hybrid application requests have already been coming in, Seagull said.

For example, Fine Fettle has already received municipal approvals to convert its three medical cannabis dispensaries into hybrid locations. The company is also looking to open a recreational cannabis retail facility in Manchester.

Glassman said he’s interested to see how medical dispensaries plan to expand capacity. The challenge for some retailers and growers will be balancing the need to grow their facilities with limited space and supply. Still, because they already have operations in place, the conversion will be easier than starting new.

“But if some of them have been sitting on some additional capacity or have room within their facilities to quickly expand without finding a new building or doing a significant build-out process, then I would hope and would think that they’re all going to be putting those plans in process pretty soon,” Glassman said.

For the state’s immediate retail future, it’s safe to assume that medical players converting their dispensaries to hybrid facilities will be the first to open.

“They’ll absolutely be first,” said Budd, the CPA. “You’re going to have someone like Fine Fettle or Curaleaf that’s going to go to market way before any private newcomer is.”

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