By Lucy Valeski / Jul 26, 2023
This story has been corrected
Potential applicants for a state license program intending to promote social equity in the cannabis industry are preparing for the reality of owning a highly-regulated business.
And while most feel hopeful that the program will achieve its goals, there are still barriers and questions applicants face when looking at the costs of opening a cannabis business.
Christy Essex has been involved in the cannabis industry, primarily in consulting and education, for a few years. She is planning on applying for either a wholesale or dispensary license and hopes to open a facility in a rural community to increase access to marijuana. One concern she has is about raising funds for her business if she receives a license.
“There’s limited funding in the industry as a whole,” Essex said “It just makes it super challenging for smaller groups who want to really be in the industry for the greater good.”
The amendment that legalized recreational marijuana in the state mandated a lottery program that would give Missourians an opportunity to obtain “microbusiness” licenses to cultivate, manufacture and sell marijuana. The initial round of applications will open on Thursday and close Aug. 10.
Applicants must meet one of the criteria listed by the Missouri Department of Health and Senior Services. The criteria includes previously being arrested or having a family member that was arrested for a non-violent marijuana-related offense or residing in a zip code with a historic incarceration rate for marijuana-related offenses that is 50% higher than the rate of the entire state.
These criteria are intended to bring individuals who have previously been disproportionately impacted by the criminalization of marijuana the opportunity to enter the legal cannabis industry.
The initial lottery round will award 48 licenses, with each congressional district receiving two dispensary licenses and four wholesale licenses. Individuals can only list their name on one application for either a wholesale or dispensary license. Winners will be issued their licenses no later than Oct. 4, according to the DHSS website.
There will be two more application rounds and lotteries in 2024 and 2025, with 96 more licenses being awarded.
The program could help low-income and historically marginalized Missourians build capital and generational wealth on the back of the state’s new billion dollar recreational marijuana industry. However, activists, academics and applicants have expressed concern about the possible limitations when it comes to acquiring funds and awarding the licenses to the intended recipients.
Social equity program
Missouri’s microbusiness lottery program has faced some controversy over whether or not it will be an effective social equity program.
Chase Cookson, an instructor in Saint Louis University’s Cannabis Science and Operation program, said the licenses should ideally be awarded to people who have been impacted by cannabis incarceration.
“When we think of social equity programs, what we are trying to do is right some historical wrong,” Cookson said. “In cannabis, cannabis prohibition has impacted marginalized communities, communities of color.”
Cookson said some of the microbusiness license program criteria is effective at attempting to “right the historical wrong,” such as including applicants who were arrested, or had a family member who was arrested, for a non-violent, marijuana-related offense. However, he said most of the program’s criteria is too wide and does not ensure that historically marginalized individuals will receive licenses.
For example, a portion of the criteria deals with living in a zip code that meets a requirement, such as where 30% or more of the population lives below the federal poverty level. An applicant could reside in this zip code and live well above the federal poverty level. Cookson said that since the selection process is a lottery, that person, who may not necessarily have been disproportionately impacted by marijuana incarceration, could still receive the license.
However, others have found that the broad criteria and refundable fee of $1,500 for entry have made the program more accessible to Missourians who are interested in applying and have not had experience running a business. The application fee differs from the medical license program in 2019, when fees were not refundable and ranged from $6,000 to $10,000 depending on the license.
Melanie Randels, an interested microbusiness applicant, said the program was an effective social equity program in her opinion because of its lower barrier to entry. She has been preparing for the application since February when she started looking for potential properties for a wholesale facility.
“I have been a victim of the criminalization of cannabis,” Randels said. “I feel that it is definitely an opportunity for me, because we get the piece of the pie. It’s also a great example of coming from where I’m from with the hurdles and barriers of entry that I have. If I am awarded a license, it will let the community know that this is something that is possible, that it is something that is fair and equitable for us.”
Todd Scattini, the founder of cannabis consulting services group Harvest 360, presents during a marijuana microbusiness license information session hosted in St. Louis earlier this month. Small operators and business owners are getting ready to apply to the program, which opens for a first round on Thursday. | Braiden Wade/ Missouri Business Alert
Access to capital
John Payne, a Missouri cannabis activist who led the campaign to legalize recreational marijuana in the state, said that by design, the program should grant individuals without an enormous access to capital a license.
The challenge for microbusiness license recipients will be gaining the needed funding for opening their business, which could range from $750,000 to multiple millions of dollars depending on the type of license, according to Payne.
However, some traditional ways to gain funding may not be available to microbusinesses. Marijuana is still illegal for recreational or medical use federally, so most banks will not offer loans to microbusinesses. Most license recipients will have to look for investors. But the new business owners will also need to make sure they are not being taken advantage of by companies or parties, Payne said.
“It’s trying to strike a balance between allowing people to sell the equity that can raise that money without it just becoming something where it becomes a shell game, where the people that are applying just become figureheads for a big company that’s ultimately going to take the license,” Payne said.
Payne said he recommends microbusiness owners have legal experts look at any deals they are making with investors to ensure that it will benefit the initial owner long term.
“If they (investors) pay to get the license and they pay what it’s worth to the person, that does also build equity for those people and for those communities,” Payne said. “It’s where— ‘hey, we’re gonna have an agreement where we’re gonna pay you like $5,000 for the entire equity of this’ — that’s exploitative.”
Because of funding challenges and high regulatory standards, Tammy Puyear, the co-president of the women-in-cannabis advocacy group JAINE, recommended applicants develop their business plan and familiarize themselves with regulatory expectations as soon as possible.
Tammy Puyear discusses access for women in Missouri’s growing marijuana industry.
“If you’ve never set up a cannabis business, it can be very daunting and overwhelming when you see the number of things that you have to do for regulatory and compliance,” Puyear said.
Puyear also said applicants should begin networking and building relationships with other applicants now because microbusinesses are only allowed to buy and sell from other microbusinesses.
Amy Yan plans on applying for a wholesale license. She previously applied for a medical license, but did not receive one. Yan is working on her business and floor plans for her dispensary, but she said she has had a difficult time accessing funding before the license lottery, making the planning process challenging.
Applicants have expressed optimism that investors will be interested in microbusinesses once they receive the license because the cannabis industry has been so profitable in Missouri, but they are having trouble planning ahead without the license in hand.
“You hope and pray that the business plan that you have is going to be solid enough for an investor to be like, ‘yes, I really want to invest in this,’” Yan said. “The problem is that without having a license in hand, nobody really is going to take me seriously trying to get the capital that I need to build this structure.”
This story was corrected to reflect that Amy Yan is planning to apply for a wholesale license, not a dispensary license. A photo caption was also updated to correct Jason Nelson’s last name.