2. Applying Yourself to the Application
(Gabriel Alon Greenstein, in 2008, drinking a bottle of Jameson instead of working)
“Great things are done by a series of small things brought together.”
-Vincent Van Gogh
While there are many variables in applying for a cannabis license there are some common denominators across different states and business types that can help you prepare for your own future application.
No matter which state you are applying in, be prepared for a serious production. Depending on the requirements, the license application will range in length and complexity from somewhere between Dr. Seuss to War and Peace.
To begin with, you must read the regulations in your state, over and over again. At the point in which it feels like your ears might start erupting into geysers of blood, at least take comfort in the fact that you’ve made it this far, while more than half the field of would-be competitors quit a long time ago.
If, like me, you’re a writer with zero design skills, then you will need to line up a good CAD (computer assisted drawing) operator, like Troy, and possibly even an engineer. If you can draw but not write, you need to find someone who can, and so on.
If you’re planning to do extraction, you need to research the International Fire Code, to find out if the type of process you’re planning to open will require a blast-proof door, special ventilation, a solvent cabinet, etc.
It’s important that you can credibly demonstrate in writing, in this section of your application, that a) you comprehend the applicable regulations, b) you have a logical plan for compliance, and c) you appear competent enough not to explode and/or burst into flames.
Applying for Permissions
Pages from my successful to 2017 application to Washington’s Liquor and Cannabis Board to expand our growing canopy from 21,000 sq ft, to 30,000 sq ft.)
"My powers are ordinary. Only my application brings me success."
-Isaac Newton
While permissions and the related requirements vary from state to state, it always pays to be creative. When approaching different limitations in your application, try and think of ways you might be able to push the envelope.
For example, one reason we did so well with our first crop in Washington was an innovative spacing plan that involved plant diameters with no straight lines, which was proposed by my engineer business partner. While other people were thinking inside the box with rectangles for their canopies, we submitted a footprint based on circles. There didn’t seem to be anyone else doing this at the time, and if they were, they weren’t telling. “Don’t Be a Square Be Around!”
Eventually, other farms got wise to this and started employing similar canopy spacing tactics to maximize their yields.
The point is, it’s worth being ambitious on your application, and within the nebulous boundaries of the regulations there are always opportunities to be innovative and figure out new better ways to get away with more. The worst that will happen is that your licensing agent will tell you, “no”, and make you redo that part of your application.
Application Writing
(In addition to agreeing to use the state traceability system, I also proposed to the LCB that I would also track plant locations locally on a spreadsheet in case the state systems goes down.)
We are all apprentices in a craft where no one ever becomes a master.
-Ernest Hemingway
Writing successful application copy is much like writing technical copy or even prose fiction in that it follows a structure and arc, with a beginning, middle, and an end.
Like any writing project, it’s critical to start with a detailed outline. As you start to fill in the blanks and describe your plan, think of this as a logically ordered process. This is similar to generating an SOP (standard operating procedure)
If you were writing simple SOPs for putting on your shoes, what would be the order of operations that you would have to follow?
Pants come before shoes, in case you were wondering.
What are the steps you would take to address any and all concerns reflected in the written language of the rules? And what about the spirit and intent of that rule? If you understand why a rule exists, it may give you an insight into how it’s enforced.
Clean Financing/Background
I will not let anyone walk through my mind with their dirty feet.
-Mahatma Gandhi
Not only will you need to have a clean criminal background to be an owner of a cannabis license in most states, but authorities are also most likely going to want to vet any monies that are going to be invested in your business.
As you are lining up funding, keep in mind that the level of investor and financial scrutiny this industry is subject to is among the highest of any industry in the nation.
Make sure that you will be ready to go with a clean, unquestionable source of funding.
Sorry, but this means that your money can’t ‘fall off a truck’ or come from the proceeds of winning a cock fight. The burlap sack full of cash that you found covered with blood in the bushes on the side of the road by a crime scene, unfortunately, won’t qualify either.
Depending on your state, they may or may not allow you to use startup funds generated from the sale of legal medical cannabis.
What good is money, if you can’t spend it?
Raising Money
Fundraising is the gentle art of teaching the joy of giving.
-Hank Rosso
There was a time when it was nearly impossible to raise legitimate seed money for the cannabis industry. A lot of today’s operations were self-funded from prior commerce in the gray and black markets.
For years, as investors started to smell blood in the water, they would cautiously invest in ancillary spaces. Most investors would only touch companies that made the ‘pickaxes and shovels’ that were sold to the prospectors. That way they could take part in the industry without taking risk or getting their hands dirty.
Some of the Cannabis Industry Insiders used to resent these ancillary companies; angry that they were cashing in while the Insiders were losing their hair to anxiety. I used to deride them in envy as cowards, even though they were the only merchants to set up outposts back then to service cannabis businesses at the edge of the frontier.
Nowadays there is more interest from investors in the cannabis industry, than ever before. It has never been more feasible to raise money.
Of course, like always, it matters how much money you’re trying to raise and for what reason. For instance, while it is now very possible to raise money from an investor for a high-risk, high-touch business like a cannabis grow operation, it’s still much easier to raise money for the real estate; the property where the business is going to be located, and for the equipment used by the business, than it is to raise money for the build-out or business operating expenses.
There’s a whole class of cannabis real estate investors who are willing to finance properties and lease them out to cannabis businesses at a premium interest rate, without taking the risk of investing directly in the business itself.
As you may have gathered by now, operating in the cannabis industry requires navigating through many hoops, loopholes, and other circles where a joint is passed around.
Regardless of what you’re going to use the money for, if your business idea and plan are good enough, you’ll probably be able to find what you need.
The following are some of the types of investor resources available to cannabis startup businesses.
-Investor groups, conferences
-Friends, co-workers, family
-Crowd sourcing
Banking
A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain.
-Robert Frost
When the Cannabis Industry Insiders first got started in the industry, banks wouldn’t take our money. In our early start-ups together, Bob and I collectively got kicked out of over 20 bank accounts!
In the early days of medical and recreational cannabis, dispensary owners used to roll up to IRS and State Revenue Collection offices with armed guards and suitcases full of cash to pay their taxes, because banks wouldn’t take their money so they couldn’t send a check instead!
A lack of legal access to banking for the cannabis industry is mind-boggling from the point of view of the Feds. They want transparency, they want to cut down on violence and organized crime.
So why force an industry to transact underground in cash?
Nowadays there are State and local banks that will take your cannabis money, but the Feds still won’t explicitly allow for it in major banks that are FDIC (Federal Deposit Insurance Corporation) insured.
On the other hand, thanks to the work of Cannabis Industry Insider, Mark Goldfogel, and others, employees in the cannabis industry can now bank at Federal institutions.
In 2010, while trying to start Fourth Corner Credit Union, the first bank for the legal Cannabis Industry, Mark wound up as a part of a landmark case that produced a mixed verdict in appeal.
As a result of the ruling, Cannabis industry owners who touch the plant cannot utilize Federal banking, however, their employees and everyone else in the industry basically can now.
Your Cash Burn
Sometimes I am two people. Johnny is the nice one. Cash causes all the trouble. They fight.
-Johnny Cash
You are going to need a large war chest with some gas left in the tank after your initial outlay and startup costs.
The way licensing works in most markets is that you have to have a physical address tied to an application for a cultivation, processing, or a retail business operation. So, in all likelihood, you are looking at a large cash burn for rent or mortgage alone, for some undetermined duration of pre-revenue time which could last days, weeks, months, or even longer!
A strategy you can employ to help cope with this is to have a contingency clause in your contract with a landlord or seller that allows you to agree to only execute a purchase or lease once you’ve been cleared by state or local authorities to be licensed.
However, even in this case, there will still be a pre-revenue burn on a lease or mortgage, as you have to do your build-out between the time you file your application and the time you receive an inspection. Even after a successful inspection, it could still take months to actually get source products, staff up, and get to market!
If your plan is three months, you should budget for up to a year of pre-revenue burn.
I was recently looking at a prospective dispensary property in Los Angeles for a project they are working on. Because it’s a great location the monthly burn for a mortgage would be $25k, and $35k for a lease!
If it were to take a year to open in this location, it would mean almost half a million dollars sucked into a black hole! If the store still wasn’t open by then, I’d have been better off literally setting fire to the cash that we were going to use for our burn. While the cost of ‘burning’ would be the same, the time saved could be priceless.
Even if you pass inspection with your state, your county, city, or town could cause you an unforeseen delay. That happened to Troy and I when they were trying to open a cannabis processing lab on the Olympic Peninsula in Washington.
They got through with the state inspection, no problem. Then the county fire marshal showed up at the last minute to inform us that he would need a change of use permit following a new county ordinance.
This set back the opening of the lab by six months. We were already well into their burn by this point, and it wasn’t just the lease payments that were dead money adding up, there were also licensing fees, banking fees, internet, security monitoring, power, utilities, taxes, employees, etc., etc., etc.
Lastly, there is also the risk that you could invest a fortune on startup costs and your monthly burn and then fail your final inspection, be denied your license, default on your building, and/or your wife/husband divorces you right before the neighbor’s dog pees on your shoe for good measure.
That’s why you really want to have your ducks in a row if you plan to move forward with this new business. You don’t want to fail inspection, or worse, be disqualified from the application process.
Do you feel like your brain’s about to explode?
We’ve been there and lived to tell the tale.
Reach out to the seasoned pros at My Pipe Dreams to help you with your application and journey!
Exit Strategy
(In 2011 Gabriel Greenstein, and Contributor Robert Johnson, sold their first brand and product line, Canna Catering, to another manufacturer in California.)
(In 2018 Gabe and Bob, were bought out of TetraLabs.)
(Some of the Alta Nova/Chong’s Choice crew with Cheech & Chong backstage in 2018 in Tacoma, WA. In 2019 Gabe sold his lab business including state license, and equipment, brands, IP, and licensing deals.
(Gabe bidding farewell to the garden after decing to sell the farm in 2019.)
It's not selling out, it is called making lots of money.
-Mick Jagger
Ideally, when you’re starting your business you are already planning for the end. You need to have a clear understanding of what your long-term goals are in order to properly orient your business towards achieving them.
Bob and I always planned to sell our first medibles company, though never expected to do so in our second year in business!
After much soul searching though, we decided it was the right choice for us. We realized, upon mutual self-reflection, that we had more and better opportunities in and around a new partnership that was starting to come together with another team of entrepreneurs that seemed to hold the critical missing pieces of the puzzle for us to achieve our big picture of success in the industry.
At this point, we realized it would make more sense to simplify our lives by selling off our own company, in order to work full time at making this new venture and partnership in something greater than we were alone, a big success. It made more sense for us to streamline our bandwidth and focus on a better product platform with a higher ceiling for growth, scalability, and an increase in equity share value.
Four successful exits from the cannabis industry later and I’ve learned both to be flexible with my expectations and adapt to the winds when needed. At the same time I also stayed anchored to long-term goals and an overarching vision for where I wanted to go.
On the other hand, you should never start a business for the exit. You’re really only going to thrive at something you loving doing or you’re passionate about.
Differentiation
(Originally launched under the brand name Alto Pharma, by 2012, TetraLabs was first-to-market with four revolutionary new product categories, throughout California and Washington States.)
"You've either got or you haven't got style, and if you've got it you stand out a mile."
-Frank Sinatra
What sets you apart from the pack?
In a competitive industry, you need to find a point of entry, whether that’s an innovative product or marketing campaign, in order to be able to successfully carve out your niche.
The new company that Bob and I helped start in 2010 had cracked the code to produce the first distilled THC oil and the first medical-grade cannabis products.
We combined our creative marketing and sales strategies with an innovative product development team and history was made. Our company TetraLabs brought to market the first ‘clear’ THC and CBD oils, in addition to the very first-to-market THC and CBD softgel capsules, breath sprays, and vape carts.
These product formats, and the template that TetraLabs created, still constitute a significant percentage of the market today.
By putting together a team where everyone was focused on their strengths, powered by innovation and creativity, our new team was able to set the standard and lead the way for the entire cannabis industry. For many years, we were the highest quality and highest volume producers of medical cannabis extracts in the world. It would be a long time in fact before any competitors were able to catch up with us.
Vertical Integration
"The worst enemy of life, freedom and the common decencies is total anarchy; their second worst enemy is total efficiency."
-Aldous Huxley
In some states the regulations and your budget allow for you to open a vertically integrated business, versus being restricted to being in just one corner of the supply chain or the other. For instance, in Colorado and many other States, a cannabis business can produce their own flowers, manufacture their own extracts and edibles, and then sell their end products directly to consumers through their own retail locations.
The advantages of this can be huge as Troy experienced first-hand on both sides of the coin. When Troy was working at Columbia Care in Washington DC, he could control the product and the customer experience from end to end. And the best part? He didn’t have to battle anyone for shelf space.
Contrast that to Troy’s experience with me in Washington where we weren’t allowed to own a retail store because we produced and sold flowers and extracts. And unfortunately, this system was ripe with abuse and put the honest operators like us at a competitive disadvantage. What happened is that many people would game the system, by having close friends and family members purchase the licenses that they weren’t allowed to. These relationships somehow passed muster with the regulators, and though they were technically above boards, inevitably, these conglomerates of interested parties violated the spirit of the law, with incestuous relationships, and handshake supply chain agreements that unfairly excluded other producer/processors or retailers from access to the market or access to product.
Too Late, I’m Already Disqualified...
"If you do not change direction, you may end up where you are heading."
-Lao Tzu
In some cases, you can fix the problem and reapply. If you, yourself are not qualified, you may be able to apply again if you find the right partner.
If you have already sunk money into a property and you personally can’t be involved, then become a landlord.
Get your space compliant, and then advertise it as turnkey property for that business type. Don’t forget to charge a premium!
This might end up being a better business in the long run anyway.
How to Stay Sane…
"I can calculate the motion of heavenly bodies, but not the madness of people."
-Isaac Newton
Running a legal cannabis business can be an insanely stressful and mind-boggling experience. A good rule of thumb to keep in mind for this is the 1st rule, or ‘Noble Truth’, of Buddhism, i.e.- “all of life is suffering.”
As a part of a brand-new industry, that is in the process of evolving into legality, expect to be squeezed through the wringer.
It’s not our intention to push religion on anyone, but once you’re ready to accept this simple, essential fact, you’ll be more well prepared on your path to success.
Being a good boss in the cannabis or any industry is more about managing yourself than it is about managing your employees. If you manage and calibrate your own behavior properly, and lead by example, your employees will follow suit.
If you get upset and lose your cool, you will most likely be engaging in self-sabotaging behavior. Employees will feel uncomfortable, morale will suffer, and productivity will go down. Eventually, you’ll lose the best members on your team.
When you’re a leader, everything you do is being observed, and your example – good or bad, sets the tone for your crew, whether or not you’re even aware that you’re doing it.
You could just be having a bad day at your place of business; walking around feeling a little depressed, burnt out, frustrated, tired, overworked, etc.
You may not notice right away, but your mood will be infectious. Pretty soon people up and down the org chart will start getting irritated and sniping at each other. An epidemic, this toxic negativity spreads like an airborne virus from employee to employee. The next thing you know your whole organization is dysfunctional and sick, mired in unnecessary conflicts and time-consuming dramas.
When Tommy Chong was on the road on comedy tours, fans would come up to Tommy and ask him to sign their bongs for them.
‘Chong’ Bongs’, were such a frequent occurrence that Tommy’s wife Shelby, who had always been the ‘brains’ behind Tommy’s business-opps, convinced him that they should turn the bong phenomenon into a business.
Tommy will be the first to admit that he is a lousy businessman and that he owes all his success to his wife.
Shelby has been Tommy’s business partner and guide ever since the early days of his career when he was running strip clubs in Toronto. Shelby would go on to help Cheech & Chong get their road act together and then later was instrumental in keeping the Chong’s assets and portfolio afloat while Tommy was in prison.
“Behind every successful guy…” Tommy said, “in my case, at least… is a very beautiful woman… that still drives me nuts… in every way possible…”
Tommy and Shelby put their son Paris, in charge of Chong’s Bongs, and he set to work launching and successfully growing and scaling the business to the extent that they had expanded into a large factory with half a dozen full-time glass blowers. After investing millions into infrastructure, they were finally about to see an ROI.
Then in 2003, the Chong’s found themselves in the crosshairs of the Federal Government, swept up in the convergence of everything that’s wrong in American politics and with both major political parties. Enforcing a law that made it a felony to ship marijuana paraphernalia in the mail, which was written by none of other than Democrat, former US Senator, and current US President, Joseph Biden; the Republican, Bush Jr Administration, decided to make an example of Chong’s Bongs and arrested Tommy in a sting operation that was painfully and ironically dubbed, Operation Pipe Dreams. As a result of this miscarriage of taxpayer resources, Tommy spent nine months in federal prison.
While Tommy was frustrated at getting arrested because his son was just turning the corner with Chong’s Bongs only to see it all go Up in Smoke when Cocaine Cowboy George Bush marshaled the law dogs and declared war on their victimless enterprise, Tommy still couldn’t find himself being very angry.
“(Being arrested) is in my DNA”, Tommy said, “I knew at some point in my life I’d be doing time in jail, there were signs all along the way.”
Tommy had grown up in a home that took in and rented rooms to down-on-their-luck strays in Canada that in some cases had served time before in prison.
These tenants prepared Tommy for what to expect.
One recidivist criminal that had frequently stayed at Tommy’s house as a child was a French tap dancer that robbed a bank less than a year after being released because he wanted to get sent back in order to participate and tap dance in the prison Christmas show.
Tommy came to grow comfortable with the idea of prison and in a way, he said, he was kind of looking forward to it.
Aside from that Tommy had learned at a young age that women found ‘dangerous’ men attractive, and he also learned at a young age that he was really interested in what women found attractive.
“I laugh when people say they don’t want socialism,” Tommy said, “we’re the most socialist country in the world because we have more people incarcerated than anywhere else, and that’s why kids are coming to the border now because they want to be incarcerated. When you’re incarcerated you get your three meals a day, you get your recreation time, you get someone that locks you in the cage at night so you’re safe and don’t have to worry.”
Tommy made the best of his experience in jail and in fact… had a great time!
He became good friends with Jordan Belford, the Wolf of Wall Street who was his cellmate, and in general got along famously with inmates and guards alike.
“Everyone knew what I was coming for,” Tommy said, “and I got treated very well… very nice, sweet people, they were very nice to me and I was nice to them, that’s the key.”
Tommy had such a great experience in jail, that he even has designs on starting a business to help sheltered celebrities that are facing jail time, like the parents busted in the college admissions scandal, by offering them coaching to prepare for their hard prison time with a fun, open, welcoming, and positive attitude.
“People that are gurus like Depak Chockra, all of the great spiritualists, people that know the Dalai Lama,” Tommy reflected, “they all have one thing in common, they all giggle. It’s their cosmic laugh.”
That’s what you learn as an evolved entity, Tommy observed. The gurus laugh because they know the secret of the universe, and it’s funny because they can’t possibly tell you the secret, you can only find it out for yourself, or if you’re at the point in which you’re finally ready to accept the answer from a Guru, at that point, it would be pointless for the Guru to say anymore because you would have already figured it out for yourself.
At 83 years of age, Tommy can look back on a life of staying positive even in the face of the most taxing moments from beginning his fight against prostate cancer in 2012 to spending three months in a dentist’s chair to get all of his teeth replaced.
He doesn’t allow himself to get phased by day-to-day annoyances like scam-robo-calls. Tommy simply looks to turn the tables on them to keep himself amused, and for instance will pick up the phone and say, “please hold” before seeing how long he can keep them on the line before they start losing their patience with him.
Key Chapter Takeaways
The Do’s and Don’ts of the Dope Industry
- Do– Learn how to write a great application!
- Do– Have clean sources of investment capital to fund a healthy start-up budget
- Do– Your homework to identify the type of business, region, and customer base that you think can be successful with
- Don’t– Get started without a goal or a plan for your eventual exit
- Don’t– Forget to focus on creating value and differentiation in the marketplace
- Don’t– Lose your Zen!