“Most of you have heard of MedMen, this is a giant within the industry. So how is it possible that something so large, could have overlooked something so important, as a change in ownership on their license application?” – Jared Younker
In this webinar recap, we want to prolong our information of the highway to hashish licensing acquisitions and the insights from our workforce of compliance specialists to the hashish business.
To keep away from these main points within the hashish house, a consumer wants to make sure they’ve an efficient and correct enterprise construction, as properly enough working capital for the permits, licenses, tenant enhancements, and compliance administration to help lengthy-time period success.
Our prime 4 causes for hashish functions denial:
- Failure to reveal convictions or full data of the homeowners managers monetary curiosity holders.
- Failure to supply an correct element of the premises.
- Failure to amass all wanted licenses and permits for the situation.
- Failure to adjust to state rules and necessities.
Contact our compliance workforce with every other questions. Please overview our recording and transcript under for the total particulars.
About Presenter: Jared Younker
Chief Compliance Officer, CREC Compliance
As a broadcast creator/editor for hashish business-particular books (“IRS Code 280e Simplified” and “420 Delivery: A Complete Guide to Starting a Medical Marijuana Delivery Business in California”), Jared has a transparent understanding of beginning hashish companies and managing compliant operations. Jared was featured in OCWEEKLY’s 2017 Rolling Paper 420 Guide of “Up-and-coming entrepreneurs”, and has been invited to talk on compliance with organizations NORML, Woman Grow and Hemp Radio.
VIDEO: Why Cannabis Applications Fail – Webinar Recording
Read the article referenced in the webinar the place multistate marijuana operator MedMen Enterprises was rejected for a conditional-use allow wanted to open a deliberate retail outlet in Pasadena, California
Webinar Transcript – “Why Cannabis Applications Fail”
by Jared Younker, Chief Compliance Officer at Cannabis Real Estate Consultants, CREC Compliance Division
Hello everybody we’re going to go forward and get began.
I’d wish to thanks on your time. This is the CREC Compliance webinar. Today we’re going to debate why hashish functions fail. My title is Jared Younker and I’m the Chief Compliance Officer for CREC Compliance. We work straight with property homeowners and operators, together with actual property brokers and traders and the like, in acquiring the required hashish land use and municipal state allowing and licensing.
Shortly put, we do all issues hashish license associated and that extends into acquisitions as properly. Certainly the actual property portion is a serious element of what we do and that’s almost definitely why you obtained our emails and are on this webinar. For that I thanks.
So let’s discuss from a 30,000 foot elevation right here on why some hashish functions fail, whereas others succeed.
We’ve pulled our purchasers in addition to our lead base and it appears as if the overwhelming and prevailing conclusion is that the reply is corruption and bribery.
Now, definitely we now have seen the lawsuits introduced by those that had utilized for functions in sure municipalities and didn’t see them. We’ve seen this occur time and time once more, so clearly there’s a element of corruption and bribery inside the business, as far as licenses are involved. But what’s not usually spoken about is the applicant’s vulnerability within the licensing course of and in order that’s what we’re going to dive into a bit of bit right here.
Medmen utility rejected in California City
I’m going to come out of the presentation and present you the article that really made me suppose it might be a good suggestion to host this webinar. This MJ Biz Daily article about California City rejecting a MedMen utility for a hashish retailer license. As you learn in it, it goes into element about their Pasadena, California utility and the way and why it was rejected, specifically due to a cloth change in possession and/or administration in MedMen.
Now most of you, I’m certain, have heard of MedMen-this can be a large inside the business. So how is it potential that one thing so massive might have ignored one thing so necessary, as a change in possession on their license utility?
We’re going to get into that a bit of bit. First, let’s bounce again over right here into our presentation. So what we’ve outlined are three important parts to what find yourself affecting the end result of an utility for municipal or state hashish. And that might come right down to possession change, enterprise instability, and incorrect utility data.
Now this can be a spotlight from that article. We’re going to dig a bit of deeper after which a bit of deeper additional in order that we will actually perceive what your purchasers could be up in opposition to, or if I’ve any candidates on the webinar, what you guys are up in opposition to relating to functions for license.
Look at this backside paragraph. According to the letter, 9 out of ten MedMen homeowners listed on the corporate’s unique utility needed to have modified, since now these functions oftentimes can vary upwards of six, eight, 9 months sitting with the municipality earlier than a choice is made as as to if or not a license will likely be issued throughout that point.
The change in possession for considered one of these candidates might fairly actually derail your complete utility. How might that be? Well let’s check out what the state of California considers the definition of a hashish license proprietor. It’s a doozy and for these of you who don’t have the display share capabilities happening proper now, as I needed to tremendously scale back the dimensions of the font to be able to get this all to suit on one display.
To summarize a few of the key factors right here, an proprietor can be somebody with 20% or extra curiosity within the individual or entity making use of for a license. An proprietor would even be anyone who engages in 20% of the earnings of the hashish enterprise. Further, an proprietor may be anyone who participates within the path management or administration of the individual making use of for a license and that might clearly prolong to the entity making use of for a license as properly.
Handle hashish utility correctly by means of the municipality within the state
What an expertise it should be to place in an utility at this time and suppose in 6 to 9 months from now, probably even 12 to 18 months from now, that if there’s a change in possession-perhaps a brand new investor comes alongside, perhaps one of many managers walks away, maybe there’s a problem with funding, and we now have to chop some folks from the workforce, any a kind of actions. If not dealt with correctly by means of the municipality within the state, it might find yourself subjecting the appliance itself to being a non-concern on the license.
Let’s discuss a bit of extra about possession modifications firstly. I’ve to confess the bread and butter of the purchasers that we cope with have already tried to kind their very own enterprise entities. We see lots of Legal Zoom come into the workplace, and positively to not throw any shade at Legal Zoom, however one of many issues we’ve realized within the workplace, is that Legal Zoom shouldn’t be a competitor for us, however slightly a complementary enterprise service. And I say that due to what number of entity formations we find yourself having to mainly return and repair on account of Legal Zoom.
When it involves possession modifications. definitely the primary level that we’d need to result in is that we’d advise you and your purchasers to seek the advice of with an expert to construction the transaction appropriately, proper from the beginning. A correct company construction must be thought of, particularly for the legal responsibility and investor functions.
Next level, keep away from in any respect prices, making the error that MedMen made, which is a change to possession, and as we’ve seen within the definition of possession that may prolong to administration whereas an utility is in course of with the municipality or the state. I need to level out that it’s not at all times such a black or white scenario. Right on the municipal degree it’s on the discretion of the municipality to determine whether or not or not, let’s say, a change of possession, can be acknowledged whereas an utility was in course of.
Now some municipalities will permit this and have a path ahead, different municipalities won’t permit this and they’ll insist that both the unique utility be pulled and a brand new one remitted, or the unique utility be carried out till it points a full perimeter license at which case that might be the earliest through which we might change the possession.
Let’s discuss enterprise instability and functions for licenses
This was the quantity two level that we need to keep away from relating to the dialogue of why functions and licenses are denied and or probably revoked. after inch issuance. And that second half may be very important right here for my transactions that contain a license acquisition. So for these of you who might or is probably not aware of with how that works, usually licenses can’t be transferred themselves. Some municipal licenses can, nonetheless, on the state degree be transferred. But usually that’s not potential. Instead what we’re speaking about is the acquisition of the entity, which holds the license.
Based on that we’re going to cowl a few of the larger points that we see with lots of the offers within the hashish business. The first concern clearly being the avoidance of lawsuit investor points. Certainly that might be a powerful contender for primary as properly once more the timeline it takes to get by means of the licensing course of. Oftentimes is problematic for traders, and so what we find yourself with is a excessive failure fee for initiatives due to an absence of correct monetary forecasting and budgeting.
We just about beat this horse to dying, however modifications in administration, we’ve seen that that is oftentimes at the side of frequent worker turnover layoffs, additionally can be not solely a serious a part of that. But one thing that this 12 months in 2020, the hashish business noticed fairly a little bit of one other indicator for instability of enterprise, can be the promoting off of enterprise property.
I’ve listed some points reflecting monetary well being of the enterprise, which would come with all of those. And my most necessary, on the backside, the failure to be present with tax filings and once more referring again to those transactions for these of you curious about the the transaction, of licensed acquisitions. It is unquestionably a primary requirement throughout the board, that any entity trying to promote part of itself or its securities to a different individual or entity, should be present with their tax deficits.
Here we’re going to insert a compliance tip. To keep away from these points, a consumer wants to make sure an efficient and correct enterprise construction as properly enough working capital for the permits licenses and tenant enhancements, and eventually there must be a layer of compliance administration.
The third purpose as to why hashish functions both fail or licenses are revoked, all utility data should be managed on an ongoing foundation that extends far past simply modifications to personnel inside the group But as properly generally SOPs need to be up to date, which brings us to our second level.
In 2020 we noticed one thing actually attention-grabbing occur, in reality a type of a domino impact within the hashish business, and it began off with the business being declared as a necessary business. And with that got here various new provisions that had been required. Certain states and sure municipalities began to permit hashish operators to function beneath comparable pointers to what different important companies had been being required to function beneath and naturally that might be a change in the way in which a normal working process may usually work, which then requires the applicant to replace their SOP and submit that SOP to the municipality and to the state to make sure that their operations are congruent with the expectations of the town and state.
Our prime 4 causes for hashish functions denial:
- Failure to reveal convictions or full data of the homeowners managers monetary curiosity holders. That can prolong to staff and there are specific municipalities that require background checks to be finished on all staff of the app of the entity.
- Failure to supply an correct element of the premises. I couldn’t probably gauge the variety of purchasers I began to work with who initially tried to navigate the municipal or state utility course of themselves they usually bought caught. You know that that completely occurs to the most effective of us. I’m lucky that I work with an incredible workforce and we now have the flexibility to help one another in addition to our purchasers. However one of many issues I repeatedly see when purchasers get to me by the point they’re caught is that there’s a large number of discrepancies within the premises diagrams. If your working procedures are going to be based mostly off of the premises diagrams and we don’t have correct premises diagrams, properly then we’re setting ourselves up right here for fairly the catastrophe.
- Failure to amass all wanted licenses and permits for the situation. This goes to fluctuate by municipality and by state. Certainly you possibly can count on a cultivation license goes to wish to get some kind of native and or state allow from a water board, which goes to cowl the place their water supply is and what the runoff or disposal of cultivation water would appear to be. Similarly for manufacturing, relying on if the hashish operator, goes to be a unstable or a non-unstable producer. There goes to be a distinction within the necessities as set forth within the plans designed by the engineer and so now what we’re seeing is that we actually have to have a full workforce right here. If we’re speaking a couple of naked piece of land that’s going to should be land use entitled, guess what guys, we’re going to wish so as to add one other member to our workforce. Probably somebody to do an environmental survey. We need to be sure that there’s no endangered life kinds whether or not it’s crops or animals on the property and equally we have to guarantee to each the municipality and the state that we’re going to be compliant as regards to any environmental affect enterprise may need on the native space.
- Failure to adjust to state rules and necessities. This is ongoing, proper, we beat it to dying. We know we now have to have a compliance workforce not solely to assist us with the appliance, we want that compliance workforce to assist us out with the onboarding. We want the compliance workforce to assist us with our SOP and ongoing administration of it.
License renewals for hashish land use and regulatory operations usually require annual renewals
This is ongoing and that brings us to our compliance tip quantity two. License renewals for hashish land use and regulatory operations usually require annual renewals which is comprised of submitting an up to date license utility data. We have licensed hashish compliance officers right here at CREC Compliance which can be devoted to taking good care of the by no means-ending necessities or sustaining an energetic license
Now upon getting a license, I type of alluded to this only a minute in the past, there’s at all times this want to remain in compliance to ensure all of your permits, licensing, and required documentation is saved updated.
Laws change subsequent 12 months in California and the three regulating companies intend to consolidate into one company. Certainly we’d be smart to count on that this may change the method that may inevitably result in a necessity to alter and replace SOPs for purchasers and you understand how fines for inaccurate SOPs can harm.
Below we’ve outlined the three layers of what we see are hashish license vulnerability layer:
- A fantastic or a suspension of the license. Sometimes these licenses could be reactivated relying on the severity of the infraction.
- If the infraction is dangerous sufficient there’s at all times the business ban. This is an actual factor that has truly occurred to purchasers of ours. Clients that had been coping with those who weren’t but licensed within the business who had been working unregulated.
- Unregulated employees might be the choice of felony prosecution. All issues we clearly search to keep away from and that’s why hashish compliance is such a important aspect of the licensing side.
Why Work with a Compliance Support Team on Your Application?
So let’s discuss a bit of bit about CREC Compliance and deliverables. At the forefront of a profitable hashish enterprise is the management workforce that understands the significance of normal efficiency audits to gauge effectivity and vulnerabilities.
Cannabis compliance could be an albatross to these leaders to maintain up with and that’s often why they contract with an organization like CREC Compliance who’s crafted a set of providers to ease that carry. CREC can deal with all of your compliance wants, and people of your purchasers, ranging from the method of incorporating, seeing all of it the way in which to operations, and ongoing compliance for the operations.
Finally I need to share a narrative with everybody. As a compliance officer, we generally get this type of dangerous rap, virtually like we’re stale, maybe like an accountant, not that there’s something being unsuitable with being an accountant, as a result of that’s a part of my background, however I wished to share a narrative that I feel you’re going to have the ability to relate with. If nothing else, I hope you’ll perceive the message on this story, and that you just’ll be capable of take with you.
I’ve an virtually 5-12 months-previous daughter and not too long ago the grandparents thought as an excellent early birthday current that they might purchase us a Nintendeo Wii. I let my daughter begin enjoying with the Nintendo Wii, the Super Mario Brothers recreation and she or he had a good time.
Over the final week she’s continued to drag at me: “daddy, daddy I want you to play Nintendo with me, I want you to play Mario Brothers with me”, and i’m busy, however I find time for my daughter. So I sat down along with her a number of days in the past, and she or he arms me the distant and she or he says daddy right here’s the way you play it, tells me the buttons to make the characters transfer after which she says, okay daddy you go first.
My buddies, it took me all of three and a half seconds to kill my first man, I stood there I held the button down, my Mario character ran and once I noticed him about to collide with the little turtle, I bodily jumped within the air and performed my arms round pondering that is how I make the character work! That shouldn’t be the way you make the character work and my daughter laughed and she or he laughed arduous, after which she proceeded to take her first character for 25 minutes. I sat and watched as she performed one life, earlier than she died after which I bought to my second character. I’m sorry to say that my second character, truly it didn’t go a lot better than the primary, and naturally my daughter’s second life, she’s now three 4 ranges up and eight,000 factors forward of me. So I performed my closing life and I bought the massive mushroom and it made my character larger.
You guys are in all probability pondering why is he telling us these particulars about this online game. Right properly simply grasp on, keep on with me for a minute proper, so I feel I’m doing higher, I feel perhaps I’ve an opportunity to catch up. I realized easy methods to make the character run and I went to make this tremendous bounce and I misjudged the gap and I fell and my final life was gone and so my daughter is simply cracking up.
I’m humiliated and I began pondering to myself, how is that this potential, is my daughter smarter at 5 years previous than I’m? And that’s debatable. Is she quicker no, is she stronger no, is she inherently higher at video video games, no. I don’t imagine that. So how is it that she simply completely annihilated me and the reply is: she had already performed that online game for the final week.
She had studied it, she had memorized it. She knew the highway forward, and that gave her the distinct benefit of not solely navigating the sport, however severely punishing her father and sending him into a light despair. I didn’t truly take it that onerous, however my message right here is, people similar to my daughter – she knew the highway forward and that that gave her the benefit within the recreation along with her dad.
CREC Compliance want to prolong our information of the highway forward relating to hashish licensing acquisitions and all-spherical compliance providers supplied to the hashish business. We want to supply that information of the highway forward to you and as properly to your purchasers, so I need to thanks on your time. I’m going to pop up right here for questions.
Question and Answer
Q: What do you do when a municipality doesn’t know what it’s doing?
A: I’ve realized some some fairly superior respiratory methods by means of meditating and so my rapid reply can be, I breathe after which I simply type of let my coronary heart fee come down in a bit of bit. Initially it’s at all times scary if you’re participating with the municipality, or I didn’t say this out loud however generally perhaps even a state regulating company, and it seems as if perhaps they’ve an alternate strategy to the ordinance or rules to what our strategy could be. What can we do with that? The reply is at all times diplomacy.
We do our greatest to place ourselves within the footwear of whoever it’s we’re conversing with, whether or not that’s the state or a neighborhood municipality . The concept is to in the end perceive the place they’re coming from. Oftentimes that entails the historical past and public opinion of the locality.
As we current ourselves as skilled on this business. our outcomes are usually fairly, in that we now have discovered the cities no matter division perceive that our efforts right here are literally to assist them, as a result of the municipalities on the finish of the day have this large alternative to to capitalize on hashish taxes and revenues. What we current and the way we current it to the municipality is oftentimes a matter of profit to the municipality.
Now that may have a reasonably big range of approaches so if there was something particular you wished to learn about that, please be happy to interact me through e-mail after the webinar. The lengthy and in need of it’s we get alongside fairly properly with the municipalities. Oftentimes, the municipalities are simply as confused as our candidates and I don’t imply that in any solution to throw shade on the municipalities, however extra so simply to clarify simply how difficult this course of could be, and what number of transferring components there are, if you’re speaking about hashish licensing.
You know if the property goes to have some kind of land use entitlement or allowing then there’s going to almost definitely be some kind of regulatory allowing on the metropolis or municipality degree. Then lastly there’s going to be the state license and all people has to get alongside and play good at some degree. We take into account ourselves type of like dance instructors that assist all people get in sync and get profitable functions submitted and working
Q: I’ve a licensed CUP property in San Diego from manufacturing and distribution and we’re seeking to promote.
A: Okay great Kathy I’ll definitely move your data alongside and we will likely be in contact with you to debate this chance.
Q: What is the share of approval?
A: That is a good query. I don’t need this to increase too lengthy, so i’m going to make a daring assumption that the share of approval you’re speaking about might be with the town and state license. We’re going to exclude the land use licensing and allowing proper now, as a result of the approval fee on that in the end shouldn’t be in our arms, however extra so within the arms of the engineer architect, the property itself and the municipality through which the property can be positioned. With regards to approval of a state and a municipal hashish license, our approval fee as a division, might be someplace round 97%.
I feel I might be tremendously involved if anyone instructed you that they had a 100 success fee on this business. To steal a line from considered one of my colleagues, Larry Horowitz, who has sat in entrance of a giant group of individuals on a couple of event the place I’ve witnessed him saying, “I’m going to quote lines of a queen song, perhaps you’ve heard of it”, and the road was “and bad mistakes I’ve made a few”. Well people, I’m definitely not out of that consideration. We have all made some errors.
This is a model new business, and for the primary short while there it was very very similar to the Wild Wild West. No one fairly knew the extent of the necessities that the regulating companies and cities had been going to request. Quite a lot of them had been type of figuring it out alongside the way in which. We have had the nice fortune of purchasers that believed in us and that allowed us to show to them what our degree of service appears to be like like. We’ve realized alongside the way in which and so now our new purchasers are in a position to to profit from that benefit.
Q: Can I please have your e-mail?
A: Absolutely maria jared firstname.lastname@example.org. Any different questions from anybody? This has been nice. I get pleasure from participating when we now have these kinds of displays.
Q: When you need to stack licenses, how do you strategy that concern with cities, municipalities, or counties that didn’t perceive that the state will approve a number of licenses on one property whether it is designated correctly?
A: That is a glorious and really particular query Miklos that I’m most pleased to reply. As I completely have expertise with this, to make clear for these of you who might have a bit of bit of instructional what mikos is referring to, in as far as stacking licenses is having the ability to place a couple of state license on a property.
To get the reply on that there’s a really particular method we strategy it and it’s by the state rules. We work straight with a hashish particular engineer, of which we now have a number of totally different corporations we work with, and attempting to maximise the format and design of a property at the side of the state necessities that define the separations of hashish operations.
Let me dig a bit of deeper on that. If we now have one property and let’s say on that property we now have one constructing, that constructing could be two tales. Maybe it’s divided into two components to 2 totally different suites. Maybe it’s not the thought of stacking a license, it’s the thought of approaching the town and state with proof that you may put two separate operators on one property. But you could distinguish that one property as having a number of premises, the place the state and municipal ordinances will usually require that as the important thing function for stacking licenses.
You have to have separate entrance and and routes, there must be equal alternative to entry worker break areas and restroom. These forms of issues that should be thought of on the design degree so after we strategy the cities and the counties and municipalities on it what we love to do is strategy them with the boldness that the plan we’re suggesting to them is already preemptively accepted by the state. And we now have the flexibility to point out them precisely why that might be our course of in getting the approval by the town municipality or county on stacking a number of operators to at least one property. Excellent glorious query.
Q: Do you have got scientists on workers that may take a tough manufacturing process and convert it into a correct grasp manufacturing or batch file per CDPH necessities?
A: No, Stephanie, we do not need any scientists on workers. I’m not solely certain I perceive the query, perhaps if you happen to can e-mail me, off web site we will have that dialog. I’m definitely aware of the CDPH necessities on manufacturing and batch information so let’s discuss on the location.
I do know all people is absolutely busy today and this will not even be your solely zoom assembly for the day. Hopefully it was probably the most entertaining and academic! I need to thank all people on your time. I’m right here seeking to educate in addition to acquire enterprise so if there’s one thing that CREC Compliance or CREC as a complete can do for you your utility or your purchasers, please don’t hesitate to achieve out and tell us how we will make that occur. I need to thanks all once more on your time and we look ahead to seeing you once more sooner or later.
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