Author: Joy

New Business Model Creates Both
Opportunities and Challenges for Small Business Owners

While restrictions on size and production might immediately deter some business owners, the model of microbusinesses may support the growth of small-scale cannabis producers in an increasingly fast-paced industry. A microbusiness is a licensed business with a relatively small operation. During the microbusiness application process, smaller players and entrepreneurial start-ups in the cannabis space only compete against one another, therefore avoiding direct competition with larger, more established businesses. Ideally, this gives smaller and/or newer companies an opportunity to enter the cannabis space without the competitive influence of multi-state operators (MSOs) who are also applying for a set number of regional cannabis licenses.

Microbusinesses can be cannabis cultivators, manufacturers, distributors, retailers, or delivery services. The microbusiness must submit a successful application to their local cannabis regulatory commission and meet all the following requirements:

• Employ no more than 10 individuals at one time;
• Maintain a physical plant of no more than 2,500 square feet; and in the case of a cannabis cultivator, the canopy height cannot be more than 24 feet;
• Possess no more than 1,000 mature cannabis plants each month (cannabis distributors are exempt); and
• Acquire no more than 1,000 pounds of usable cannabis (or the equivalent amount in other forms) each month.

For small business owners, these highly specific requirements may be especially difficult to fulfill, which has prompted statelevel efforts to better support smaller cannabis growers. In Michigan, the recently introduced “Class A” microbusiness license aims to create a more economically feasible – and more inclusive – business model by doubling the allowable in-house plant count to 300. It also permits microbusinesses to purchase or acquire mature plants from licensed growers, registered caregivers, or patients, and purchase ready-to-sell edibles, concentrates, vaping cartridges and other non-flower products from licensed processors, all of which were forbidden under the former Michigan microbusiness rules. In light of these changes, regulators noted two key challenges that weigh heavily on microbusinesses: the costs of on-site production, and cultivating enough plant biomass to build a sustainable product line.

In consideration of these challenges, successful applicants may view microbusinesses as an easier path to obtaining a cannabis business license, particularly among local and minority business owners. On February 22, 2021, New Jersey Governor Phil Murphy signed into law the Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act, which proposes that 15% of the cannabis business licenses be granted to minority-owned businesses, and another 15% of the licenses to women-owned businesses or disabled veteran-owned businesses. New Jersey law also identifies certain municipalities as “impact zones,” or areas disproportionately affected by crime and unemployment, and prioritizes microbusiness license applications in these regions. Additionally, while this law provides that no more than 37 cannabis cultivator licenses will be issued in New Jersey during the first two years after enactment, that cap does not apply to microbusinesses.

Nationally, the details and long-term outcomes of microbusiness legislation will continue to evolve alongside the development of application forms and in response to the needs of cannabis entrepreneurs. This relationship between small businesses and regional legislation is precarious, and yet essential to the continued growth of small-scale cannabis businesses seeking to compete with – or, at best, exist alongside of – larger, widely recognized, and well-capitalized cannabis companies.

If you are interested in learning more about other key trends in the cannabis industry, please contact [email protected] to continue accessing highly relevant and data-driven content.

Take-Aways:

• Microbusiness licenses require applicants meet specific size and operational criteria, which can be difficult for applicants to fulfill – both logistically and financially.
• Ideally, microbusinesses allow local and minority-owned businesses to compete and grow separately from larger, bettercapitalized cannabis businesses.
• Recent legislation in Michigan and New Jersey serves as examples for other states seeking to support and protect smallerscale recreational cannabis businesses.

Editors’ Note: This is an excerpt from our Monthly Playbook. If you would like to read the full monthly playbook and join the thousands of others you can sign up below.

Editors’ Note: This is an excerpt from our Monthly Playbook. If you would like to read the full monthly playbook and join the thousands of others you can sign up below.

Editors’ Note: This is an excerpt from our Monthly Playbook. If you would like to read the full monthly playbook and join the thousands of others you can sign up below.

Editors’ Note: This is an excerpt from our Monthly Playbook. If you would like to read the full monthly playbook and join the thousands of others you can sign up below.

Germany held national elections at the end of September with big implications for cannabis in the European Union (EU). What happened and what does it mean for cannabis liberalization in Europe?

The Social Democratic Party (SPD) won the most seats displacing retiring Chancellor Angela Merkel’s Christian Democratic Union (CDU/CSU) as the biggest party in the German Bundestag (Parliament).

Under the German parliamentary system, if no political party wins a majority of seats in the Bundestag, they must work with other parties to form a coalition government that holds a majority of the seats. The parties negotiate with each other over who gets to run government ministries and the overall policy direction and goals their coalition would prioritize.

These coalitions can take weeks and months to form. Because the SPD received the most votes and allocated the most seats in the Bundestag, they have first chance to form a majority coalition.

The negotiations are currently underway. Most observers believe a ‘Stop Light’* coalition of the Social Democrat Party (SDP), the liberal Free Democratic Party (FDP), and the Green Party is the most likely to form a coalition government for Germany for the next five years.* The FDP and Greens received the 3rd and 4th highest number of seats in parliament, and such a coalition would give the new government a comfortable majority.

The FDP and Greens have explicitly come out in favor of legalization of cannabis, and the SDP has advocated in favor of allowing adult-use cannabis trials in German cities. Cannabis liberalization is one of the major issues both the FDP and Greens agree on, and when recently asked which policy would be easiest to implement with the Greens, Christian Lindner, the leader of the FDP, said “legalisation of cannabis.”

‘Stop Light Coalition’ arises from the fact that the parties’ traditional colors, respectively red, yellow, and green, resemble the normal color sequence of a traffic light.

The FDP and Greens have explicitly come out in favor of legalization of cannabis, and the SDP has advocated in favor of allowing adult-use cannabis trials in German cities. Cannabis liberalization is one of the major issues both the FDP and Greens agree on, and when recently asked which policy would be easiest to implement with the Greens, Christian Lindner, the leader of the FDP, said “legalisation of cannabis.” Rhetoric in a tight election is one thing, action in the new government is another. How likely is cannabis reform to occur?

“Germany will introduce cannabis reform, that’s for sure,” says lawyer, writer and German cannabis policy expert Kai-Friedrich Niermann. “The traffic light coalition talks about modernizing Germany, which certainly includes a new drug policy. In 2-3 weeks, we will know exactly what the new government has committed itself to.”

Niermann believes reform will happen in steps but is optimistic it will move forward quickly. “Full legalization is not expected overnight; first decriminalization will be decided. In the best case, decriminalization will be decided in the first 100 days. Then the debates and hearings on the Green Party’s cannabis control law will begin. Many individual points are still unclear — advertising, quality, and product safety regulations still need to be detailed. We estimate that this phase will take the entire year 2022 and the first half of 2023. The final draft legislation will then be adopted in the 2nd quarter of 2023 at the latest. The first cannabis store can open on New Year’s morning 2024.”

” The first cannabis store can open on New Year’s morning 2024.

Germany has the largest population and economy in the 27-country European Union. It also has an outsized influence on the domestic policy of EU member countries. If Germany creates an adult recreational cannabis market, the pressure to reform cannabis laws in the European Union and the domestic parliaments of the 27 member states would grow immensely.

Steps toward reform throughout the European continent and the UK have been slow and steady over the past five years. The creation of a legal, regulated multi-billion dollar cannabis market would likely bring a tidal wave of reform across Europe.

“If Germany legalizes,” says Niermann, “Europe will follow in the short to medium term. This will create huge investment and growth opportunities. I advise all American companies and investors to look at the situation immediately and carefully.”

Editors’ Note: This is an excerpt from our Monthly Playbook. If you would like to read the full monthly playbook and join the thousands of others you can sign up below.

Here comes the next wave of wide-eyed individuals looking to enter the cannabis space. I recently returned from two conferences, MJBIZCON and NECANN. Both conferences provided opportunities to reconnect with individuals in the space and see growth over the last 18 months. A common theme I saw at both conferences was the eager, wide-eyed individuals looking to migrate their experiences and backgrounds into the cannabis space. The cannabis industry is like alcohol or tobacco thus allowing for a seamless transition they asked? Sorry guys, not quite. While true in theory, cannabis always operates differently. While it’s impossible to share how and why cannabis operates different there is a major recommendation that can be helpful when learning about the differences. With early decisions crucial to the success of opportunities, this piece of advice may help other new entrants in the market.

Partners make all the difference. Trusted experienced resources can help you foresee obstacles and navigate the tricky and expensive waters that is cannabis. As a service provider in the space for ~3 years, which by no means is a great length, I’ve been fortunate to be a part of multiple A Note to the Eager Entrants Post Cannabis Conferences conversations. These experiences have allowed me to see catastrophic mistakes by taking short cuts early in the growth of their business. Partners or resources where you can lean on experienced individuals make all the difference in the world. We highly recommend when building out your business, use a mentor or advisor with industry experience as a sounding board for the numerous challenges.

The second recommendation is to be willing to learn and be a sponge. It’s challenging to pick apart the complexities of the various industry sectors. The challenges are endless, some minor but others massive and difficult to navigate. Leaning on experienced resources and recognizing the value they bring to the table can make all the difference, while navigating these new, untapped opportunities. The year of the east coast is almost here and with it we will continue to welcome new individuals into the space. We wish you all the best and encourage you to push the limits of what you can accomplish and lean on those who have the scars of experience.

There’s tremendous opportunity for all, and as the saying goes, “rising tide lifts all ships.”

Editors’ Note: This is an excerpt from our Monthly Playbook. If you would like to read the full monthly playbook and join the thousands of others you can sign up below.