Hartford Business Journal

21 HARTFORDBUSINESS.COM | JANUARY 17, 2022 FOCUS: CANNABIS equity and general applicants — to determine which businesses move forward in the process. Lottery winners will be issued a provisional license and time to finalize their business plan, get financing in place, secure a location and take other steps needed to actually open. DCP said it hopes to open the recreational market by the end of this year. Accounting and law professionals said most of their clients are preparing retail applications, but regardless of licensing type, application uncertainty and financial questions remain common concerns. Sarah Westby, a lawyer at Hartford law firm Shipman & Goodwin LLP, said she doesn't expect the initial application phase to have a high bar in terms of filing plans and paperwork. But after the lottery process and provisional licenses are issued, business plans and other documentation need to be fully fleshed out. "It's certainly an advantage to have your ducks in a row: to have your corporation formed, to have your operating documents in place, to have your business structure set out, to start lining up investors, to make sure you have a location in mind and that you have a plan for how you're going to obtain the relevant permits," Westby said. Besides paperwork issues, budding entrepreneurs say other major challenges exist, including finding retail locations. Many Connecticut municipalities have adopted temporary moratoriums on retail cannabis sales, and cities and towns allowing dispensaries are restricting where they can locate. Divine Artisans has been lucky so far in its effort to open in Bridgeport — that city will allow the retail sale of cannabis. However, Bridgeport has restricted recreational sales to neighborhoods zoned for adult entertainment, according to the CT Post. "It's important to stay on top of information about what [municipalities] are doing," said Divine Artisans' Robustelli. Patrik Jonnson is the regional manager of Curaleaf, which operates medical marijuana dispensaries in Hartford, Stamford, Groton and Milford. The Massachusetts- based company, which also owns a medical marijuana cultivation facility in Simsbury, will be applying for hybrid licenses so it can sell to both retail and medical cannabis customers, Jonnson said. Curaleaf could decide to open new locations, or expand its current retail establishments, but some of that will be dictated by local zoning rules, which has created a waiting game of sorts. Curaleaf also has plans to triple its cannabis production output in anticipation of higher demand from the recreational market. "That's part of the challenge right now. We don't fully know what we're going to be allowed to do," Jonnson said. "Our preference would be to have stores in towns that have opted- in day one, because having that uncertainty on whether or not it's a year from now, or not at all, or three years from now is not ideal. So we're trying to figure out our strategy for where we can have four stores open on day one." Finding investors Robert Lickwar, a partner at national accounting firm UHY LLP, said financing is one of the top challenges prospective cannabis companies face when entering the industry, particularly as traditional financial institutions like banks largely ignore the sector since marijuana is still a federally illegal drug. Social equity applicants have to maintain at least 65% ownership of their business, requiring startup Chicago company gains major foothold in CT's cannabis market By Skyler Frazer sfrazer@hartfordbusiness.com V erano Holdings Corp., a Chicago-based cannabis operator, recently announced it has finalized its purchase of a dispensary and cultivation facility in Connecticut. The company, which has cannabis businesses in 11 other states, said it completed its acquisition of Waterbury dispensary Caring Nature LLC and Connecticut Pharmaceutical Solutions Inc., which operates a 216,532-square-foot cannabis production facility in Rocky Hill. Verano also recently purchased Meriden medical marijuana dispensary Willow Brook Wellness LLC. In total, the company operates nationwide 93 dispensaries and over 1 million square feet of cultivation capacity. The purchases weren't wholly unique — there's been a series of acquisitions involving out- of-state companies looking to gain a foothold in Connecticut ahead of the launch of the state's recreational marijuana industry. By buying medical marijuana companies these large multistate operators are also securing a spot in the state's adult-use market. That's because medical marijuana dispensaries and growers can bypass the lottery system that will ultimately determine which companies can get licenses to establish a legal recreational marijuana business in Connecticut. Instead, medical marijuana companies can apply and then pay for a hybrid license to serve both markets. capital that many entrepreneurs don't have. That has been an obstacle for getting some investors on board. "Most of the social equity applicants that I've spoken to have the same major concern, and that's access to capital and fundraising," Westby said. Hercules said she's still working to finalize some investors for Lady Jane, but the process is arduous. "It's tough … you want to have some investors, you have to, but at the same time it's so contingent on licensing," Hercules said. "Some people will tell you, 'Okay, we will come back when you have the license.'" Budd, the Marcum accountant, said she's heard similar stories from clients she's worked with. She's working to clarify whether investors can be added or removed from applications during the licensing process, or if what's submitted initially is set in stone. "How many investors are you going to get who are going to pony up money before you even have a provisional license?" Budd asked. "So that's a challenge for these social equity owners." In most cases, social equity applicants are going to need investors throughout the process, Budd said, which can be a struggle in a new, highly-regulated industry. "You're essentially asking folks to write a check without knowing that the business is even going to be a thing," Hercules said. Divine Artisans' Robustelli said putting up money to identify and purchase a property without even having the guarantee of a business license is a huge financial risk. Lickwar said state angel investor tax credits available to cannabis industry investors could help entrepreneurs finance their businesses. Jonnson said partnerships can also be a way for social equity applicants to navigate financial challenges. He said Curaleaf is hoping to partner with up to six social equity applicants that want to open adult-use retail dispensaries. Curaleaf would help build out the storefronts and get the businesses up and running. Those retail dispensaries would be operated independently but share some affiliation with Curaleaf through the partial ownership agreement. "Our goal is to maximize our footprint and find some really good social equity partners and create a lot of opportunities for them," said Jonnson, adding Curaleaf has already identified one social equity partner it would like to work with. Sarah Westby Robert Lickwar Patrik Jonsson Tiana Hercules is working on her business plan and social equity license application to open a cannabis dispensary in Hartford. HBJ FILE PHOTO

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