Hartford Business Journal

HBJ111323UF

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HARTFORDBUSINESS.COM | NOVEMBER 13, 2023 15 860.522.3111 | WAdvising.com HARTFORD | HAMDEN | HOLYOKE Defend Against Cyber Attacks For over 20 years, we have provided businesses and nonprofit organizations with personalized services to optimize their technology. Our highly skilled team includes security experts specializing in identifying, preventing, detecting, remediating, and recovering from cybersecurity incidents. Learn more ASSURANCE | ADVISORY | TAX | TECHNOLOGY businesses, including retail sites and cultivation facilities. Those multistate companies own the majority of the state's 27 existing cannabis dispensaries, and all four grow facilities. Companies still in the licensing pipeline include lottery winners, social equity cultivators and equity joint ventures between existing cannabis companies and social equity partners. To secure provisional licenses, companies had to pay fees ranging from $250 to $75,000, depending on the license type and the social equity status of the applicant. That means all prospective cannabis companies in the licensing pipeline have some skin in the game. So far, no food and beverage compa- nies, product manufacturers or pack- agers have come on line, and only one delivery service is fully operational. While a micro-cultivator and large-scale grow operation, both in Bloomfield, have their final licensing, it will be several months before their facilities are up and running. Financing woes Richards said access to capital is still a big challenge for startup cannabis businesses, since many traditional fundraising avenues aren't available to them. Cultivation operations in particular are "capital intensive," when it comes to real estate and the actual build out of the facility, he said. Megan Budd, a CPA and prin- cipal with accounting and advisory firm Withum, said entre- preneurs who aren't partnered with larger, multistate cannabis companies are having the most difficulty accessing capital. "The reality is, a lot of these standalones are looking for funding in order to get up and running," Budd said. "When you've got somebody who's linked up as an (equity joint venture) with another company … they're getting up and running a lot quicker because they've got capital behind them." The state is trying to help with some funding support. The Social Equity Council (SEC) in August launched the Canna-Busi- ness Revolving Loan Fund with an initial $10 million allocation. The fund provides licensed social equity cannabis business owners with low-interest loans that can be used for equipment purchases, lease- hold improvements or expansions, working capital and lines of credit, among other things. As of Nov. 1, the SEC had not issued any loans but was still accepting appli- cations, a spokesperson said. Ian Butler, an attorney with Glastonbury-based law firm Brown Paindiris and Scott LLP, said financing, in addition to complying with what can be a complicated state law, are key challenges for new business owners. It will have to make business sense for companies in the licensing pipeline to move forward. "You have to project profits, and the land- scape is constantly changing," Butler said. "Complying with the state's requirements to actually get up and running is difficult, it's costly, and they've been given a limited amount of time to do it. … I know there are people out there who are questioning whether it's worth it to them, particu- larly with some of these license types that are less of a sure thing in terms of their profitability." Real estate Another key issue is finding busi- ness locations. The state's adult-use marijuana law allows municipalities to restrict cannabis businesses from opening within their borders. Thirty-one municipalities currently have cannabis business moratoriums in place, while 19 communities have banned such companies, according to DCP data. Even when companies find an accepting municipality, identifying an actual site is a challenge. "Real estate is really tough to come by, so trying to find these spaces that fit all these certain criteria is difficult," said Richards, the Marcum CPA. "There's just limited space." Nicholas Morizio, a commercial real estate broker with Colliers International, said there was a flurry of cannabis real estate activity at the beginning of the year, but that's subsided in recent months. He said rising interest rates have made already-expensive properties even more costly. Industrial space for cannabis grow facilities can cost around $80 per square foot, while retail sites go for between $15 to $20 per square foot, he said. And that doesn't include the work that needs to be done after acquisition. "The build out is very expensive — they need lots of power, water and so on," Morizio said. During the license application process, prospective cannabis companies didn't have to identify a specific place of business. That seemed like a blessing early on, but it has created a bottle- neck of entrepreneurs looking for business locations, said Michelle Bodian, an attorney with cannabis law firm Vicente LLP. "I don't think finding a site is as quick and easy as people were hoping," Bodian said. "I wouldn't be surprised if a way smaller number of businesses (that won licenses) operationalize." Morizio said he hasn't yet heard of cannabis entrepreneurs giving up on their plans to open new businesses, but acknowledged "not all of them are probably going to come online." Ian Butler Megan Budd Michelle Bodian

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