Preparing Your Cannabis Business for Adult-Use Sales After Legalization in Missouri and Maryland
Article
Preparing Your Cannabis Business for Adult-Use Sales After Legalization in Missouri and Maryland
by Mike Goral
December 27, 2022

The growing public appetite for cannabis legalization has continued through the 2022 midterm election, with both Maryland and Missouri voters opting to legalize adult-use marijuana. These two states join 19 others that have already enacted similar legislation.

For existing medically licensed cannabis dispensaries in Missouri and Maryland, this new legislation may raise a series of questions on what the future of your business will look like: Will you want to transition your medical facility to an adult-use dispensary? How would such a conversion affect your business operations and taxes? Could this present an opportunity for your organization to pursue an exit? And, if so, what does that route look like?

Below is a snapshot of the legislative changes in store, plus insights on the impact these shifting regulations might have on your existing medical cannabis dispensary — and how you can prepare for the impending changes.

Legislative Changes in Missouri

Beginning December 8, 2022, adults in Missouri are now allowed to legally possess up to three ounces of marijuana. The Missouri Department of Health and Human Services has begun accepting applications from existing medically licensed cannabis dispensaries wishing to convert their licenses to comprehensive adult-use services. Recreational sales will be levied with a 6% tax.

What this means for your medical cannabis dispensary

If you plan to convert from a medically licensed cannabis facility to one that encompasses comprehensive adult use, you can now apply for the expanded licensing if you haven’t already done so. Application review and approval spans 60 days, and current medical marijuana license holders will have priority in obtaining a license. Medically licensed cannabis dispensaries will not be able to sell to adult-use consumers until they receive updated comprehensive licensing.

Additionally, if you plan on moving products between multiple facilities or from a processor to your store, you may also need to secure a transportation license. (However, medical cannabis providers with current transportation licenses do not need to reapply.) Note that some municipalities may also require their own licenses on top of the state-issued ones.

Legislative Changes in Maryland

Adult use of cannabis has also been legalized in Maryland, where adults will be allowed to legally possess up to 1.5 ounces of cannabis and cultivate up to two plants starting July 1, 2023. However, industry setup and regulation, including regulatory frameworks like licensing, zoning and taxation, still need to be established. Prioritization opportunities for current medical cannabis dispensaries and/or social equity applicants are still up in the air.

What this means for your medical cannabis dispensary

Because there are still so many outstanding variables tied to Maryland’s new legislation, retail recreational marijuana facilities are unlikely to be up and running before 2024 or 2025. However, although a formal regulatory structure has yet to be developed, you can expect to see stipulations similar to ones that have been drafted in other states, such as limitations on the number of adult-use dispensary licenses issued, potency restrictions, etc.

Three Ways to Prepare for Adult-Use Sales

Although the future of adult-use cannabis in Missouri and Maryland is still filled with unanswered questions, you can start preparing your medical cannabis company now for imminent changes in three key ways: checking your zoning and licensing requirements, building your brand and getting your books in order.

Check zoning and licensing requirements

Neither Missouri nor Maryland have outlined specific green zone requirements yet, but once they do, you’ll want to verify that your location is properly zoned. Having property that is already designated or secured in a green zone is a mandatory step to secure a recreational license. Be aware that there is only a set number of recreational licenses per state, so checking availability right away and starting the application process as soon as possible is key to landing a slot.

Start building your brand

Whether you are considering shifting from medical to adult-use sales or are looking to become a desirable acquisition target, your brand will play an important role in the days ahead.

As a medical dispensary, the way you currently engage with your audience will likely change if you make the leap to adult use — and your target audience will shift as well. You will also be facing increased competition as other retailers seek to fill the recreational demand.

Get ahead of your competitors and start building your brand now. That way, by the time your comprehensive licensing is finalized and your adult-use dispensary is open for business, you will have already generated awareness in your community and built a loyal following.

Branding is also key if you are positioning yourself for M&A. Creating a niche brand and drumming up local brand awareness can make you more attractive to larger cannabis organizations looking to expand, giving them the opportunity to reach a new audience.

Consider the craft brewery business, for example. So many small breweries have devoted, loyal followings, but there’s always going to be a Budweiser out there dominating nationally. However, Budweiser also buys small craft brewers and keeps their niche branding intact. This way, loyal consumers can continue to get their products, even if the brand is owned by a much larger entity. A similar strategy could serve you well if you’re looking to be acquired.

Get your books in order

To keep up in the rapidly expanding cannabis industry, it’s easy to focus primarily on getting more sales, hitting your revenue objectives and expanding your business — at the cost of letting back-office details fall by the wayside. But making back-office tasks an afterthought can lead to large accounting messes that are expensive to clean up, damage investor confidence, delay (or endanger) potential M&A transactions and deplete the working capital needed for survival.

Additionally, because so many cannabis businesses rely heavily on cash-only sales, accounting discrepancies can easily arise, and sloppy bookkeeping and poor money management often exacerbate the problem. Your lack of access to the banking services typically available to other industries and inability to deposit cash in a traditional bank add up to large amounts of money in a safe. This creates security risks and likely inconsistent controls, checks and balances.

Whether your company is looking to scale amid this new legislation or is considering a future M&A transaction , now is the time to ensure your books and records are as clean as possible. Make sure you have sound internal controls, including a supportable cash log, protocols in place to access the safe, and designated responsibilities for the checks and balances of cash flow.

If you’re going the M&A route, cleaning up your books will be crucial to position your organization as an attractive acquisition target. There may be cannabis companies located out of state, or multi-state operators looking to enter the Missouri or Maryland market that are interested in acquiring your business. Or perhaps you want to join forces with another local cannabis company to become a bigger target to be acquired by a larger out-of-state operator. Either way, investors will want to see audit results before they commit to an investment.

Moving Forward

Though there is still limited information about what the 2022 election outcomes will look like in practice, understanding the updated cannabis results that pertain to your state can help you reassess your current dispensary’s viability and determine the best path forward.

By taking steps now to prepare your medical cannabis company for changes down the line, you will be able to minimize disruption, mitigate risks and stay ahead of your competitors amid the rapidly changing cannabis landscape.

Our cannabis experts can help you navigate changing legislation and remain profitable. If you need assistance understanding or preparing for the impending changes, contact our team.

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