January 23, 2025

Cannabis Business Team Development: What To Consider Before Receiving Your License

Learn how to build a strong cannabis business team before receiving your license. Discover key pre-license roles, the importance of Letters of Intent (LOIs), and how to navigate market-specific licensing requirements to ensure compliance and success in the competitive cannabis industry.
Cannabis Business Team Development: What To Consider Before Receiving Your License
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The cannabis licensing process requires applicants to carefully assemble and disclose a qualified team to meet state regulatory standards. In today’s adult-use cannabis markets, such as in  New York and New Jersey, regulators no longer score team composition as heavily as some medical markets in New Jersey, Pennsylvania, and Maryland once did. However, demonstrating that your team meets suitability requirements, satisfies state compliance criteria, and lacks any disqualifying factors remains essential.

This challenge is compounded by the financial realities of early-stage cannabis businesses. Operators face a fairly unique business conundrum and must recruit talented and experienced professionals before generating revenue and without certainty of a license award. Navigating this landscape effectively requires strategic planning and a clear understanding of regulatory expectations. Here’s how to build a strong cannabis business team while balancing these unique challenges.

Team Members to Hire Pre-License

Key team members depend on the type of license you’re acquiring. Some C-suite and manager-level positions that you may want to have in place pre-license include:

Cultivation License

  • Executives: Chief Operating Officer (COO), Chief Marketing Officer (CMO)
  • Head of Cultivation: Oversees all growing operations
  • Production Manager: Manages day-to-day operations
  • Board Members: For governance, if applicable
  • Specialists: Contractors, advisors, or agents hired to perform pre and post operational tasks, such as cultivation and horticultural consultants

Manufacturing License

  • Executives: COO, Chief Compliance Officer (CCO)
  • Extraction Technician: Skilled in cannabinoid extraction
  • Manufacturing Specialists: Focused on production processes
  • Board Members: If required
  • External Support: Contractors, agents, or advisors hired to perform pre and post-operational tasks, such as GMP compliance experts

Retail License

  • Executives: COO, CMO
  • Dispensary Manager: Oversees retail operations
  • Inventory Manager: Handles stock and compliance
  • Board Members: If applicable
  • Additional Resources: Advisors, contractors, or agents hired to perform pre and post-operational tasks, such as retail design specialists

Letter Of Intent (LOI): The Key To Securing Talent Before Receiving Your License

The predicament of hiring your core team before receiving a license is solvable by utilizing a “letter of intent,” also known as an LOI, offer letter, or term sheet, for potential team members. This letter secures the talent, enables applicants to disclose such individuals to regulatory authorities, and contains several protective provisions for both the company and the prospective new hire. 

The LOI promises employment, provided that a license to operate a cannabis business is awarded. It may save applicants significant legal costs associated with preparing and negotiating formal employment/consulting agreements and incentive plans.

What to Include in an LOI

  1. Contingencies

Critical to a pre-license LOI is its contingent nature. Applicants should not be required to employ or appoint an individual to the team if they are unsuccessful in obtaining a license. Thus, the offer of employment should be couched in contingent language, such as: “this offer is contingent upon securing a license under [enter applicable regulation].”

Employment offers should also be contingent upon, among other things, the recruit’s:

  • Compliance with applicable state law
  • Successful completion of any required training
  • Completed background check, if required by state law or regulation
  • Mutual execution of a formal employment or consulting agreement, which will inevitably contain more robust provisions than the LOI

  1. Disclosures

Successful team building requires license applicants to disclose to recruits what sets their operation apart from their competitors — information that may be sensitive or confidential. Accordingly, the LOI should also contain a provision requiring mutual execution of a non-disclosure agreement (NDA), protecting the applicant’s confidential information and intellectual property.

Another essential component to the LOI is a provision allowing the applicant to disclose a prospective employee’s (or contractor’s, adviser’s, officer’s or director’s) name, photograph, and biographical information in connection with the application (likely, for fundraising purposes as well). To this end, the LOI should contain publicity language, granting the applicant a license to use personal information for any business-related purpose or in connection with the instant effort to obtain a license.

  1. Scope of work or duties

The LOI should also set forth some details concerning the primary duties of employment, enabling the applicant to weave such information into a staffing plan or similar narrative, as the application may require.

  1. Conflicts of interest

While finding individuals with hands-on experience in cannabis has become easier over the past several years of state-led legalization, the cannabis industry is still relatively small and rife with conflicts of interest, compared to other multibillion-dollar industries. To this end, applicants should include in their contingent LOIs language requiring recruits to represent that they can accept the position and carry out the work it will involve without breaching any legal restrictions on their activities. Confidentiality, non-competition, non-solicitation and/or other work-related restrictions imposed by a current or former employer may be part of this.

In competitive markets, subject to applicable state laws, applicants may want to impose their own restrictions upon recruits and preclude them from also teaming up with a competitor through the application process.

  1. Services provided pre-license awarding

The license applicant may want the recruit to provide various pre-licensing services, such as license application review and editing, recruiting or fundraising assistance (subject to securities laws), strategic introductions, or the preliminary design and development of marketing collateral. These services should be clearly spelled out in the LOI and supported with some form of compensation to assure enforceability.

  1. Dispute resolution

While the resolution of a potential dispute is the last thing that a prospective operator wants to think about while under pressure to apply, it is important to establish a dispute resolution mechanism, to provide some stability to the contingent relationship. In this regard, consider including a provision for mandatory confidential alternative dispute resolution. Such a provision could require the parties to negotiate in good faith, mediate and/or arbitrate a dispute, thus saving time, money, and public litigation.

Navigating Market-Specific Licensing Requirements

New York

Under the state’s Office of Cannabis Management (OCM), applicants must identify all true parties of interest and provide detailed organizational charts. Social equity applicants are prioritized, emphasizing community impact.

New Jersey

Conditional license holders must convert to an annual license by meeting financial and operational milestones, including staffing key positions.

California

The Department of Cannabis Control (DCC) requires applicants to provide detailed operational plans, including staff training and security protocols.

Colorado

Applicants must demonstrate adherence to environmental and energy efficiency standards, requiring cultivation and compliance expertise.

Chicago, Illinois

Applicants in the Social Equity Program may receive additional points for hiring individuals from disproportionately impacted areas.

Building a Winning Team

By strategically using LOIs and understanding licensing requirements, cannabis entrepreneurs can assemble a strong, compliant team. Addressing these considerations upfront ensures that your operation is poised for success, even in competitive markets.

The key to thriving in the cannabis industry lies in thoughtful planning, clear communication, and leveraging the expertise of a well-rounded team, including cannabis attorneys. With these strategies, it is possible to forge a pre-license Dream Team so your business can confidently navigate the pre-license phase and beyond.

A version of this article originally appeared in Marijuana Venture magazine.

Details
Date
January 23, 2025
Category
Insights
Reading Time
6 - 7 minutes
Author
RElated News
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