Alert

The Marijuana Licensing Game is Officially Afoot in Alabama

December 2, 2022

In late October, the Alabama Medical Cannabis Commission (AMCC) sent comprehensive License Application Forms to more than six hundred medical marijuana industry hopefuls throughout the state. The deadline to apply for one of Alabama’s 12 cultivator, four processor, four dispensary, five “integrated facility,” secure transporter, and state testing laboratory licenses is December 30, 2022.[1]

From September 1 through October 17, 2022, the state accepted requests for applications from those interested in applying for the state-issued marijuana business licenses. The most sought-after among the licenses are those which authorize the operation of a marijuana dispensary, with 239 reported application requests. And while many of these applications were requested from Jefferson, Madison, and Montgomery Counties, state dispensaries will not necessarily be located where there is the highest demand for medical marijuana. Alabama’s cannabis regulations only allow dispensaries to operate in municipalities which have passed ordinances authorizing their operations within the municipality’s corporate limits. To date, 39 municipalities have passed marijuana-permissive ordinances.

Competition is fierce for these highly sought-after licenses. Both the application’s substantive requirements and the application process itself are immensely competitive – and rightfully so. Businesses who are awarded licenses will also be granted an exclusive opportunity to capture a piece of the state’s nascent marijuana market. Indeed, per MJBizDaily, revenue generated by dispensaries through retail sales alone is predicted to reach nearly $400 million annually by Alabama’s third full year. Further, if only four dispensary licenses are issued by the state through 2026 and the predictions regarding Alabama’s medical marijuana market are correct, each owner of a medical marijuana dispensary license can expect to sell approximately $100 million dollars of product at retail per year.

Satisfying each and every inquiry submitted by the state as part of a comprehensive marijuana application is an indisputably grueling process. It requires developing a compliant and strategically advantageous business organization, structuring financing for the venture, acquiring real estate, developing operational plans, gathering and presenting application information in a fully transparent yet persuasive manner, correcting deficiencies and submitting revised applications for both public and private scrutiny, and navigating numerous agencies, departments, and personalities along the way. Acknowledging these challenges faced by marijuana-industry hopefuls in the state, AMCC Director John McMillan stated that the 600-plus requests for applications received by the commission was “about what we were expecting,” but that the commission has “doubts that many will actually complete the comprehensive application.” Reflecting the lack of guidance offered by historical precedence to Alabama cannabis regulators and marijuana business owners alike, McMillan reflected, “But we’ll see. It’s a new venture.”

The legalization of marijuana and the opening up of these financial opportunities through regulation of the industry at a state level has, however, drawn criticism for, among other things, neglecting to address the disproportionate harm suffered by minority communities as a result of the enforcement of laws criminalizing marijuana in the United States. In an attempt to address these social equity concerns in the state’s licensing scheme, at least one-fourth (and in some cases, one-fifth) of the licenses in Alabama must be awarded to business entities with respect to which members of a minority group (a) own at least 51% of the interest in the business (or in the case of a corporation, own at least 51% of the corporate shares), and (b) manage and control the daily operations of the business. If the maximum number of licenses are issued, that means Alabama will mint at least three state-authorized minority-owned and managed marijuana cultivators, two dispensaries, and one processor. (Ala. Code § 20-2A-51(b): “Minority group” is defined as individuals of African American, Native American, Asian, or Hispanic descent.)

The stakes are high, but the payoff is potentially enormous: medical marijuana license applicants in Alabama only have one shot at the initial application process. (Note: If you withdraw your application, you may reapply, but only before the December 30, 2022 deadline. See, Rule No. 538-x-.03-1.) After these initial licenses are issued, there is no guarantee that the state will issue a single additional marijuana business license. In fact, in many states, marijuana licenses are rare, coveted, and highly valuable assets; the only way to acquire a license if the state is not actively issuing new ones is to purchase a license from a private party (that is, the current licensee) on the secondary market – which can be extremely expensive (and burdensome in a myriad of ways).

Marijuana license applicants in Alabama should retain attorneys experienced in cannabis licensing, financing, real estate, and compliance issues in order to develop a comprehensive and compliant business plan, craft a successful application, and profitably operate that license for many years to come. McGlinchey Stafford’s cannabis team includes members throughout the firm’s practice groups with deep experience in licensing, contracting, financial services, real estate, tax, corporate governance and transactions, and more who stand ready to deploy these skills to support marijuana applicants and the greater Alabama cannabis industry.

1. Applicants are prohibited from applying for more than one category of licenses at a time. After being allowed an opportunity to correct deficiencies, complete applications will be deemed submitted on April 13, 2023. The public comment period opens the following day, and closes on May 14, 2023, with initial license decisions to be announced in mid-June and issued in mid-July (pending any ongoing litigation at that time).