Cannabis Licensing Types
A broad range of license types is essential to a well-functioning cannabis marketplace. A variety of licenses without restrictive caps will help transition the unregulated cannabis market to a thriving above-ground industry that creates an array of opportunities for individuals, businesses, and communities.
Listed below are the most common types of cannabis licenses, their function in the market, and an overview of their economic impact.
Cannabis retailers—often referred to as “dispensaries”—are the consumer-facing businesses of the industry that sell cannabis and cannabis products directly to consumers. The extent that retailers are free to conduct delivery, run promotions, and advertise their products is subject to the individual state and local laws in which the business resides.
Sufficient retail access is necessary to ensure consumers purchase from the legal market. Arbitrary license caps restrict legal access points for consumers and facilitate unregulated market activity. If there are not enough retail licenses to meet demand, the illicit market will continue to thrive and undercut legal operators.
- Avoid caps on the number of retail licenses to ensure adequate legal access for consumers.
- Allow retail storefront licensees to deliver cannabis to consumers.
- Allow retailers to use online platforms and third-party service providers to advertise, list their services and products, and facilitate delivery and in-store pickup.
A retail non-storefront license allows an operator to sell cannabis and cannabis products to consumers exclusively via delivery. Non-storefront licensees are subject to the same standards and regulations as traditional retailers; however, they do not allow consumer access or purchases on-site. Non-storefront retailers operate out of a warehouse or depot-like headquarters, out of which all inventory and delivery vehicles move.
- Allow cannabis delivery into all jurisdictions. Delivery is essential to ensuring access to legal cannabis, especially for medical patients and those that live in areas without licensed retailers in their community.
- Allow retail non-storefront licensees to use online platforms and third-party service providers to advertise, list their services and products, and facilitate delivery and in-store pickup.
To learn more, check out our page on cannabis delivery.
A cultivation license authorizes a licensee to grow cannabis for commercial purposes. Cultivators engage in the growing, trimming, drying, and curing of the cannabis plant. Cannabis can be grown indoors, outdoors, or in a greenhouse, with indoor cultivation being the most common. Some states break down their cultivation licenses by size (specialty, small, medium, large) and type (indoor, outdoor, mixed-light, etc.), whereas some states have one all-encompassing cultivation license. Offering a wide range of cultivation licenses promotes a diverse community of cultivators and helps ensure that growers have legitimate access to the legal market.
- Establish a tiered licensing structure based on size and type of operation. This will promote a diverse range of cultivators and help ensure that small operators are not left behind.
A distribution license authorizes a licensee to transport cannabis and cannabis products between licensees along the supply chain, from cultivators to retailers. The scope of a distribution license varies from state to state. Some states allow distributors to facilitate cannabis testing and enforce packaging and labeling compliance, whereas distributors in other states serve as merely a transportation service for cannabis businesses.
- Distribution licenses should be available for both independent third-party distributors, as well as other licensees who wish to self-distribute.
- Self-distribution should not be mandatory, but it should be an available option for licensees.
Cannabis manufacturers take the flower and trimmings of the cannabis plant and process them into finished products like cannabis oils, edibles, and concentrates. Manufacturers are often also responsible for packaging and labeling cannabis products in accordance with state law.
Note: “Manufacturers” and “processors” are often used interchangeably, and the terminology depends on the individual state.
- Grant manufacturers the flexibility to utilize a full range of methods for processing cannabis, including traditional mechanical extraction methods and the use of volatile or nonvolatile solvents.
- Manufacturing licensees should have the option to harvest cannabis at a cultivation facility.
A laboratory testing license allows a facility to test cannabis and cannabis products for their cannabinoid content, potency, and a variety of unwanted contaminants, such as heavy metals, pesticides, and residual solvents. The purpose of cannabis laboratory testing is to ensure that all cannabis products meet state safety and public health requirements, which enables businesses to foster a sense of transparency and trust with their consumers. There is notable variance in testing requirements among states with legal cannabis, and there is a great need for standardization.
- All cannabis products should undergo mandatory analytical testing that includes cannabinoid and terpene content.
- Testing methodology requirements should align with national standards.
- Allow licensees a minimum of 6 months to align their operations with new testing standards.
A microbusiness license allows operators to vertically integrate, with limitations on how large the business can be. A microbusiness may engage in every step of the cannabis supply chain, from cultivation to the final point of sale, or may only participate in a few processes, such as cultivation, manufacturing, and distribution. Allowing microbusiness licenses can create meaningful opportunities for small business owners to enter the legal cannabis industry.
- Allow licensees to operate on multiple levels of the supply chain, but vertical integration should not be mandated.
- Microbusinesses should be required to engage in a minimum of two commercial cannabis activities up to every process along the supply chain.
- Set reasonable plant count limits for microbusinesses involved in cultivation.
A consumption lounge license allows for the onsite consumption of cannabis at a licensed facility. Consumption lounges provide patients and adult-use consumers with a safe and legal place to consume cannabis. There are generally two consumption lounge license models: retail consumption lounges and independent consumption lounges. A retail consumption lounge license is an additional license or permit that allows a cannabis retailer or microbusiness to operate a consumption area separate from its retail space. An independent consumption lounge license allows for the operation of a standalone facility that sells cannabis products intended for immediate consumption at the establishment.
Consumption lounges are an access issue, as many states currently deny medical and adult-use consumers a safe place to legally consume cannabis. Designated consumption spaces offer a solution for individuals who face the dilemma of being prohibited by their landlord to consume in their homes and not being able to consume in public or in a vehicle. This is especially pertinent for those who live in federally-subsidized public housing who risk eviction if they are caught in possession of cannabis. As long as cannabis is classified as an illegal Schedule I substance at the federal level, consumption lounges provide an interim solution for those unable to consume their legally-purchased cannabis without risking eviction or a possible citation.
Consumption lounge policies should facilitate a wide range of business models, from restaurant-style settings where cannabis can be purchased alongside food, to venues where individuals bring and consume their own cannabis products. When developing a licensing framework for consumption lounges, there should be parity in cannabis and alcohol regulations regarding food service. Many states and local governments that permit consumption lounges do not allow food to be sold on the premises, yet this is commonplace for bars and other alcohol-serving institutions. Policies should enable licensees to tailor their business models to the specific demand and needs of their consumer base.
- Consumption lounges should be limited to adults 21 and older and patients 18 and older.
- Consumption lounges should adhere to local zoning laws that have been established for retail cannabis businesses.
- Establish air quality and ventilation standards for consumption lounges.
- Allow for consumption lounges at licensed dispensaries (retail consumption lounge model) and at standalone consumption facilities (independent consumption lounge model).
- Authorize independent consumption lounges to sell single-use and ready-to-consume cannabis products.
- Independent consumption lounges should be allowed to decide if consumers can bring their own cannabis products (whether legally homegrown, or purchased elsewhere), and should be permitted to charge a fee for outside products, similar to a corkage fee.
- Allow consumers to take home unused cannabis products purchased at a consumption lounge.
- Allow cannabis to be delivered to consumption lounges that permit outside cannabis products.
- Enable consumption lounges to sell non-cannabis food and beverages upon obtaining the proper license(s).
- Allow multiple methods of consumption at lounges (i.e., smoking, vaporizing, edibles).
- Allow consumption lounges to sell or temporarily provide cannabis consumption tools.
To learn more, check out our policy paper on consumption lounges.
Cannabis Event Organizer License
A cannabis event organizer license allows an individual or a company to host cannabis events, typically with onsite consumption and sales. Examples of cannabis events include music festivals, trade shows, and educational forums. The scope of a cannabis event license varies depending on the jurisdiction, with some states restricting cannabis events to consumption only and other states allowing for vendors to conduct onsite sales. An event organizer licensee must hold a separate license or work with individuals with the proper retail or microbusiness licenses to enable sales at a cannabis event.
Most jurisdictions, including California, Michigan, and Denver, Colorado, require an individual to first obtain an annual cannabis event organizer license and then apply for a temporary event license for specific events. In addition to applying for a temporary event license, many states require licensees to obtain approval from the local government where the event will be hosted, in the form of a written agreement or a local permit.
- Allow cannabis event organizer licensees to host both onsite consumption and sales at cannabis events, while ensuring that underaged individuals do not gain access to consumption or sales areas.
- Event licensing and approval processes should not be so burdensome and costly that they prevent cannabis events from occurring altogether.
- Allow cannabis events to be hosted in a variety of venues, from county fairgrounds to privately-owned buildings. Ensure that all temporary events adhere to state and local zoning and safety regulations.
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