Everyone knows Step 1 of entering the starting a business in the cannabis industry: get a license. And there are a lot of guides on how to get on in your state, we have a few on our blog too! But what about Step 0: Deciding which license type to choose?
Choosing which type of license you want to pursue is crucial to setting the foundation for your successful cannabis business. Each state has its own rules and regulations regarding how cannabis licenses are structured & how they interact with each other. In some states, you may encounter these two license types: Microbusiness license and Vertical license. Both license types give the holder more control over their cannabis supply chain, though as the name suggests, a Microbusiness license is designed for small-scale operations while a Vertical license is designed for larger-scale operations.
In this guide, we’ll walk you through information on both microbusinesses and vertical licenses to help you figure out which one is right for your particular situation. Read on to learn more!
What Are Vertical Licenses in the Cannabis Industry?
First things first, it's important to clarify that vertical licenses aren't the same as vertical integration. Although similar, these terms describe two different approaches.
Vertical integration is a business model or strategy that allows you to control multiple areas of the supply chain. Vertical licenses, on the other hand, are regulatory permits that enable you to participate in multiple stages of the supply chain without necessarily owning and operating all of them.
In other words, vertical licenses authorize holders to engage in cultivation, processing, manufacturing, and retail sales under the same regulatory approval but don't require full ownership and operation of each stage. Licensees can work with other businesses to handle other areas, such as specific aspects of production or distribution.
Vertical Licenses Across the United States
Several states across our country offer vertical licenses, including the following:
Arizona
Arizona offers several licensing options, including the Marijuana Establishment License and the Medical Marijuana Dispensary License. Holders are expected to operate as vertically integrated businesses, meaning that both license types allow companies to grow, process, and sell cannabis.
Florida
In Florida, the Medical Marijuana Treatment Center (MMTC) license is vertical, too. It covers different aspects of the production and distribution of marijuana for medical purposes. Licensees can grow cannabis plants, process them into various forms, conduct quality control and testing, and dispense the final products.
Massachusetts
Massachusetts also offers a vertical option, the Medical Marijuana Treatment Center (MTC) license. Holders can operate at different stages of the supply chain, which allows them to acquire, grow, process, transport, distribute, sell, and even administer cannabis and derived products.
New Mexico
In New Mexico, cannabis couriers, manufacturers, producers, and retailers can be authorized to operate in multiple areas in parallel through the Vertically Integrated Cannabis Establishment (VIC) license. These businesses can have sublicenses for specific operations, but they all fall under a single permit.
Vermont
Vermont offers integrated licenses to eligible businesses, allowing them to engage in different activities of other license types, specifically cannabis cultivation, manufacturing, testing, and wholesale or retail sales.
Key Features and Requirements of Vertical Cannabis Licenses
Vertical licenses have specific features and requirements, including:
Capital Investment
In most states, you need significant capital to apply for and obtain a vertical license, as you'll have to secure facilities for all of your operations, pay the required licensing fees for all permits or sublicenses, purchase the necessary equipment and technology solutions, and fund your day-to-day activities.
Regulatory Compliance
Although laws may vary by state, you must adhere to strict regulatory requirements at each stage of the supply chain you control or operate in if you hold a vertical license.
All businesses must keep detailed records of their operations and inventories, but you may need to comply with more specific rules depending on the activity you perform. Processors must follow Good Manufacturing Practices (GMP) guidelines, while cultivators may be required to implement specific measures for pesticide and fertilizer use, for example.
Zoning and Licensing Caps
Some states place zoning and license caps on vertical integration. For instance, local ordinances may limit where vertically integrated cannabis businesses can be located or the number of licenses issued in each jurisdiction.
These limitations can affect license availability and increase competition.
Benefits of Vertical Cannabis Licenses
Although they require significant investments and are often subject to strict regulations, vertical licenses offer many benefits to cannabis operators. Below are the main ones:
- Control over the entire supply chain: With a vertical license, you can control your operations across the entire supply chain, allowing you to conduct thorough checks to maintain high quality and consistency, optimize production to maximize efficiency at every stage, adapt to changing customer preferences or market trends, and innovate to differentiate yourself from competitors.
- Cost efficiencies: Since the vertical license provides control over different stages of production, you can eliminate middlemen and optimize the way you allocate your resources to reduce operational costs. If you choose to work with other businesses, such as wholesalers or suppliers, you can leverage your position in the supply chain to negotiate better deals for your orders.
- Better compliance management: While you may have to comply with many strict regulations at different stages if you're a vertical business, this license can simplify compliance with regulatory systems, such as Metrc and BioTrack, by centralizing procedures and protocols across all your operations and consolidating data for reporting. When you control or oversee multiple areas of the supply chain, you can also identify and address potential compliance issues before they escalate.
Understanding Cannabis Microbusiness Licenses
In many states, entrepreneurs who want to enter the cannabis market can apply for microbusiness licenses, which are usually paired with vertical integration but come with operational limits.
Microbusiness licenses are designed for small-scale operations and place caps on business size or production capacity. Licensees are usually subject to restrictions on cultivation square footage, number of employees, cannabis plant counts, and annual revenue, for example.
Many states allow licensed microbusinesses to integrate multiple verticals because it's easier for small-scale operators to manage different parts of the supply chain, such as cultivation, manufacturing, and sales. That's why these licenses are often viewed as scaled-down versions of the vertical ones.
Microbusiness Licenses Across the United States
Here are some microbusiness licenses available across the United States:
California
California offers a microbusiness license with small-scale vertical integration. Also known as a Type 12 license, it's available to businesses that perform at least three cannabis-related activities – whether cultivation (up to 10,000 total square feet), manufacturing (extraction or infusion with non-volatile solvents or mechanical methods), distribution, or retail – connected location.
Michigan
In Michigan, cannabis entrepreneurs can apply for two types of microbusiness licenses with vertical integration:
- Standard microbusiness license: It allows establishments to grow up to 150 cannabis plants, produce and package marijuana-infused products, and sell such items to adults over 21 years or older. Licensees cannot sell or transfer cannabis products or seeds to other businesses.
- Class A microbusiness license: It authorizes holders to grow up to 300 cannabis plants, package and sell or transfer cannabis products to people aged 21 years or older, purchase marijuana concentrate or infused products from licensed processors, and send such items to testing facilities.
New Jersey
New Jersey has a complete licensing option that enables operators to cultivate, process, manufacture, distribute, sell, and deliver or dispense (certain limitations apply) cannabis and related products. Licensees can employ up to 10 people at a time, operate facilities of up to 2,500 square feet, and grow up to 1,000 cannabis plants or possess no more than 1,000 pounds of usable cannabis each month.
New York
In New York, microbusinesses can apply for a vertically integrated license but are required to have cultivation as part of their operations and engage in at least one additional activity, whether it's processing, distribution, or retail sales. Holders must grow cannabis in a canopy that is between 3,500 and 5,000 square feet and are subject to other limitations.
New Mexico
Besides the VIC, New Mexico offers two licensing options for microbusinesses:
- Cannabis producer microbusiness license: It allows holders to manufacture cannabis products on a single premise with up to 200 mature cannabis plants.
- Vertically Integrated Cannabis Microbusiness (MICB) license: Besides covering product manufacturing, it authorizes holders to grow up to 200 cannabis plants at a time on a single premises, transport or sell cannabis products manufactured by themselves, operate a retail establishment, courier medical marijuana to qualified patients, caregivers, or consumers. Licensees cannot have multiple sublicenses but only one for each function under the mother MICB permit.
Benefits of Cannabis Microbusiness Licenses
Although subject to limitations, microbusiness licenses offer several benefits to cannabis operators. These are the most important ones:
- Easy market entry: Microbusinesses can apply for this license and launch their operations with reduced capital and are subject to fewer regulatory requirements than large-scale operators.
- Simplified vertical integration: As mentioned, microbusinesses can simplify vertical operational models because it's easier to control or oversee different areas of the supply chain when operating on a small scale.
- Focus on local markets and communities: Microbusinesses can easily adapt operations to local demands or preferences and generate job positions to stand up in specific locations and give back to the community.
Distru: The Right Tool for Vertically Integrated Cannabis Businesses and Microbusinesses
Did you know that Distru can benefit both microbusinesses and vertical licensees? Here's everything you need to know about our seed-to-sale software!
Complete Seed-to-Sale Software
Microbusinesses and vertical license holders have one thing in common: the need to manage multiple segments running at the same time. If your operations fall into one of these two categories, you'll have to handle more data, paperwork, and compliance requirements.
Fortunately, Distru can automate many of these tasks to help you manage all aspects of your vertically integrated business across the supply chain, from seed to sale.
Key Features for Vertical License Holders and Microbusinesses
Our cannabis Enterprise Resource Planning (ERP) solution offers many features that both vertical licensees and microbusinesses can benefit from, but these are the main ones:
- Cannabis inventory management: With Distru, you can manage your inventory from cultivation to retail, which means you can track cannabis items from the time they're just plants until they become finished products sold for consumption. This powerful feature can help you maintain accurate stock levels to prevent shortages and overages.
- Compliance tracking and reporting: Distru can simplify compliance by helping you monitor cannabis at every production stage, which is mandatory in most states. Plus, our solution can easily integrate with Metrc and automate data transfer and reporting between both platforms.
- Real-time analytics: By using Distru, you can get complete and valuable insights into your operations across the entire supply chain. Having access to real-time information about your business activities can help you make data-driven decisions that improve your performance and profitability.
Integration with Top Cannabis POS Systems
Besides offering reliable cannabis-specific features, Distru can integrate with leading Point of Sales (POS) systems, helping vertically integrated, large- and small-scale businesses simplify operations and increase efficiency on all fronts.
With our solution, you can synchronize inventory across all sales channels, simplify POS transactions, automate processes to eliminate human errors, generate complete reports to analyze your performance or identify opportunities at every key point, and enhance the experience you offer your customers.
Final Thoughts
Although microbusiness and vertical licenses were designed for different purposes, both contribute positively to the cannabis industry. By allowing you to operate in several areas of the supply chain, these licensing options give you the opportunity to ensure quality, optimize costs, and boost your revenue.
With Distru, achieving these goals is much easier. From inventory to sales, our seed-to-sale software helps you manage your operations to ensure compliance, enhance your brand reputation, and take your business to new heights.
