5 things to know about starting a cannabis business in Delaware

Do you dream of opening your own recreational weed dispensary in Delaware?

Ever since recreational THC cannabis finally became legal in the state in April, with the passage of the Marijuana Control Act, the dream is actually attainable — a least for a few entrepreneurs prepared to put the work in.

Unlike CBD, the relaxing but not high-inducing cannabis derivative that has been federally legal since 2018 and can be sold by almost any retailer, THC, commonly known as “marijuana,” is highly regulated.

If you live in Delaware, you’ve probably noticed that while weed has been legal here for months, there are no dispensaries for recreational users. While the state has had medical dispensaries since 2015, Delaware does not permit them to sell to general retail customers, and the process of getting all the paperwork needed to sell THC legally is a lengthy one. That means we won’t see the first weed retailers in-state until late 2024 at the earliest.

Between now and then, the state will propose new health and safety regulations on marijuana cultivation and establish a staff to manage licensure and enforcement under the Marijuana Control Act. Potential licensees and residents will have opportunities to give feedback along the way; to stay in the loop, you can follow Delaware Health and Social Services on Facebook or the platform formerly known as Twitter, as well as keep an eye on its website. As of now, applications for licenses will open by May 2024.

So, where do you start right now if you’re hoping to open your own cannabis biz? James Brobyn, CEO and founder of American Fiber Company and president of the Delaware Cannabis Industry Association, and Peter Murphy, a partner at Saul Ewing law firm in Wilmington, gave a “crash course” in opening a cannabis business in Delaware at the Emerging Enterprise Center’s 2023 Entrepreneurship Summit.

There’s no short answer when it comes to answering the question, “How do I get started legally selling weed in Delaware?”

“Cannabis is a massively complex industry with lots of different regulating bodies and rules,” said Brobyn. “And it’s challenging.”

That said, we came out of the panel with some important takeaways to consider:

Choose your industry

You may think of dispensaries when you think of cannabis businesses, and retail is indeed a major segment. The others, which you may also want to keep in mind, are manufacturing (for example, making a THC edible product) and cultivation operations. Each of these segments requires a different license.

Some businesses will need more than one license — say, an indoor cannabis farm that harvests and sells the product in their own retail store — but Brobyn and Murphy encourage new cannabis entrepreneurs to “pick a lane” and focus on being good in just one area, at least to start out.

“It’s good to start thinking about not being all things to all people, but what are you going to be excellent at?” Brobyn said.

There are a limited number of licenses

Initially, Delaware is issuing 125 licenses: 60 for cultivation, 30 for retail, 30 for manufacturing, plus 5 for testers. Obtaining one is competitive.

People impacted by prior cannabis convictions will receive about 40% of the licenses

If you, your spouse or your parent have prior cannabis convictions, or if you have lived in an area that has been disproportionately impacted by marijuana criminalization for at least five of the last ten years, you may be eligible to obtain a license as a social equity applicant. These will make up 47 of the 125 licenses. Such licenses are meant to ensure that people who were punished, often excessively, for selling cannabis when it was illegal are not left out of the opportunity to profit now that it’s legal.

Banks avoid lending to cannabis businesses

At this point, information about technical and funding programs for applicants is scarce. There will be some state funding opportunities for social equity applicants, but raising capital will be a general challenge since cannabis is an industry that banks generally don’t want to lend to.

“Most businesses need lines of credit to deal with cash flow, to deal with other things as they grow their business,” said Murphy. “So not having access to that is a critical long-term operational risk that everyone should consider.”

You have to be ready before you apply

Before you can even really think about applying for a coveted license, you’ll need your funding secured, a property under contract and a solid business plan.

Some potential opportunities might help entrepreneurs prepare. One possibility is a privately funded incubator that would develop retail or cultivation operations to a fundable stage in exchange for a minority equity stake in the business. Another is a proposed state-mandated training program where potential applicants get on-the-job training at existing licensed cannabis companies.

Again, there isn’t much information about potential programs like these yet, but they’re initiatives to keep an eye out for as the process moves along.

“You need to have a plan to carry the thing through operations, and even possibly a couple of years of toughing it out,” Murphy said. “Because that’s reality — James can attest to that. So these three things: capital, capital property and experience, if you’re applying for a license, you can bet the competition you will be facing will have these three things.”