The following article was first published by Shipman & Goodwin LLP in the News and Insights section of its website. It is republished here with permission.
You’ve won the cannabis food and beverage manufacturer’s license lottery, what now?
You have completed a license application for an adult cannabis food and beverage manufacturer and you have been lucky enough to be selected in the lottery as a recipient of one of the 10 provisional licenses.
What are the next steps?
The Connecticut statutes and regulations governing adult cannabis regulation outline the specific steps you must take to get your business up and running and get the latest license from the Connecticut Consumer Protection Department.
In addition to the specific requirements for cannabis, you must also comply with state and local regulations regarding the manufacture of food and beverages. This article outlines some of these steps.
At this point, you may want to consider whether or not to start a business to complete your license application. If you have not started a business, this is your first step.
You will need to choose a business name, form an entity with the Secretary of State for Connecticut, and complete the necessary additional paperwork.
Here are some of the top business structure considerations:
- What is the optimal property structure?
- How will your organization be taxed?
- Do you have the right training documents?
- What kind of financing will your business seek?
- Is your business name available or is it already taken over by someone else?
Legal and accounting professionals can help you answer these questions and guide you through the paperwork.
Your business plan should include all of your business goals, including a budget, a marketing plan, a financing plan, and a list of strategic partners, among others.
You should develop a business plan in the early stages of your business planning.
DCP will review your business plan as part of the interim licensing process.
You can find additional guidelines for creating a business plan on the U.S. Small Business Administration website.
Cannabis is a highly regulated industry, and the inclusion of cannabis in food or beverage requires additional layers to comply with regulations.
In general, cannabis food and beverage manufacturers are subject to state cannabis laws, adult cannabis regulations, and the Connecticut Food, Drug, and Cosmetic Act, and 21a-91 to 21a-120 and 21a-151 to 21a-120. they must complete the sections. 159 of the Connecticut General Statutes on Bakeries and Food Manufacturing Establishments.
It is important to note that while Connecticut allows the addition of cannabis to food and beverages, federal law — the Controlled Substances Act and the Food, Drug, and Cosmetic Act — prohibits the inclusion of cannabis-containing foods or beverages (or CBDs). in interstate commerce, which means you can’t sell cannabis-infused foods or beverages along state lines.
If you have received a temporary license from a food and beverage manufacturer, you may need to obtain additional licenses or permits depending on the municipality in which you operate.
For example, New Haven City Council may apply to cannabis food and beverage manufacturers and / or retailers for a food service establishment license.
The regulations also include packaging and labeling requirements, as well as restrictions on the content of cannabis-infused foods and beverages.
For example, regulations prohibit the sale of cannabis products containing more than half a percent alcohol.
You should carefully consider the applicable regulations and develop your business plan and product offerings accordingly.
If you are not financing your business on your own, you should start looking for alternative sources of financing.
Funding can come from friends and family, private equity, or traditional sources of funding, such as loans.
Because cannabis is illegal at the federal level, traditional sources of funding will be limited and specific “cannabis-friendly” banks and credit unions may need to be sought, or specialized cannabis financial brokers may need to be sought.
Different forms of financing work better with certain business structures, so you should consult with a legal advisor and a professional accountant to consider your options.
Real Estate, Zoning Approval
To obtain a permanent license, you will need a physical location for your business and the approval of your local zoning committee.
Each municipality will make an independent decision to allow or ban cannabis establishments within its borders.
Some municipalities have already voted and published their respective decisions. Here is a list of jurisdictions that have voted to allow or ban cannabis establishments.
Even if a particular municipality decides to allow cannabis companies, zoning regulations may limit the specific places or areas where cannabis companies operate.
You should consult the zoning system of the municipality in which you wish to locate your business and obtain approval from the local zoning committee.
Hiring an employee
You will need to hire a team to run your business.
Here are some things to keep in mind when setting up a cannabis business. First, you must register as an “Employer” in the Connecticut Department of Labor.
Second, all of your employees must register with DCP.
Third, key employees (i.e., president / CEO, financial manager, and compliance manager) must pass a background check and be licensed with DCP.
Once you have hired staff, you will need to enter into employment agreements, prepare employee manuals, create a payroll system, and provide appropriate training.
This will include specific training on cannabis and state-mandated staff training. The DCP must be aware of changes in your staff as required by regulations.
Key vendor contracts
Once you have been licensed as a cannabis food and beverage manufacturer, you will need to establish a supply chain to get your ingredients and align with retailers.
There are higher regulations for the manufacture of cannabis products, so you need to make sure that your facility and your partners maintain strict quality and safety standards.
Article 21a-XXX-26 of the Regulation specifies manufacturing restrictions, such as chain of custody requirements, assigned components, appropriate manufacturing equipment, acceptable product forms, testing, and so on.
You will be allowed to distribute your products after receiving good laboratory test results in accordance with the International Organization Standard and the 17025 International Electrotechnical Commission.
Part of your business plan should be a marketing plan. Establishing and protecting intellectual property are key elements of successful marketing.
Because the Federal Controlled Substances Act prevents trade between cannabis states, all sales must be made only within state borders.
Another consequence of federal illegality is that you will not be able to obtain federal intellectual property protection from the U.S. Patent and Trademark Office, which will allow you to protect your IP nationwide.
However, you can apply for a trademark in the state of Connecticut to protect your local trademark. You cannot sell your product under a trademark until your trademark is registered with DCP.
The regulations include specific instructions on which products may be labeled under the same brand name, depending on the ingredients used.
Food and beverage manufacturers need to understand the waste streams generated by their operations and assess whether the use of cannabis in the manufacturing process creates or alters an environmental permit condition, such as air emissions, solid waste, or wastewater.
In addition, many entities in the cannabis sector recognize that key parts of the supply chain require significant use of water and electricity, and many are making efforts to reduce their carbon footprint.
Examples of manufacturers include energy efficiency audits, renewable energy sources, recycling practices, and sustainable packaging.
As a temporary license holder, you must also meet the criteria set out in the DCP and the Social Equity Council for the final license, including:
- Contract with Cannabis Analytic Tracking System
- A peace agreement between a cannabis establishment and a real labor organization, as long as you employ unionized workers.
- Certificate of a project work agreement, if applicable
- Written policies to prevent cannabis diversion and misuse
- Appropriate security measures to prevent cannabis theft, diversion, loss and adulteration
- Staff development plan
- Social equity plan
These criteria must be met for the satisfaction of the DCP and the SEC within fourteen months of obtaining a provisional license and obtaining a definitive license.
Sarah Westby is chairman of Shipman & Goodwin LLP’s Cannabis Group and a member of the company’s employment and internship team. Sara Bonaiuto is a member of the company’s corporate business and internship team.
For more information on Shipman’s Cannabis Practice, contact President Sarah Westby (860,251,5503) or Vincenzo Carannante (860,251,5096).