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Joint Ventures and Capital Sources

Resources for Aspiring Cannabis Entrepreneurs

Joint Ventures and Capital Sources FAQs

What is a Joint-Venture and what is a Social Equity Joint-Venture?

  • A Joint-Venture (JV) is a business or commercial partnership with two or more parties, which can include individuals, businesses, or any other legal entity. Essentially, it is a partnership where the different parties involved retain their distinct identities.

  • A Social Equity Joint-Venture (SEJV) is an equity joint venture is a cannabis establishment where a social equity applicant owns 50% of the business. A SEJV in cannabis is designed to encourage existing medical cannabis companies to partner with social equity applicants, and in return, the fee to convert from a solely medical cannabis company to a hybrid retailer (i.e., selling both medical and adult-use cannabis) is reduced by 50%.

    • SEJVs are subject to lottery requirements but must be approved by the SEC. Further requirements can be viewed here.

    • Medical producers can create two EJVs (other than cultivator) with social equity applicants to expand their business to include recreational cannabis. Medical dispensaries can create two EJVs with social equity applicants to obtain a hybrid retailer license.

Is the social equity licensee required to own a percentage of the company under a JV?

  • At least 50% of the business that the social equity license is attributed to must be owned and controlled by an individual that qualifies for the social equity license.

    • SEJVs are subject to lottery requirements but must be approved by the SEC. Additional requirements can be viewed here.

  • You can apply to the social equity license as a company that is owned by a JV partnership; however, individuals that qualify for the social equity license must have at least 50% of the ownership and control of the company.

  • There are no limits on the number of partners as long as the social equity requirements are met.

Should I get a JV partner? What are the benefits? What are the drawbacks?

  • Having a JV partner has clear advantages:

    • JV partners can provide capital or access to capital (loans, grants, other investors).

    • JV partners can serve as guarantors with commercial banks.

    • JV partners can provide resources, such as distribution channels, expertise in the retail industry, and access to a broader market, among others.

    • JV Partners can also provide mentorship, access to other mentors, and access to a broader business network.

    • Under a SEJV you can bypass the lottery all together if the SEC approves the SEJV.

  • Despite the benefits and advantages to having a JV partner, there are drawbacks:

    • You will have to trade a percentage of ownership and control in exchange for capital, mentorship, and other benefits.

    • You will have to do further due diligence (investigation) on who your partner will be, which can take considerable time.

    • You will have to draft partnership agreements and contracts, which requires resources and time.

    • The JV option allows more privileged groups to enter the market.

    • Some partners may be incompatible with your business values and goals.

    • Some partners may not put in as much effort or commitment into the business, so the work may not be justly distributed across partners.

Who would make a good JV partner?

There are several qualities beyond having enough capital to invest that make a good JV partner:

  • Interest and commitment in making the business succeed, beyond monetary interests.

  • Passion for the industry, and a belief that social equity goals contribute to the good of society

  • A sense of justice for running the business, paying their fair share for the business, and receiving the distributions or dividends that are fair.

  • The same ambitions and aspirations for the business, for example, being a fast-growing business or a small local business that intimately serves the community, and anything in between.

  • Skills that will help the business grow or reach the company’s goals

Does the social equity license limit the possible kinds of JVs that can be formed?

As long as the social equity and social equity ownership criteria are met, there isn’t any limit on the partnership

What resources are available to help me negotiate JV terms to protect my license? Should I get a lawyer to help me with these topics?

  • The SEC will operate regional workforce development boards to help train potential cannabis social equity license holders.

  • Once you are ready to negotiate terms, determine ownership, and draft contracts to protect your license, a lawyer will be your best resource. A lawyer will be an objective advisor that will help you think through what you want out of the partnership, including but not limited to:

    • Monetary exchange or value of ownership stake that your partner(s) will purchase.

    • Capital contribution requirements.

    • Additional resource contributions, including help to manage the company, human capital, business plan assistance, among others

    • Drafting events and conditions in which the JV partner would need to provide indemnification or compensation, if any of the agreements or contracts are breached

  • Based on the discussion and monetary contribution, the lawyer will provide recommendation on the ownership percentage

  • The JV partnership agreement and contracts drafted by the lawyer will serve to protect the license

How much is my license worth?

There are several ways to determine the value of your license. Your license is worth more than its cost. There are different methodologies to determine the worth of your license, but it would depend on the expected income it will yield over a set period. For example, if your social equity licensed business is expected to generate xyz dollars across ten years, then the value of your license would be directly impacted by the expected earnings. There are a lot of assumptions and viewpoints that can impact the perceived value. See IV:C, 12 and 19

What sources of funding are available?

  • The state of CT will offer an initial $50 million on its accelerator program. The $50 million outlined in statute is bond funding available. The entire $50 million will not be requested at one time.

    • Starting in July 2023, about 60 – 75% of cannabis excise tax will be directed to the Social Equity and Innovation Fund.

  • Other sources of private funding include JV partnerships, accelerators, impact funds, loans.

How do I apply to obtain funding from the Social Equity and Innovation Fund?

The Social Equity and Innovation Fund will be used for: access to capital for businesses; technical assistance for the start-up and operation of a business; funding for workforce education; and funding for community investments. The Fund will be seeded from certain application and license fees. Funding distribution is still being determined by the Social Equity Council. Please check here for updates

What is an accelerator and how can it help me?

  • An accelerator offers education, resources (monetary and non-monetary), and mentorship to help a small business succeed.

  • Accelerators can teach principles of accounting, business, financial, human capital, and regulatory management. Colorado’s accelerator program has proven to be a viable concept. More information is available here.

  • Accelerators also provide companies and people access to capital and may even invest directly into the business in exchange for a minority stake.12 This may sound similar to getting a JV partner, however, in an accelerator you will be sharing the resources with many other cannabis entrepreneurs and not just forming a partnership with an investor

  • Accelerators teach entrepreneurs how to “market” themselves to pitch to investors and access a broader network.

Are there accelerators that I can be part of that would help me with my business?

  • The SEC is still working on establishing the Social Equity and Innovation Fund, for more updates click here.

  • There are several national accelerators that mentor entrepreneurs, which provide resources and mentorship. However, there is yet to be a CT accelerator that is currently operating.