Marijuana dispensaries consider provisional licenses after draw
After submitting 73 applications for medical marijuana dispensary licenses — or 5% of the 1,457 applications reviewed in the state’s January license draw — Akron’s Cannabis Klutch is in the lucky position of winning at least three and maybe a few more.
The maximum number of dispensaries a company can operate in Ohio is five. And there are only 73 new marijuana retail licenses available this round, under a process called RFA II. The available licenses are divided among 31 state-designated districts based on population and an estimated customer base of medical marijuana patients.
But Klutch CEO Adam Thomarios and his partners have aggressively bid for some of these highly valuable and coveted licenses in hopes of paving the way for the next chapter of his business.
“We put a lot of time and effort into this project and a lot of people worked on it,” Thomarios said. “I’m very happy to have maybe three or more stores. I would be very upset if I walked out of this project without at least one store.”
The state is now beginning a review process to ensure that future license winners, according to its drawing, actually qualify for provisional licenses. Regulators intend to release a list of official provisional license winners this spring.
Assuming the 73 new licenses are awarded, the state will grow from 57 dispensaries operating today to 130.
As provisional winners are disqualified for a number of reasons – including a site that is not actually 500 feet from schools, parks and libraries – the next candidate for consideration in a district given will be next in line.
Licenses are also first come, first served. Therefore, in a situation where there are multiple potential license winners on the same property, only the first drawn wins, unless the claimant before them for the same site is disqualified.
Klutch operates a grow house and Level I processing facility in Akron. Its retail-side brand name will be “The Citizen by Klutch”.
The cities in which Klutch is confident he will get provisional dispensary licenses due to his drawing numbers are Canton, Lorain, and Euclid. He could also be in the running for additional licenses at Euclid, Caldwell and Oxford, depending on whether some other nominees drawn ahead of Klutch are disqualified, Thomarios said, noting he’s pretty certain none of his company’s own nominations will not be disqualified.
Klutch officials declined to say what the all-inclusive costs were for attending RFA II. But the fees alone for just submitting those 73 applications total $365,000.
Other costs in licensing tend to include high fees or non-refundable deposits to obtain required letters of intent from landowners to lease or sell sites where aspiring dispensary operators have applied to make business.
Dubbed by some as option fees, sources say these range from $5,000 to $100,000 per property per applicant, depending on the site. Thomarios said he met someone asking for $100,000 down payment and decided to walk away.
Amid stiff competition for retail outlets, some landlords have apparently taken advantage of a windfall by signing multiple letters of intent to potential dispensaries, whether or not the applicants get licenses. For those who participate and get a potentially lucrative dispensary tenant, that’s just icing on the cake.
There were 15 applications connected to 554 N. Chestnut St. in Ravenna in the RFA II drawing. Applicant SIMPLE AG OHIO, which was the first draw for the Northeast-5 dispensary district where only three new dispensary licenses are available, is now being considered for a provisional license there. The site includes a small medical practice sitting on less than 0.4 acres and carries a total estimated value of $84,400, according to county records.
There were 68 claims filed in the Northeast-5 district, which includes Geauga, Lake and Portage counties.
In Northeast-2 District, comprised solely of Cuyahoga County, 208 applications were submitted for seven available licenses. And in Northeast-3 District, comprised solely of Summit County, 106 applications were for just two licenses.
Not only can these ventures potentially be lucrative, and possibly more in the future if an adult use program comes into play, but the potential future value of these licenses in the resale market could be enormous.
“I think everyone knows that one of these licenses could be a gold mine,” said David Leb, commercial real estate broker at Cushman and WakefieldCrain’s has said in the past.
Klutch remains in court to appeal the state’s rejection of a retail license dating back to when the first licenses were awarded in 2018. Avoiding litigation like this is one of the reasons the State opted this time for a drawing dynamics instead of a classified scoring system.
Thus, this new round of licenses seems to lead to the first Klutch stores, allowing the vertical integration that Thomarios aspired to.
With advertising rules being extremely prohibitive in the Ohio marijuana program, the store component also provides Klutch with the opportunity to connect directly with consumer patients to discuss and promote its own products.
Klutch now has 125 employees. Each of its dispensaries could be staffed with 20 to 25 employees.
“We believe this is just a golden opportunity to do our best and get involved in retail,” said Pete Nischt, Klutch’s chief compliance officer, noting that the company was among those pleading. for more marijuana stores in Ohio. “We’re excited to be able to serve people when these stores go live.”
Klutch’s owners appear to be engaged in the marijuana business. After all, Klutch was formed following the split of its parent company, AT-CPC of Ohio, from Massachusetts-based Calyx Peak in 2020, as Thomarios bought out its then-partners.
But out-of-state companies want a slice of Ohio’s growing marijuana market. They’ve already acquired about a third of the licenses in northeast Ohio, according to Crain’s research.
Multistate operators (MSOs) that do not obtain a license in RFA II will likely aggressively seek acquisition opportunities, said Stephen Lenn, a Phoenix-based attorney with Brennan Manne & Diamond who works with the cannabis industry on mergers and acquisitions deals.
“In Ohio you have to hold that license for a year before you can sell it. But I can tell you that in other states people get lottery licenses and flip them for $10-15 million” , said Lenn. “The reason these licenses are so valuable is precisely because they are in limited license states.”
After regulators announced the winners of the interim licenses this spring, new dispensaries can officially work toward completing their builds. They will have to pass an inspection afterwards to obtain an operating certificate and open their doors. With this timeline in mind, most new stores could go live no sooner than late fall or winter 2022.