Well, it’s official. The secondary market we predicted would result from SB 276 has reared its head, and in spectacular fashion. For those of you who didn’t catch our previous posts, SB 276 reapportioned unused dispensary licenses, largely in response to ongoing litigation in Las Vegas. In a last-minute oral amendment, a section was added to allow for selling all or a portion of a Medical Marijuana Establishment and the transferring of the appropriate license to the purchaser. Though the regulations on this have not yet been published, it looks like companies will need to sell all or a portion of the company itself, and not just their Nevada cannabis license.
Due to this newly-created market, nearly every day we get a call from an investor or licensee looking to invest in or sell here in Nevada. People are interested in getting into the industry in Nevada due to a strong likelihood of legalization in 2016. With the opportunity to get in before recreational cannabis becomes legal, these licenses have a huge upside potential.
Licenses are being “sold” for millions and licenses are being sold for nearly nothing. This is because certain licenses are valuable while others just aren’t. I put “sold” in quotes because the smarter buyers are making their purchases contingent on their actually being approved by the Department of Public and Behavioral Health to hold the license.
Dispensaries are the most sought-after licenses on the secondary market, with very few coming up for sale. Nevada initially approved 55 licenses across the entire state. Once SB276 fully plays out we will know the exact number of licenses with both state and local approval. For now though, we know it is not very many. Further, dispensaries are the most visible of the licenses, which can create brand recognition in advance of legalization.
Many more cultivation facilities were approved than all other licenses, with a total of about 180. As the most abundant license type issued, they are also the most commonly marketed for sale.
Production licenses (about 115 issued) and lab licenses (only 17 issued) are seldom on the market, and to date we are unaware of any sales of such facilities. We have been involved in negotiations for production and lab licenses, but given their scarcity, their value seems higher than most are willing to pay.
LOCATION, LOCATION, LOCATION
Location plays a major role in valuing a license. For dispensaries, the location of the business largely dictates the demographics of its customers. Though some patients will travel for their medicine, most will go to the dispensary closest to them. Dispensaries in more affluent parts of town (particularly if we are talking about Las Vegas) are able to cater to a more affluent clientele and command higher prices for their product. The dispensary licenses for the higher profit locations will likely sell at higher prices.
On the other end of the spectrum, many production and cultivation facilities were issued licenses to operate in the Apex area of North Las Vegas. Many of the locations in Apex lack water and power, and we have been hearing that NV Energy is not subsidizing installation of lines to the facilities. The costs of such installation can be prohibitive and as both water and power are obviously necessary to cultivate marijuana the lack of such utility tie-ups can render certain licensees virtually worthless. The one saving grace for those “left in the dark” is that they may be able to move to a better location if they can secure local approval at the venue to which they are seeking to move. The process for such a move has not been made public as of yet, however, so the ability to move is speculative at this point.
The State of Nevada expects that licensees will follow the plans submitted as part of the initial application process. Some license applications for cultivation facilities proposed hundreds of thousands of square feet, while others came in at as little as 5,000 square feet. The amount of marijuana that can be grown is pretty much directly proportionate to the size of the facility. And the amount of marijuana one can grow is closely tied to the amount of profit one can realize from growing.
So now what?
Given that the secondary market has arrived in Nevada, we firmly believe it is here to stay. But both buying or selling a cannabis license in Nevada (as in any other state) is heavily controlled by regulation, making such transactions both complicated and risky. The fact that selling such a license is not technically allowed in Nevada until October 1 and will require Division approval, makes these transactions even more complicated. For a review of the basics of what is typically involved in buying and selling a cannabis license, we urge you to read Buying and Selling Marijuana Business Licenses and trust us when we say that this sort of thing is not for the amateurs or the neophytes.