A flood of last-minute applications into Connecticut’s adult use cannabis lottery, enabled in part by regulations that allow single companies to submit multiple entries, has demoralized local prospective operators.
“It’s not really complicated, it’s just structured in a way that makes it damn near impossible to actually do it,” said Jason Ortiz, president of the Minority Cannabis Business Association. “So it’s sort of sinister in that it generates a lot of hope.”
In one week’s time, the total number of applications for the Cannabis license lotteries jumped from 1,039 as of the morning of April 21, to 4,714 on April 28.
The largest jumps were in the lotteries for retail, micro-cultivation, medical-adult-use hybrid licenses. The window for retail applications closes on Wednesday, April 4.
After the window closes, a third party lottery operator, who a Department of Consumer Protection spokesperson declined to identify, will randomly draw the minimum number of eligible licenses. In the case of retail licenses, the state plans to issue six general and six social equity retailer licenses in the first round of applications.
The third-party operator will randomly select six social equity applicants. Those six contenders will then go to the Social Equity Council which will confirm the applicants status. From there, the Department of Consumer Protection will conduct a background check on the applicants. If they pass both thresholds, they will then gain the opportunity to apply for a provisional license.
If any lottery winner fails to make it to the provisional stage, another candidate will be randomly selected to replace them in order to meet the limits set for each license type.
All non-selected social equity candidates will then be placed within the regular license lottery, whose winners will only have to pass the DCP’s background check.
The state plans to hold subsequent rounds of lotteries, with the next starting in the second half of 2022. Applications from the first period do not carry over to subsequent lotteries.
“It will restart to zero and people will have to re-apply,” said DCP spokesperson Kaitlyn Krasselt.
Multiple applications allowed – if you can afford it
Ortiz is attempting to obtain his own license in Connecticut, but said that he had grown demoralized at the prospects, given the flood of applications into the process.
“They made it where you can have an unlimited number of lottery tickets that you put in. So yeah, I could pay $150 bucks and put in my one lottery ticket for a micro cultivation but there’s only two micros available and somebody from out-of-state can manipulate the system by putting in a thousand lottery tickets,” he said.
Nathan Clough, who is pursuing micro-cultivation, delivery and transportation licenses, said that the state was slow to release information to prospective applicants.
“Those of us trying to open small businesses basically know nothing about what is going on,” he said. “I started early in the process and have been amazed on how long it has taken them to start providing information.”
Licenses for larger cultivation sites, which are restricted to social equity applicants that live in disproportionately impacted areas, do not have to submit to the state lottery, but they have to submit a $3 million application fee making it difficult without financial backing.
“You can swoop in and get access to the social equity lottery if you have a couple million to spare,” he said. “The program was supposed to provide a chance for low income applicants, but they added that rule in after the legislation was passed. I feel like that rule makes it clear who is to get the licenses, rich people and extremely rich people. There is something perverse about allowing the people to purchase the benefits originally intended for low income applicants.”
That requirement can also put prospective social equity applicants in a bad position when potential financiers need them to be the face of the company, regardless of whether or not they trust the person’s judgment, according to Ortiz.
“Having to convince funders that somebody like myself who runs the national organization, can both meet the equity requirements and make the case that I can run a $20 million corporation is impossible,” he said.
The window for cultivation license applications closed April 3. The state has not released the number of applicants for this type of license, although some applicants tell Grown In they believe not more than a dozen have applied for cultivation licenses.
Companies or individuals with access to large sums of money, such as investment firms or MSOs, can buy into an Equity Joint Venture partnership with a social equity applicant for a $1.5 million fee. From the perspective of the social equity applicant, this means that they access capital in exchange for equity, as long as the social equity candidate retains at least 50%.
Justin Frytz, who had hoped to obtain a cultivation license under the name White Oak Apothecary, was unable to secure the $3 million application fee before the deadline. Frytz said that he would be applying for some of the other types of licenses that are subject to the lottery.
“We heard from a lot of others that everyone but the MSO’s have been scared off from the process,” he said. “We’re going to apply for a few lotteries but my hopes aren’t high with how many applications are already turned in. We’re going to try in a few other states when they go legal if we don’t win a lottery here.”