Marijuana dispensaries eye provisional licenses post-drawing

After submitting 73 applications for medical marijuana dispensary licenses — or 5% of all 1,457 applications considered in the state’s January license drawing — Akron’s Klutch Cannabis is in the lucky position of possibly winning at least three and possibly a couple more.

The most dispensaries any one business can operate in Ohio is five. And there are just 73 new marijuana retail licenses available in this round, part of a process referred to as RFA II. Available licenses are divvied up among 31 state-designated districts based on population and an estimated medical marijuana patient customer base.

But Klutch CEO Adam Thomarios and his partners made an aggressive 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 have had a lot of folks working on it,” Thomarios said. “I’m very happy with possibly having the three or more stores. I’d be very upset if I came out of this project with not at least one store.”

The state is now commencing a review process to ensure prospective license winners, per its drawing, actually qualify for provisional licenses. Regulators intend to release a list of official provisional license winners sometime this spring.

Assuming all 73 new licenses are awarded, the state will grow from 57 dispensaries in operation today to 130.

As or if tentative winners are disqualified for any number of reasons — including a site not actually being the requisite 500 feet away from schools, parks and libraries — the next applicant up for consideration in a given district will be the next down the list.

Licenses also are first-come, first-served. Therefore, in a situation where there are multiple potential license winners on the same property, only the first drawn wins out, unless the applicant ahead of them for the same site is disqualified.

Klutch operates a Level I grow house and processing facility in Akron. Its brand name on the retail side will be “The Citizen by Klutch.”

The cities in which Klutch is confident it will win provisional dispensary licenses due to its drawing numbers are Canton, Lorain and Euclid. It also could be in the running for additional licenses in Euclid, Caldwell and Oxford, depending on if some other applicants drawn ahead of Klutch are disqualified, Thomarios said, noting he is rather certain none of his business’ own applications will be disqualified.

Klutch officials declined to say what the all-in costs were for participating in RFA II. But the fees alone to simply submit those 73 applications total $365,000.

Other costs in the bid for licenses tend to include stiff fees or nonrefundable down payments to secure the requisite letters of intent from property owners to lease or sell sites where aspiring dispensary operators have applied to do business.

Referred to by some as option fees, sources say those have run in the range from $5,000 to as much as $100,000 per property per applicant depending on the site. Thomarios said he encountered someone asking for $100,000 down and decided to walk away.

Amid tight competition for retail stores, some landlords have seemingly enjoyed a windfall just signing multiple letters of intent to prospective dispensaries regardless of whether the applicants win licenses. For those participating who do secure a potentially lucrative dispensary tenant, that’s just more 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 dispensary district Northeast-5 where just three new dispensary licenses are available, is now being considered for a provisional license there. The site includes a small medical office sitting on less than 0.4 acres and carries a total appraised value of $84,400, according to county records.

There were 68 applications filed in district Northeast-5, which comprises Geauga, Lake and Portage counties.

In district Northeast-2, which is comprised solely of Cuyahoga County, 208 applications were submitted for seven available licenses. And in district Northeast-3, which is made up of only Summit County, 106 applications chased just two licenses.

Not only can these businesses be potentially lucrative, and possibly more so in the future should an adult-use program come into play, the potential future value of these licenses on the resale market could be massive.

“I think everyone knows one of these licenses could be a gold mine,” David Leb, a commercial real estate broker at Cushman & Wakefield, told Crain’s in the past.

Klutch remains in court appealing the rejection of a retail license by the state dating back to the awarding of the first licenses in 2018. Avoiding litigation like this is one reason the state opted for a drawing dynamic this time instead of a ranked scoring system.

So, this new licensing round seems like it may result in Klutch’s first stores, enabling the vertical integration Thomarios has longed for.

With advertising rules being extremely prohibitive in Ohio’s marijuana program, the store component also provides Klutch an opportunity to connect directly with consumer patients to discuss and promote its own products.

Klutch has 125 employees today. Each of its dispensaries could be staffed with 20 to 25 employees.

“We feel like this is just a golden opportunity to put our best foot forward and participate in retail,” said Klutch chief compliance officer Pete Nischt, noting the company has been among those advocating for more marijuana shops in Ohio. “We are ecstatic to be able to serve people when these stores get online.”

Klutch owners seem committed to the marijuana business. After all, Klutch was formed following the separation of its parent company, AT-CPC of Ohio, from Massachusetts-based Calyx Peak in 2020 as Thomarios bought out his partners at the time.

But out-of-state companies want a piece of Ohio’s growing marijuana market. They’ve already acquired about one-third of the licenses in Northeast Ohio, according to Crain’s research.

Multi-state operators (MSOs) who don’t win a license in RFA II will likely be looking aggressively at acquisition opportunities, said Stephen Lenn, a Phoenix-based lawyer with Brennan Manna & Diamond who works with the cannabis industry on M&A deals.

“In Ohio, you do have to hold that license for a year before you can sell it. But I can tell you in other states, people get licenses in lotteries and flip them for $10 million to $15 million,” Lenn said. “The reasons those licenses are so valuable is specifically because they are in limited-license states.”

After regulators announce provisional license winners this spring, new dispensaries can officially work on completing their buildouts. They’ll need to pass an inspection afterward to secure a certificate of operation and open for business. This timeline in mind, the soonest most new shops could come online will likely be around late fall or winter 2022.