# Before You Apply: Microbusiness Pre-Application Training

https://www.youtube.com/watch?v=9g1diJuQwG4

[00:03] Welcome to the before you apply presentation for the pre-application training of the Missouri micro-business program.
[00:11] This training will be covering two important topics within the micro-business program.
[00:17] Owned and operated requirements and non-compliant agreements.
[00:23] This presentation is designed to help applicants understand eligibility, ownership requirements, operational responsibilities, and how to avoid agreements that violate the rules of the Division of Cannabis Regulation, or DCR.
[00:42] Nothing in this training is legal advice.
[00:48] The micro-business program was established in Article 14 of the Missouri Constitution to create opportunities for individuals who may not otherwise be able to participate in the legal cannabis industry.
[01:02] Applicants must
[01:05] meet at least one of the eligibility requirements listed in Article 14,
[01:12] hold more than 50% of both financial and voting interest,
[01:19] be free from disqualifying felony offenses,
[01:23] background checks and fingerprints are required,
[01:29] have ownership interest in no more than one micro-business license,
[01:35] and ensure the license is always owned and operated by eligible majority owners.
[01:42] Micro-business licenses are awarded through a lottery.
[01:46] Applications are not guaranteed to be selected.
[01:54] Applicants must meet at least one of the following criteria.
[01:59] Have a net worth of less than $250,000 and have had an income below 250%
[02:08] of the federal poverty level for at least three of the 10 years prior to applying for a micro-business license.
[02:17] Or have a service-connected disability.
[02:22] Or have a previous non-violent marijuana offense involving the applicant or the applicant's parent, guardian, or spouse unless the conviction involves provision of marijuana to a minor or driving under the influence of marijuana.
[02:41] Or live in a qualifying zip code or census tract that meets a specific requirement connected to poverty level, unemployment rate, or historic marijuana incarceration rate.
[02:56] Or graduation from or residence in an unaccredited school district.
[03:02] More information about each of the eligibility criteria can be found on the DCR website at cannabis.mo.gov.
[03:12] Be aware that documentation that demonstrates eligibility for the selected criteria is required to be submitted with the application.
[03:22] Although applicants are only required to meet one, they may also select and provide documentation for additional criteria for which they are eligible.
[03:35] The definition of owned and operated has been provided by DCR.
[03:40] I'm going to read the definition to you first, then I can explain it in more plain language.
[03:47] Majority owned and operated means the eligible individuals having majority ownership must also collectively hold more than 50% of voting power in the licensed entity and have more than 50% of the power to order or direct the management manager and policies of the license enter into and exit agreements on behalf of the
[04:13] license and otherwise make decisions for the license.
[04:19] Majority ownership cannot subject to conditions that unduly diminish the controlling interests of the eligible individuals that constitute majority ownership.
[04:31] such as agreements that subject those majority owners to control of a board or any agreements with disproportionate or exploitative termination fees.
[04:46] What does this mean?
[04:52] Micro-business licenses must be majority owned and operated by individuals who meet one of the eligibility criteria listed in both the Missouri Constitution and the code of state regulations.
[05:06] The eligibility of each individual must be verified by DCR staff and the chief equity officer.
[05:13] They should also hold 50% or more of the financial and voting rights of the license.
[05:21] The majority owners must also have the power to make decisions about the license.
[05:27] They should also direct financing agreements as well as facility operations and compliance.
[05:35] Finally, the majority owners control must not be limited by unfair conditions.
[05:44] For example the license should not be controlled by a board or the majority owners should not have agreements with unfair financial consequences if they want to stop doing business with someone.
[05:56] DCR reviews both initial applications and ongoing ownership changes to ensure compliance.
[06:03] During the application process, an applicant must attest that no agreements exist that transfer control or ownership away from the eligible owners in
[06:14] Application.
[06:16] Agreements may be executed after the license is awarded and after DCR has completed its confirmation that the license was awarded to eligible individuals who own and operate the license.
[06:32] Now, let's look at some examples of what owned and operated might look like within the micro business program.
[06:39] In this first example, Mike Smith creates an entity named Micro Cannabis LLC and registers the entity with the Missouri Secretary of State.
[06:50] Mike knows that he meets at least one of the eligibility criteria, so he submits his application for the micro business program.
[06:58] In his application, he must provide a visual for his business that shows he holds 100% financial and voting interest in the entity Micro Cannabis LLC.
[07:12] This means that he will control all decisions and will be responsible for
[07:16] compliance and operations of the license.
[07:22] In the next example, Mike has added two friends, Joe and Bob, as minority owners in the entity Micro Cannabis LLC.
[07:32] Mike continues to be the majority owner by holding 75% interest, both financial and voting, while the remaining partners share 25%.
[07:44] Neither Joe nor Bob is contributing to the majority ownership, so they will not need to provide verification for eligibility.
[07:53] As a part of the microbusiness program, Mike is the only one required to provide eligibility documentation since he is the eligible applicant who will also retain majority operational control in this business arrangement.
[08:09] During application and after licensure, Mike may need to provide documentation to DCR showing he truly holds majority.
[08:17] ownership and control of his business.
[08:24] It is possible for multiple individuals to equally share in the ownership of a microbusiness license.
[08:31] It's important to remember that the microbusiness program requires that the eligible individuals who will be owning and operating the business must hold 50% or more of the financial and voting interest in the license.
[08:46] This means the owners will have to decide who will contribute to the majority ownership since those individuals must submit documentation for eligibility criteria in order to qualify for the program.
[09:01] Now, in this example Mike, Joe, and Bob each hold approximately 33% ownership interest in Micro Cannabis LLC.
[09:11] Since eligible individuals must hold that 50% or more of ownership interest, at least two of the owners must provide
[09:20] eligibility documentation for the application.
[09:28] DCR has seen several arrangements that violate program rules such as someone other than the listed eligible individuals paying all application and business costs and making all decisions in the license in exchange for future ownership.
[09:48] These types of arrangements demonstrate that the eligible applicant was never owning and operating the business.
[09:57] Agreements that automatically shift ownership at a predetermined time.
[10:02] Many ownership transfers must be approved by DCR before they may occur.
[10:08] Agreeing now to a future automatic ownership change can demonstrate that the applicant has not waited for the required approval.
[10:19] You should also be careful about
[10:20] entering into agreements that fully commit the license to someone else, but include a provision that says the future transfer is subject to DCR approval.
[10:32] DCR will still examine all of the provisions that fully commit the license, and just adding one about DCR approval may not solve the problem.
[10:45] Agreements that show the eligible individuals listed as majority owners are not actually in control of the business.
[10:53] The owned and operated requirement means the eligible individuals listed as the majority owners must be able to make decisions for the license.
[11:04] These arrangements undermine the program's purpose as required by the Constitution, violate the rules for microbusinesses, and are not permitted.
[11:19] Although applicant pooling can be common
[11:21] in any opportunity with limited availability, not all applicant pooling situations are compliant with microbusiness rules.
[11:31] For example, DCR has seen situations where an individual was connected to a large number of applications that listed eligible people from both inside and outside of Missouri.
[11:44] In some of these situations, applicants were sought out solely based on their eligibility status and had no previous personal or professional relationship with the individual that had recruited them.
[11:58] Non-compliance was discovered when agreements tied to the application pooling did not allow the listed eligible applicant to own or run the business.
[12:10] Compliant applicant pooling requires transparency.
[12:14] Micro-business applicants must be able to demonstrate financial and decision-making control of the license.
[12:25] To avoid being involved in non-compliant applicant pooling, be cautious if someone contacts you only because you are eligible.
[12:35] Someone offers money or help without asking about your skills or interest in business.
[12:43] Someone guarantees you a micro-business license.
[12:47] You are pressured to act quickly or not seek legal advice.
[12:53] Or claims from emails and websites seem too good to be true.
[12:58] These are all common indicators of possible non-compliant application arrangements.
[13:07] By DCR rules, micro-business applicants can enter into business agreements before licensure with consultants, management services, and even investors.
[13:19] But no agreements can be in place at application that reduce, remove, or replace the eligible majority
[13:27] applicant's role in ownership or operational control of the license, if awarded.
[13:34] This is to ensure DCR can confirm that all licenses are awarded to and being operated by eligible individuals, which is a constitutional responsibility for DCR.
[13:47] DCR will complete an in-depth application review to verify that no removal of ownership interest or operational control agreements are in place.
[14:02] Avoid agreements requiring you to give up the majority of financial or voting interest in the license, give up all decision-making authority, pay unreasonably large penalties or breakup fees if you no longer wish to partner with someone, share future profits with people you don't know or haven't met, or allow someone else to fully operate
[14:28] The business in your place.
[14:31] These types of agreements likely violate DCR rules and defeat the purpose of the program.
[14:39] There are several items to consider before applying to Missouri's micro business program.
[14:45] First, think about the why behind your application.
[14:49] Are you, as an eligible individual, making this decision to apply so that you can be part of this market opportunity, or has someone just asked you because you meet one of the eligibility criteria?
[15:03] Do you want to own and run a cannabis business?
[15:07] Think about what your goals are with this application and how you can contribute to the micro business community.
[15:16] Next, be sure to choose business partners carefully.
[15:20] You need to be able to trust.
[15:22] So, spend some time understanding their goals with this license to see if they align with yours.
[15:28] Don't be afraid to do some background research on the people you are thinking about doing business with.
[15:34] Ask as many questions as possible to help understand both their business experience and their intentions with this program.
[15:44] Before applying, spend some time understanding the financial side of opening the business as well as the rules and regulations surrounding the micro-business market.
[15:55] All DCR rules are available on the division's website.
[15:59] Micro-businesses must meet all the same compliance requirements as the larger legal comprehensive licensed facilities.
[16:09] And finally, don't be afraid to walk away from an individual who is pressuring you to sign an agreement or submit an application if you're feeling unsure.
[16:20] Being a part of the micro-business program is a big personal commitment.
[16:25] And even though all applications are accepted and reviewed, DCR also wants
[16:30] you to feel confident in your decision to apply without undue pressure or promises.
[16:39] Thank you for listening to the before you apply training presentation.
[16:44] If you have any additional questions about the micro-business program, please email cannabisinfo@health.mo.gov.
[16:55] For more information about the micro-business program, please visit the DCR website at cannabis.mo.gov.
[17:06] Finally, you may call DCR at the toll-free number provided on the screen if you have additional questions.
[17:14] This line is staffed Monday through Friday from 9:00 a.m. until 4:00 p.m. Central Standard Time.
[17:22] This concludes the first pre-application training.
[17:26] Please move on to the next training video.