How to Start a Legal Cannabis Business
With the global cannabis sales boom, this fast-growing industry is predicted to grow to a $2 billion market in consumer sales by 2020, and reach $3 billion in sales by 2021.
Cannabis legalization is sweeping across the US, and with that comes the interest in legal cannabis businesses. Today Coca Cola is in talks with Aurora Cannabis to develop a CBD-infused beverage. That said, let’s take a look at how to open a legal cannabis business like a marijuana dispensary.
There are three cannabis business categories right now, with each having its own specific cannabis laws. The startup process for a legal cannabis business is certainly more complicated than other businesses because of its laws.
With laws differing from state to state, you’re going to have to do some research as to what your state entails. Two common requirements that you’re going to need are to have a clean criminal record and to also have state residency for a cannabis business like a medical marijuana dispensary. This also applies to all of the below business models.
- Product manufacturing of CBD-infused products for pets and people
- Retail sales like medical marijuana dispensaries
Licensing and Permitting
The most popular cannabis business is medical marijuana dispensaries or collectives. Not only are these one of the most expensive to open up, but they are also the most difficult to set up.
With laws constantly changing, and the regulatory environments being fluid, prospective investors need to keep in mind that applying for a license may take as long as ten months. Local and county laws will also come in to play as to where you can have your cannabis business. Additionally, there are county and city level restrictions prohibiting cannabis-based businesses. Cannabis businesses need to follow their state’s regulations and be in compliance with county and local laws.
Business plans need to encompass business partners and financial investors in their cannabis license applications, which then needs to be approved. If you already have a cannabis business license, and you add on a new investor, you’ll need to apply for a new license request.
Staff compliance with all regulatory requirements is needed, or your business can be shut down. Contracts are also required between your business and suppliers. A medical marijuana dispensary will need to have contracts with both product wholesalers and cultivators.
If you’re opening up a marijuana retail store, you will need to have contracts with the following:
- Edible product manufacturers
- Infused product manufacturers
- In-state cultivators
- Consumption device manufacturers
- Dispensary contract
- Delivery service contracts
- Software contracts for your business
Forget about the banks financing this operation! Banks are not legally allowed to finance a marijuana business because it’s illegal under federal law. Approaching private financial investors is what most cannabis business startups do.
Keep in mind that you’ll also need to set aside a budget for advertising within trade magazines about your medical marijuana dispensary, online trade sites, and marijuana trade shows in your state. Most of the challenges facing the cannabis market in terms of finance will be continuations of past problems until federal law changes with regards to the purchase and sales of cannabis.
With the tobacco, alcohol, medical, food and cosmetic market all wanting a piece of the action, the cannabis industry is waiting for Congress to lift banking restrictions. Additionally, there also may be problems regarding intellectual property acquisitions. It looks like for now that hemp-related products may be the way to go if you’re starting out with a small online cannabis business!
With marijuana businesses being legal in some states, and illegal in others, it’s important to understand marijuana business taxes, most especially for a marijuana medical dispensary. States that have legalized marijuana like Alaska, California, and Colorado will all tax marijuana sales in some way.
There are also some states like Alaska that will impose an excise tax on marijuana products which includes cultivation, manufacturing, and retail outlets. There is also business and occupation tax, and in some states, you have to have a sales tax license for each type of marijuana.
In California, purchasers of marijuana have to pay a 15% excise tax, and a cultivation tax on harvested cannabis, that is harvested for retail purposes. Businesses that are involved in the sale of marijuana cannot take any tax credits or business deductions due to Section 280E of the Internal Revenue Code that reverts back to a 1982 federal law that bans all deduction and taxes from illegal trafficking of drugs. This law is still in effect because marijuana is illegal under federal law. That said, all cannabis business owners have to pay income taxes because it’s still income. Additionally, when starting up a marijuana business, you should consult with a cannabis business attorney to get the best legal advice about how to start up a medical cannabis business.
Opportunities and Risks
Apart from the three main cannabis business categories, there are also business opportunities in the cannabis industry. These include the following:
- Cannabis testing facilities
- Cannabis research facilities
- Cannabis delivery services
- Consumption devices like vapes and accessories
Following state marijuana business laws is an important part of having a marijuana business.
Failure to do so could result in punishment for possession, and imprisonment for the sales and trafficking of marijuana, even if you have a medical marijuana dispensary.
As with any business startup, there’re plenty of risks. Marijuana is still considered a Schedule 1 drug via the Federal Controlled Substances Act. That means that no federal agency will back the use of medical marijuana, not even from a medical marijuana dispensary. Today, more than 50 US cannabis companies are now trading on the Canadian Securities Exchange. (CSE) With hemp now removed from the U.S Controlled Substances Act, major cannabis global brands and investors can indulge in this booming cannabinoid market with CBD creams, edibles, tinctures transdermal patches, and possibly a Coca Cola CBD-infused beverage! Keep in mind that it’s always best to speak to a cannabis savvy financial advisor before starting up a cannabis business.