How To Start A Legal Cannabis Business
Not that long ago, the idea of a marijuana business involved shady deals in dimly-lit back alleys in a bid to avoid the long arm of the law. Things have changed immensely in the country since those days, and while it is still illegal under federal law to grow, sell, distribute, use, or even possess marijuana, state laws have now made it possible to do all of that in 33 states (including the District of Columbia).
Get acquainted with the regulations on marijuana in different states
Every jurisdiction that has legalized some form of marijuana use has its own unique set of regulations, and the federal government has taken what can only be described as a “hands-off” approach towards state marijuana laws. Since it was first legalized for use back in the 1990s, the cannabis industry has grown exponentially, and in 2014, the legal sale of cannabis (for the combined sales from retail and wholesale) reached 2.7 billion dollars. This fast-growing industry can offer numerous opportunities for new entrepreneurs, as long as they are willing to wade through the reams of complex and constantly-changing laws and regulations.
For anyone looking to break out in the industry, there are things that need to be looked at before making any big decisions, such as where to start, what area of the industry to open up in, and what laws are required to be followed prior to any investment in business.
The marijuana business can be classified in three main categories
Marijuana businesses can be broken down into three basic categories: cultivation, marijuana-infused product manufacturing, and retail sales. Other business opportunities in the marijuana industry include: testing facilities, delivery services, consumption devices, and software.
Cultivation of marijuana
The part of the industry that handles the growing of cannabis is usually heavily regulated, and such operations require massive initial investment and practical, horticultural knowledge.
While the traditional method of use is smoking, many cannabis users, especially medical patients, prefer to use other means, such as edible products, tinctures, salves, tea, and other infused products.
Marijuana dispensaries and collectives
These are normally known as dispensaries or collectives, and are generally stores that sell marijuana-based products to eligible, authorized customers for medical marijuana use. While they can be extremely lucrative as a business, they are the most difficult and expensive areas of the industry to start up.
With its complex regulatory environment and many uncertainties, starting a legal marijuana business is a lot more complicated than most other business types. Laws vary from state to state, and are complex and demanding. Before going into business in the cannabis industry, here are a few things to consider in order to make an informed decision on whether it is the right industry for you.
The marijuana business involves diverse costs
This can vary depending on the location, the state regulations, and the type of business. Rent, utilities, licensing, equipment, supplies, security, marketing, and employees are all costs that need to be included in your initial calculations.
Residency is a must for your weed business
In almost all states, you are required to be a state resident before opening a marijuana business. And some, like Colorado, require a minimum residency period of at least two years.
Your criminal records should be clean to deal in the marijuana business
Felons with drug-related or violent convictions are prohibited from obtaining licenses for marijuana-based businesses.
The marijuana industry is considered to be a risky business
This is mainly due to its fledgling status as an industry. And while the legislation and regulatory environment is always changing, the rewards are very good.
The processing of your license takes time
While there is always an element of time involved in setting up a new business, in this industry you need to be prepared to wait for up to ten months for the processing of your license. And in some states, that time can be as long as 18 months.
Banks won’t fund cannabis businesses
With any startup, you need investment capital, and some investors are still wary of investing in the marijuana business, since it is still illegal under federal law. Most funding in the marijuana industry comes from private investors, as banks are not prepared to finance marijuana-based businesses.
A step-by-step guide to setting up your marijuana business
No matter what the industry, you will need the right combination of market differentiation, investment, and good management. In the cannabis industry it is no different, except for the constantly changing regulations and the federal prohibition. These can complicate matters immensely, so there are certain steps to ensure you take when setting up.
The weed trade needs a business plan too
Your business plan is your outline for your new company’s goals, including startup costs, timelines, milestones, financial details, and relevant key information. This will enable you to remain organized and focused on the task, and your business plan can be used as a form of “resume” when seeking out financial investment.
Find the ideal location for your weed business
State licensing requirements are not the only thing that will affect where you set up your business. Local and county zoning laws and other regulations will also have a drastic effect on where you can site your business premises. Besides, there are some restrictions now in place at county and city level for the prohibition of cannabis-based businesses in certain locations.
The whole structure of your weed business needs to meet strict requirements
Your business’ whole organization chart needs to be in line with state regulations, as well as local and county regulations. The business needs to conform to the applicable regulatory and legal constraints that are in place in the state, and all company partners and investors need to be fully identified in the business plan and license requests prior to applying for any license. Additional investors added after the license was requested will require a new request to be applied.
Staff compliance is a must in the cannabis business
Once you have finally got all the necessary licenses, you will need to define and implement the regulatory requirements into the business, ensuring staff compliance in accordance with the terms on the license type for your business. Failing to educate the staff on the compliance requirements can harm the business, even to the point of closure.
Contracts are necessary with the different service providers in the weed business
The type of business you run within the cannabis industry will determine the contractual relationships between your business and other, relevant businesses. Dispensary owners will need contractual partnerships with both cultivators and product wholesalers, and may even have a need for a relationship with delivery services and consumption device suppliers and retailers.
Advertise your marijuana business
There are a limited number of advertising opportunities for retailers in the marijuana industry, which include newspapers, online forums and websites, online directories, and banner ads or affiliate linking. For wholesalers and cultivators, trade magazines, online trade sites, and even local marijuana trade shows are the best options for advertising.
Whichever type of business you choose, it will require the same basic steps as listed above. However, each business type also has its own set of contractual requirements that will need to be met. Ensuring they are done correctly will help to ensure the success of your new business.
Opening a marijuana retail store
For a retail store in any state that allows the retail sale of cannabis, whether for medical or recreational use, you will need a variety of contracts with a large number of other types of cannabis businesses. Contracts will be required with in-state cultivators, infused products manufacturers, edible products manufacturers, delivery services, consumption device manufacturers and/or wholesalers, and software and internet development businesses.
Opening a marijuana cultivation business
The main difference here is that you will need expert assistance in the growth and cultivation of the plant, as there are certain environments that are required in order to maximize its growth potential. Experts in the cultivation of marijuana are often expensive, although hiring a cultivator directly could be the best choice over hiring expert advice on cultivation. Contracts are also needed for supply to infused product manufacturers, as well as with dispensaries (for those states that allow recreational use) and delivery services for the transit of the product to the contracted partnerships.
Opening a marijuana-infused products or edibles business
As with cultivation businesses, infused products businesses require some amount of expertise in the field of infused marijuana products, including processing, refining, and extraction. The same goes for edibles businesses, as the production of edible cannabis is another refining process that requires expert procedures. This can be an added cost in the business plan and investment potential of the business, as the setup or the equipment required to process and refine cannabis plants for infusion products or edibles is expensive and requires expert setup. Contract relationships also need to be formed with cultivators for the supply of the plants and also with retailers and delivery services for selling and delivering the finished products.
State laws vary according to the purpose of the marijuana
What you can sell, and where you can sell it, is clearly defined by the laws of the state in which you reside, and intend to handle your marijuana business. States like California, Maine, and Massachusetts, which allow recreational use, have different laws to those states that only allow medical use. For entrepreneurs entering the cannabis industry, this means that they are required to be knowledgeable on the state laws for their location, as well as local county and city regulations regarding cannabis cultivation, processing, and sales. Moreover, the national prohibition of interstate cannabis commerce, as well as the federal banking laws and federal drug laws, mean large companies and corporations are staying away from the industry. This opens up the door for smaller businessmen to establish themselves as dispensaries, cultivators, retail stores, processing laboratories, etc.
In order for any business to prosper, they must know these laws, and should confer with an attorney who is well versed in the state laws regarding cannabis. Cannabis business requirements by state are as follows:
Alaska was one of the earliest states to pass laws on medical marijuana use
That occurred back in 1998. Prosecution against medical users with written documentation was removed , and the online application for a marijuana business license became available on February 24, 2016. On January 22, 2016, the State adopted final regulations, and enforcement began on February 21, 2016.
Arizona lets registered patients access marijuana
Proposition 203 was passed in 2010. It allows registered patients to obtain marijuana from a registered dispensary and possess and use medical marijuana to treat certain conditions. Patients must have a written certificate to prove they have been diagnosed with a debilitating condition that would benefit from marijuana treatment.
Arkansas lets gravely ill patients take marijuana
Issue 6, which was enacted on November 8, 2016, allows seriously ill patients to use medical marijuana with a doctors’ approval. The amendment will allow up to 40 dispensaries, all of which will be regulated by the Alcoholic Beverage Control Division. The state prohibits cultivation. Applications for licensing for the dispensaries began on June 1, 2017.
California was the first to legalize cannabis for medical use
On November 5, 1996, California became the first state to legalize medical marijuana usewhen it passed Proposition 215. The Medical Marijuana Regulation and Safety Act (MMRSA) was signed into law on October 9, 2015. It established a framework for medical marijuana regulations and a statewide licensing program.
Colorado needs written medical approval for weed use
On November 7, 2000, Colorado approved Amendment 20, which amended the State Constitution to allow marijuana use in the state for patients with written medical approval.
Connecticut doesn’t accept new marijuana applications
In June 2012, a medical marijuana program was signed into law in the Senate. Connecticut currently has nine approved marijuana dispensaries. No new applications are being accepted.
Delaware has blocked applications for new marijuana businesses
In May 2011 legislation allowing patients aged 18 and older with “certain serious or debilitating conditions” to use cannabis, and possess up to six ounces was signed into law. The state has one dispensary in Wilmington, but will not accept applications for new businesses.
Florida allows marijuana in treatment centers only
Florida passed legislation allowing residents to apply to open Treatment Centers on November 8, 2016. These centers can buy, cultivate, process and distribute marijuana and related products.
Hawaii lets registered patients grow up to seven cannabis plants
In 2000, Hawaii passed SB 862 HD1. The legislature amended the law with two bills that took effect in January 2015. HB 668 moved the program from the Department of Public Safety to the Department of Health. Registered medical patients may possess up to 3 ounces of cannabis and grow up to seven plants. There is no provision for commercial sale.
Illinois has currently closed licensing for further businesses
In 2013, The Compassionate Use of Medical Cannabis Pilot Program Act (HB 1) created a temporary statewide program for distributing cannabis to qualifying patients. HB 1 allows patients to buy up to 2.5 ounces of cannabis within a two-week period, from one of the 60 dispensaries, which will be supplied by 22 approved cultivation centers. Licensing for further businesses in the state is currently closed.
Iowa allows marijuana only for the severest form of epilepsy
In 2014, Iowa passed SF 2360, the “Medical Cannabidiol Act”. It allows licensed neurologists to certify patients with “intractable epilepsy” only to use cannabidiol (CBD) products with a 3 percent THC content. The law does not allow other physicians to write recommendations, nor does it allow patients with any other conditions to obtain legal protection. Marijuana businesses are not being licensed to operate, and no plans are currently in place to allow licenses for commercial dispensaries.
Louisiana lets pharmacies distribute medical cannabis
Approved legislation (SB 271) allows 10 pharmacies to distribute medical cannabis. Only one cultivation center exists, and there are no viable options for potential business owners, due to the severe limitations imposed.
Maine allows prescription and limited possession of marijuana
On November 2, 1999, Maine legalized marijuana for medical use.
Maryland still delivers licensing to weed cultivators
Maryland closed business applications for medical marijuana licenses on November 6, 2015, but continues to push forward in the licensing of cultivators and dispensaries. Two bills, signed by Governor Martin O’Malley, changed the medical marijuana program being implemented by the Medical Marijuana Commission. The new regulations have provisions now for opening a medical marijuana dispensary, starting a marijuana cultivation business to grow medical marijuana legally, and starting a marijuana processing facility.
Massachusetts allows limited cannabis home cultivation
In 2012, Massachusetts legalized medical marijuana.
Michigan will block cannabis business applications after September
Under upcoming new regulations, Michigan will be open for medical marijuana businesses soon. These regulations will contain stipulations for dispensaries, cultivators, processors, testing facilities and transporters. Prospective businesses can begin applying now, and applications will end on September 15, 2017.
Minnesota allows patients to buy cannabis with a doctor’s prescription
On May 29, 2014, a medical marijuana proposal was crafted by a House and Senate conference committee, making Minnesota the 22nd state to exempt sick patients from penalties for using marijuana with a doctor’s certificate. No provisions have been included to license commercial dispensaries.
Missouri grants use of marijuana only for seizure patients
Missouri passed a bill in 2014 that creates a legal right for certain patients to obtain, possess and use “hemp extracts” under a limited set of circumstances. Only patients with a seizure disorder, as well as a recommendation from a neurologist, are eligible to get a registration card, which entitles them to legal protection. Qualified patients can purchase extracts from only 2 state-regulated “Cannabidiol oil care centers”, and the new law also allows the Department of Agriculture to license and regulate cannabis growers to produce the oil.
Montana is relaxing its cannabis regulations
Under the new regulations, Montana is currently open for medical marijuana businesses. The regulations have provisions for medical marijuana dispensaries, manufacturers, cultivators and testing facilities.
Nevada caters only for residents with a chronic or debilitating condition
Nevada legalized medical marijuana on November 7, 2000.
New Jersey has blocked new medical marijuana businesses
New Jersey signed medical marijuana use into law in 2010. However, implementation has been very slow. Currently, it serves less than 5,000 patients. The state is not licensing new medical marijuana businesses.
New Mexico has blocked further marijuana permits
Currently, the state is not issuing marijuana business licenses.
New York allows sale and cultivation of medical marijuana
On July 5, 2014, Gov. Andrew Cuomo signed a limited medical marijuana bill into law. This bill gives the state 18 months to enact regulations to allow the cultivation and sale of medical marijuana. Registered organizations are companies that the state will license to produce and dispense medical marijuana.
North Dakota imposes high fees for new marijuana businesses
On November 8, 2016, the state legalized medical marijuana. The regulations have provisions for nonprofit dispensaries, which will cultivate a limited amount of medical cannabis for dispensing to enrolled patients. New applicants will pay a $5,000 non-refundable application deposit and if approved, a $25,000 licensing fee.
Ohio will shortly allow new marijuana applications
Under new regulations, Ohio is ready to open applications for medical marijuana businesses. The regulations have provisions for dispensaries, cultivation facilities, processors and testing facilities. At present, the state has not indicated when it will open the application period.
Oregon caters for patients with certain medical conditions
Oregon established the Medical Marijuana Act in November 1998. It modified state law to allow the cultivation, possession and use of marijuana for patients with certain medical conditions. In 2013, a law was passed allowing registered medical marijuana dispensaries.
Pennsylvania marijuana applicants need at least $2 million in capital
Pennsylvania enacted regulations that include provisions for dispensaries, cultivators and product manufacturers. The state opened applications on January 17, 2017. All permit applications were accepted until March 20, 2017. There will be a capital requirement for each type of business. An application for a grower/processor permit must include an affidavit that the applicant has at least $2 million in capital, one quarter of which must be deposited with certain approved financial institutions. An applicant for a dispensary permit must provide an affidavit that the applicant has at least $150,000 on deposit with certain approved financial institutions.
Rhode Island last accepted marijuana applications in April last
Under emergency regulations, Rhode Island accepted applications for medical marijuana cultivation businesses until April 30, 2017. Under the Act, the Department of Business Regulations will be responsible for licensing new entrepreneurs. There is a $5,000 non-refundable fee during application. License fees normally range from $20,000 to $80,000 depending on the license class issued.
Vermont has currently halted marijuana licenses
When the state reopens it’s program, it will have provisions dispensaries, which may acquire, possess, cultivate, transport, sell and dispense marijuana to enrolled patients. Currently, the state is not issuing marijuana business licenses.
Virginia caters only for patients with extremely severe epilepsy
On February 26, 2015, marijuana legislation was signed into law. This measure provides an affirmative defense to patients who have intractable epilepsy for the possession of marijuana extracts that contain at least 15 percent of either cannabidiol (CBD) or THC‑A and no more than 5 percent THC. The law includes no provision for a marijuana business.
Washington imposes certification of medical marijuana stores
The Cannabis Patient Protection Act integrated the medical cannabis market with the recreational cannabis’ one. The Department of Health adopted rules for the medical marijuana authorization database, including training and certification of medical marijuana stores, consultants and product compliance.
Washington D.C. has halted the issue of new licenses
Washington D.C. licensed a limited number of retail stores and cultivation companies in 2013 and 2014. There is no system in place to permit the issuance of any new licenses.
Wisconsin allows medical marijuana in a very limited form
Wisconsin has a very limited medical cannabis bill. It exempts a certain class of individuals from criminal penalties for the use and possession of a cannabidiol “in a form without a psychoactive effect”. There is no allowance for businesses in the cannabis industry.
Alaska’s adults may grow six plants of weed for recreational use
In 2014, Alaska passed a law that institutes a system to tax and regulate marijuana through the Alcoholic Beverage Control Board. Adults aged 21 and older may possess up to 1 ounce of marijuana and grow up to six plants for personal use. The measure includes provisions for business licenses.
California will allow marijuana-selling establishments in early 2018
The Adult Use of Marijuana Act was passed on November 8, 2016. This legalized the sale and distribution of cannabis for recreational use. Licenses will be issued for cultivation and business establishments sometime in the early part of 2018. The regulations have provisions for retail marijuana stores, product manufacturers, cultivators, testing facilities and distributors.
Colorado lets residents grow six marijuana plants for personal use
Colorado legalized the sale and possession of marijuana for recreational use on November 6, 2012. It included private cultivation of up to six marijuana plants. The state also allows medical or retail marijuana dispensaries. Business owners must be residents for at least two years prior to applying for a license.
Maine will shortly allow marijuana social clubs
Under the new regulations, Maine will soon be opening its doors to recreational marijuana businesses. The regulations have provisions for marijuana stores, social clubs and cultivation, product manufacturing and testing facilities. No application process has yet been established.
Massachusetts will open its applications for recreational marijuana business in October
Under the new regulations, Massachusetts became the first state on the east coast to open recreational marijuana businesses. The rules have provisions for marijuana stores, product manufacturers, cultivators and testing facilities. There is no application process as yet, but applications can begin on October 1, 2017.
Nevada will give recreational licenses only to medical marijuana businesses in January 2018
Under the new regulations, Nevada will be open for recreational marijuana businesses. The measure became effective on January 1, 2017, and had provisions for retail stores, product manufacturers, cultivators, testing facilities and distributors. No date is set for licensing applications to open but it is required to establish the rules and licensing procedures by January 1, 2018. Only businesses that already have medical marijuana certificates will be allowed to apply for recreational licenses for the first 18 months.
Oregon lets adults above 21 cultivate and possess marijuana
On July 1, 2015, Oregon legalized the possession and cultivation of marijuana by adults 21 and older for recreational use. The Oregon Liquor Control Commission regulates dispensaries, retail stores, cultivators and manufacturing businesses for legal operation within the state. There is a $250 non-refundable fee at the time of application. The license fee is $4,750.
Washington allows a maximum of 72 ounces of liquid marijuana-infused product in your possession
Recreational marijuana use was legalized by the Washington Initiative in 2012. The law requires state licenses from all sellers, distributors, cultivators and producers of marijuana.
States having no medical or recreational marijuana laws
The states that currently prohibit any use of marijuana-related products include:
- New Hampshire
- North Carolina
- South Carolina
- South Dakota
- West Virginia