Starting a Cannabis Business

Federal laws have not yet legalized the sale or distribution of cannabis.

Fortunately for startups and small-business owners, many states have passed laws allowing recreational marijuana or medical cannabis. As the field grows and develops, businesses and entrepreneurs have many opportunities to get their business licenses in a relatively new industry. However, business opportunities in the cannabis industry also come with a unique set of challenges.

Restrictive federal laws and ever-changing state laws make the marijuana industry a dynamic environment for cannabis business owners. Before you open a cannabis business, make sure it is legal in your state, and follow your state laws.

Marijuana Businesses You Can Open

The type of cannabis business you can open depends on the marijuana laws in the state where you want to operate. Here are some types of cannabis businesses you can start:

  • Making cannabis-based products such as edibles or personal care items
  • A cannabis retail shop, such as a medical marijuana dispensary or adult-use cannabis dispensary
  • A cannabis processing company
  • Cannabis cultivation (requires a cultivation license)
  • Cannabis distribution
  • Cannabis growing, also known as cannabis farming

No matter what type you choose, you will need a cannabis license and must adhere to cannabis regulations in your state.

Best Legal Structure for a Cannabis Business

The type of business entity legal structure you choose for your cannabis startup is important. Most states require you to be at least a limited liability company or a corporation to operate. Many will not allow a sole proprietor to sell medical marijuana or recreational use marijuana. No matter which entity you choose, you must file articles of incorporation with your state's secretary of state.

The two cheapest states to start a cannabis business in are Oregon and Colorado.

Taxes in the Cannabis Industry

Regardless of what entity type you choose to operate as, you must get an employer identification number (EIN) from the Internal Revenue Service (IRS). Your state's laws will dictate if you need to pay excise tax. If you are selling cannabis as a product, you will be responsible for sales tax. Even though marijuana and cannabis are illegal under federal law, marijuana businesses must still pay federal taxes on their business operations.

Cannabis License Requirements

Before you start your business, you must get a cannabis license to legally operate in your state. The license application and licensing process varies from state to state.

The license fees and licensing requirements are based on what type of cannabis business you choose. Becoming a distributor, for example, may be a totally different ballgame than growing the crop. The cost will also depend on what type of license you seek and your state.

No matter the state in which you operate, you must get a license to sell legal cannabis there, or you can face state criminal charges.

Startup Costs in the Cannabis Industry

Initial costs are important to consider when starting your cannabis company. These include:

  • The application fees to get a business license and cannabis license
  • Rental costs if you have a brick-and-mortar store
  • Real estate costs if you wish to buy property
  • Permits to operate in your municipality
  • Attorney's fees to perform trademark searches for business names, logos, and other intellectual property
  • Attorney's fees to handle the application process

Funding for a Marijuana Business

Since cannabis is illegal nationally, typical lenders who loan funds to startups may not fund your cannabis business plan. You should consider private investors or marijuana-specific financial institutions.

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