How to Open a Marijuana Dispensary in California

In 2016, California legalized cannabis for recreational sale and use. This legalization of recreational marijuana generated incredible excitement. The state of California has been and will continue to be the largest marijuana market in the world. As a result, entrepreneurs are lining up to join California's cannabis industry.

California's state license application process can be overwhelming. In addition, the state's cannabis regulations are vast. As a result, it is important to understand the state's cannabis laws and dispensary license requirements. This article is a great place to start.

How do I take advantage of California's cannabis market and open a marijuana dispensary?

State and local levels approve cannabis dispensary licenses. Businesses must also comply with the California Environmental Quality Act and local zoning laws.

You'll also want to register your cannabis business with the California Secretary of State's office.

Guide to Understanding California's Commercial Marijuana Laws

California's licensing process is complex. Below is a summary of the process.

What are the relevant statutes?

State Regulations

• Uniform Controlled Substances Act-Cannabis (Health & Safety Code sections 11357-11362.9)
• Business and Professions Code sections 26000-26325
• California Code of Regulations Title 16 Division 42 Bureau of Cannabis

Federal Regulations

• Controlled Substances Act (21 U.S.C. sections 801-971)
• Internal Revenue Code (26 U.S.C. 280E). This statute prevents cannabis tax deductions for cannabis businesses

What are the restrictions on selling and purchasing marijuana?

In California, it is lawful to possess, process, transport, buy, and give away cannabis goods, but only if the person is 21 years of age or older (or 18 years old with a medical marijuana card) and:

• The amount of unconcentrated cannabis is not more than 28.5 grams
• The amount of concentrated cannabis is not more than 8 grams
• The person owns no more than six living cannabis plants

How do I get a license to sell marijuana?

Cannabis retailers, distributors, and microbusinesses need a cannabis license from the state to legally sell and distribute cannabis products in California. This is separate from a cultivation license. The Department of Cannabis Control issues cannabis licenses. In addition, cannabis business owners need approval from the local jurisdiction or the city where the retail operation is before receiving a license.

There are two types of retail licenses:

• Adult-Use Retail (A-License)
• Medicinal Retail (M-License)

California allows for two types of retail:

• Non-storefront retailer (just deliverables)
• Cannabis retail sales from a storefront

You must provide this information on your license application:

• Business plan and organization structure
• Business's standard operating procedures (SOP)
• Valid Social Security Number or Federal Employer Identification Number
• Cannabis business owner's primary contact information
• Seller's permit from the California Department of Tax and Fee Administration (CDTFA)
• A declaration that the location is not within 600 feet of a school or youth center, though local ordinances can alter this distance
• Evidence of compliance with the California Environmental Quality Act (CEQA)

What information must cannabis business owners provide?

Each owner must provide an individual profile in the Manufactured Cannabis Licensing System. The required disclosure of information includes:

• Identifying information: SSN, DOB, address, email, phone number
• Criminal convictions
• Fingerprint through Live Scan
• Ownership of financial interest in any other cannabis business

What are the restrictions to opening a marijuana dispensary?

Opening a marijuana dispensary is not quite like opening any other business. While marijuana may be legal in California, it is still illegal under federal law. This can present certain legal issues.

Banking Restrictions

The banking industry, which is federally regulated, is reluctant to offer checking accounts to marijuana businesses. As a result, your cannabis business may need to be an all-cash industry. Large amounts of cash to operate a business will present certain security concerns.

Tax Considerations

Even though a cannabis business is not considered legal by the federal government, you must still pay income taxes. A regular company would be able to deduct certain operating expenses, but a cannabis business cannot. Federal income tax will be on the gross income amount, making taxes higher for your cannabis business.

Restrictions on Sourcing and Distributing

Federal law prohibits the transport of marijuana across state lines. Most businesses can sell their products and ship them to persons in other states. Marijuana businesses can only sell within California. In addition, a marijuana business has to source its raw materials and products from within the state.

What are the required license fees?

Estimated gross annual revenue determines the application fee and license fee amounts. You must also renew your license annually. The DCC provides a list of license and application fees depending on the size and type of business.

What are the grounds for a license denial?

Business and Professions Code sec. 26057 denies a cannabis license for several reasons:

• Errors or incomplete application
• Premises do not comply with regulations
• Failure to pay owed income taxes
• Violent felony conviction
• A felony conviction involving fraud, deceit, embezzlement, or the sale of a controlled substance to a minor

While a felony conviction can be grounds for denial, receiving a license under certain conditions is possible. Some exceptions exist under the Cannabis Equity Program.

Cautions for Opening a California Dispensary

While dollar signs may dance in the minds of would-be marijuana dispensary owners, there are cautions to consider. Before you open your marijuana dispensary, you may need to consider some of the impediments and competition that you will face.

Established Black Market

The biggest threat to opening a marijuana dispensary is the competition from the black market. Marijuana has long been grown in California. There has been a thriving black market for cannabis since the 1960s. New legal retail shops face stiff competition from established illegal marijuana suppliers.

Local Governments Refuse to License Retail Sales

California allows local communities to decide if they want a retail marijuana operation within their cities. Few cities in California allow licensed dispensaries. The state is trying to correct these problems with new regulations and prohibitions about transporting marijuana through local jurisdictions. However, there continue to be problems with obtaining local permission.

Related Resources

• Federal Marijuana Laws
• Marijuana Business: Licenses, Permits, and Planning
• How to Get Financing for a Marijuana Business

Need legal help with your marijuana dispensary?

A marijuana dispensary can be very lucrative, but the sheer number of regulations and requirements you may face is intimidating. Get help with the details from a local California cannabis business lawyer. An attorney can explain the regulatory steps and offer legal assistance along the way.

Note: State laws are always subject to change through the passage of new legislation, rulings in the higher courts (including federal decisions), ballot initiatives, and other means. While we strive to provide the most current information available, please consult an attorney or conduct your own legal research to verify the state law(s) you are researching.