Setting Up a Recreational Marijuana Business: State Laws To Know

By Amber Sheppard, Esq. | Legally reviewed by Amber Sheppard, Esq. | Last reviewed April 30, 2024

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Marijuana (or cannabis) is big business in states that have legalized the herb's recreational use. However, cannabis is a Schedule I controlled substance under federal law.

The federal government has mostly not intervened in states that allow legal cannabis businesses. States that legalize recreational marijuana sales create their own regulations for businesses. Yet there are federal criminal concerns to consider when opening your recreational use marijuana business.

Marijuana's ambiguous legal status creates unique legal challenges for cannabis businesses. If you are looking to open a recreational cannabis business of any kind, review the state laws where you want to open.

This article takes a look at some of the state laws and regulations affecting legal cannabis businesses serving the recreational cannabis industry.

Common Marijuana Business Regulations

Before starting a cannabis business, determine if you want to sell medical marijuana. States have medical marijuana statutes that may require specific dispensary licenses outside of recreational use licenses.

No matter what type of marijuana business you open, there are common threads in most states you should pay attention to.

  1. Local zoning laws and regulations decide your cannabis-related business's location.
  2. Before registering with the state, know who can be a business member. Some states require all members of a business to be residents. Others only require one member to be a resident.
  3. Marijuana advertising laws in your state.

Selected State Business License Regulations

As an industry, the cannabis business is highly regulated. The following states have been at the forefront of recreational use state laws.

Alaska

Alaska residents legalized recreational marijuana by a ballot initiative in 2014. The initiative removed penalties for adults who use or possess marijuana. It allows home cultivation. Its regulatory framework for businesses began in 2016.

The table below provides highlights of Alaska's recreational marijuana regulations:

Types of Business Licenses
  • Retail stores
  • Cultivation facilities
  • Testing facilities
  • Manufacturing facilities
Licensing Authority Alaska Alcohol & Marijuana Board
License Restrictions
  • Must be at least 21 years old and undergo a background check
  • Anyone with a direct or indirect financial interest must be a resident of Alaska
  • Cannabis testing facilities must adhere to laboratory compliance regulations
Application/License Fees
  • Application fee: $1,000
  • Renewal applications: $600
  • Cultivation facility licensing: $1,000 - $5,000
  • Testing facility license fee: $1,000
  • Retail marijuana store license fee: $5,000 (renewal fee $7,000)
Taxation Cultivation facilities must file a monthly tax return and pay an excise tax.

California

In 2016, California voters passed the Adult Use of Marijuana Act, which made it legal for adults 21 and over to purchase, possess, and consume marijuana at home or in licensed establishments.

California requires a local city and county license for marijuana businesses. A state license will not be issued if it violates local laws or regulations.

The table below provides highlights of California's recreational marijuana regulations:

Types of Business Licenses
  • Business Licenses
  • Retail stores
  • Cultivation facilities
  • Testing facilities
  • Manufacturing facilities
Licensing Authority Department of Cannabis Control (previously three separate agencies)
License Restrictions
  • No residency requirements for state licenses, but counties or cities may impose residency requirements for local licenses
  • Licenses can be denied to those convicted of serious or violent felonies or felonies involving fraud, deceit, embezzlement, providing controlled substances to minors, and drug trafficking with certain enhancements
Application/License Fees Application and license fees vary by business type, including:
  • Cultivation
  • Manufacturing
  • Distribution
  • Testing
  • Retail
  • Microbusiness
Taxation
  • Cannabis retailers and microbusinesses must register for and collect a 15% excise tax from customers.
  • There is no cultivation tax imposed on marijuana cultivators.
  • Distributors are no longer responsible for obtaining a cannabis tax permit or paying the cannabis excise tax.
  • Purchases made for resale with a valid resale certificate are not subject to sales tax.
  • California Department of Tax provides a Medical Cannabis Tax Guide for small business owners.

Colorado

Colorado legalized recreational marijuana in 2012 through a ballot initiative. On January 1, 2014, Colorado became the first state to enact regulations for retail marijuana shops and related businesses.

The table below provides highlights of Colorado's recreational marijuana regulations:

Types of Business Licenses
  • Retail stores
  • Cultivation facilities
  • Testing facilities
  • Manufacturers of edibles and other finished goods.
  • See individual licensing applications for more details.
Licensing Authority Marijuana Enforcement Division
License Restrictions
  • Must be 21 and a state resident or a United States citizen for at least one year before application
  • Not available to law enforcement officers
  • Not available to anyone with a deferred judgment or felony within the last three years unless exempt under a Social Equity License
Application/License Fees
  • Application fees range from $250 to $2,500
  • License fees range from $2,200 to $8,000 depending on the type and scale of business and other factors (see the MED Fee Table for details)
Taxation

District of Columbia

Washington, D.C., decriminalized the possession, transfer, and cultivation of up to two ounces of marijuana by adults 21 and older on February 26, 2015.

It's important to point out, though, that much of the District of Columbia is federal land, which means these federally controlled areas are subject to federal drug laws. Retail sales are still illegal.

The table below provides highlights of D.C.'s recreational marijuana regulations:

Types of Business Licenses
Licensing Authority Alcoholic Beverage Cannabis Administration
License Restrictions
  • Must be 21 and a state resident
  • A cultivator cannot have a license for an internet retailer, courier, or testing laboratory
Application/License Fees
Taxation No excise tax for medical marijuana patients

Massachusetts

Voters in Massachusetts approved Question 4, legalizing the recreational use of marijuana in 2016. Adults 21 years of age or older can possess up to 1 ounce of marijuana outside of their residence and up to 10 ounces within their residences. It also allows adults to grow up to 6 marijuana plants in their residences and to give up to 1 ounce of marijuana to another adult without payment.

Marijuana establishments in Massachusetts include:

  • Craft marijuana cooperatives
  • Cultivators (indoor or outdoor)
  • Independent testing laboratories
  • Marijuana courier
  • Marijuana delivery operators
  • Marijuana research facilities
  • Microbusinesses
  • Product manufacturers
  • Retailers
  • Social consumption establishments
  • Standards laboratories
  • Transporters
  • Any other type of adult-use marijuana business.

The table below provides highlights of Massachusetts' recreational marijuana regulations:

Types of Business Licenses
  • Marijuana establishment
  • Medical marijuana treatment centers
Licensing Authority Cannabis Control Commission
License Restrictions
  • Set by regulation of the Cannabis Control Commission
  • Prior convictions solely involving marijuana-related offenses are not disqualifying unless the offense involved the distribution of a controlled substance to a minor
Application/License Fees
Taxation
  • 6.25% state tax on the total sales price received by a marijuana retailer
  • Local governments are also authorized to impose a sales tax of up to 3% of the total sales price received by a marijuana retailer

Nevada

Nevada residents approved a ballot initiative legalizing the recreational use of marijuana in 2016. Adults (21 years of age or older) may purchase, cultivate, possess, or consume up to 2.5 ounces of marijuana or up to one-quarter of an ounce of concentrated marijuana.

The Cannabis Compliance Board (CCB) regulates marijuana-related businesses and licensing.

Marijuana can only be consumed in public in "consumption lounges."

The table below provides highlights of Nevada's recreational marijuana regulations:

Types of Business Licenses
License Restrictions
  • Licenses are not approved if an applicant's medical marijuana license is revoked
  • Transfers of licenses to new owners require approval
  • The CCB provides a helpful checklist and guidance for potential licensees
Application/License Fees Applications open periodically
Taxation
  • 15% excise tax on the first wholesale sale when sold by an adult‐use cannabis retail store
  • 10% retail excise tax when sold by an adult‐use cannabis retail store

Oregon

Recreational marijuana became legal in Oregon on July 1, 2015. Legal marijuana retail shops opened that same year. Adults can grow up to 4 plants on their property. Residents can also possess up to 8 ounces of marijuana in their homes and up to one ounce on their person.

The table below provides highlights of Oregon's recreational marijuana regulations:

Types of Business Licenses
  • Dispensaries
  • Processors
  • Laboratories
  • Producers
  • Processors
  • Retail
  • Hemp certificate
Licensing Authority Oregon Liquor & Cannabis Commission
License Restrictions Must be at least 21 years old
Application/License Fees
  • Non-refundable application fee of $250 plus $4,750 for processors, retailers, and laboratories and $500 for a hemp certificate
  • Micro wholesaler's license fee: $1,000 - $4,750
  • License fee for producers: $100 - $5,750, depending on the tier
Taxation
  • 17% base tax rate
  • Cities and counties can add up to an additional 3% tax
  • Retailers can retain 2% of the tax to cover expenses

Washington

Voters in Washington approved a ballot initiative legalizing the recreational use of marijuana in 2012. Recreational sales to adults 21 and older (at existing medical marijuana dispensaries) began on July 8, 2014.

Washington grants a limited number of licenses for legal marijuana businesses.

The table below provides highlights of Washington's recreational marijuana regulations:

Types of Business Licenses
Licensing Authority Washington State Liquor and Cannabis Board
License Restrictions
  • Must be at least 21 years old
  • Resident of Washington State for at least six months
  • Premises may not be within 1000 feet of a school or other restricted entity
Application/License Fees $250 application fee and $1381 annual renewal fee for cannabis processors
Taxation 37% excise tax applies to all retail sales at the point of purchase

How To Open a Marijuana Dispensary By State

If you are considering opening a marijuana dispensary in your state, check the FindLaw articles on your state. Each state's article lists the regulations, licenses, and legal concerns you must consider.

Because state laws on marijuana are changing fast, this list may be incomplete. It's best to talk with a cannabis law lawyer before opening your cannabis business in your state.

Get Legal Help With Your Marijuana Business

As you can see, laws relating to recreational marijuana change often. This often results in a tricky regulatory environment for marijuana-related businesses.

There is always a risk of violating federal laws. You can stay ahead of the curve and receive assistance navigating new laws. This is where an experienced cannabis law attorney can help you.

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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. Once you decide on an LLC, S-corp, or C-corp business, you can register your business entity online using DIY business formation forms.

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