Setting Up a Marijuana Business: The Basics

Marijuana remains illegal under federal law. Yet, a growing number of states allow for the medical use of marijuana. A minority of states have also legalized its recreational use. Each jurisdiction with a form of legal marijuana has its own unique regulations. The federal government has taken a general "hands-off" approach to state marijuana laws.

This article looks at the most helpful way to structure your legal cannabis business. FindLaw's Starting a Cannabis Business page provides a general overview of a cannabis business startup.

The legal marijuana industry has grown since California legalized medicinal use in 1996. In fact, the U.S. legal cannabis industry was expected to generate $32 billion in 2022. The legal marijuana industry offers many opportunities for entrepreneurs. But cannabis entrepreneurs must be willing to wade through complex laws and regulations.

Cannabis laws and regulations for medical marijuana vary by stateLegalization and decriminalization also depend on your state.

Types of Marijuana Businesses

The main types of marijuana businesses fall into three general categories:

  1. Cultivators and growers
  2. Infused product manufacturing
  3. Cannabis dispensary and retail sales

Other marijuana businesses include:

  • Testing facilities and laboratories
  • Delivery services
  • Devices for cannabis consumption
  • Software or online services

Most marijuana businesses need a business-specific cannabis license.

  1. Cultivation: Businesses that grow marijuana have a lot of regulations. These operations need large initial investments and horticultural know-how. To grow and cultivate legal marijuana, your business needs a cultivation license.
  2. Cannabis-Infused Products: Some people prefer edibles, CBD, tinctures, salves, and other infused products.
  3. Retail Sales: These are often called "dispensaries" or "collectives." This includes stores that sell cannabis-based products to authorized customers. Dispensaries are the most difficult and expensive to start.

General Factors for Marijuana Businesses to Consider

Opening a legal cannabis dispensary takes consideration. This is because of the regulatory environment and its uncertainties. State laws tend to vary for cannabis companies. There are many types of cannabis businesses. No matter what, it is important to have a cannabis business plan. The following things will help you decide whether the cannabis industry is right for you:

  • Cost: Costs vary by location, state laws, and type of business. You should first consider the startup costs of application fees and licensing.
  • Residency: Most marijuana business licensees must be state residents. Colorado, for example, requires a two-year residency before getting a license.
  • Criminal Record: Applying for a marijuana business license depends on your state. Most do not allow people with drug-related convictions to apply.
  • Risk: The industry is risky. It is always illegal at the federal level and has a changing regulatory environment. But the rewards are very high.
  • Timing: Make sure you are willing to wait several months for the application process to get a license. This can take three to 10 months in California but as long as 18 months in Washington.
  • Investors and Partners: Cannabis business owners need capital to get up and running. Some investors and lenders will not invest in a startup that is illegal under federal law. Most funding for marijuana ventures comes from private investors, not banks.

Because the cannabis industry is growing at a fast rate, it is important to keep up with the latest trends.

Setting Up a Marijuana Business: Step-by-Step

Startups need the right combination of market differentiation, investment, and shrewd management. Setting up a cannabis-based business is not much different. But it can be harder because of shifting regulations and federal marijuana prohibition. Reference the following basic steps when starting your marijuana business:

  1. Write a Business Plan: A business plan outlines your goals, timelines, and finances. It will help you stay organized and on task while also serving as a "resume" of sorts when seeking more investors.
  2. Find a Location: Local zoning laws and regulations decide your cannabis-related business's location.
  3. Form Your Business's Legal Structure: Form your business within the legal restrictions. Make sure to identify your company's partners before applying for a license.
  4. Get License(s): State license approval takes several months. Any application or formation mistakes delay approval.
  5. Get Your Business Up and Running: Now you need to put in place regulatory measures. This ensures compliance with the terms of your license application.
  6. Contract With Partners: The type of partners you will need depends on your type of business. For example, dispensary owners (retailers) usually contract with cultivators and infused product wholesalers.
  7. Promote Your Business: There are many ways to advertise your cannabis business. The way you market your small business, products, or services is important to your success. There are several advertising forums and online directories available for retailers. Cultivators should consider advertising in trade journals and attending marijuana business trade shows.

Starting a New Business? Discuss Business Opportunities and Compliance First

Starting a marijuana business is a serious undertaking. It requires patience and dedication. A clear understanding of the complex regulations and licensing requirements is crucial. If you have more questions or need legal help, consider speaking with a cannabis law attorney.

Note: The cultivation, distribution, and possession of marijuana remain illegal under federal law. Federal policies on state marijuana laws are subject to change.

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DIY Forms for Cannabis Business

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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