Marijuana and Other Highly Regulated Businesses

Created by FindLaw's team of legal writers and editors | Last reviewed June 06, 2024

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Prior to 1996, when California became the first state to legalize the medical use of cannabis (or marijuana), the idea of a "legal" marijuana business was unheard of. But as more states loosen their adult use drug laws, allowing for medical and even recreational use of the herb, the cannabis industry has grown exponentially. The main caveat, of course, is the federal government's drug laws, which still classify marijuana as a Schedule I drug.

For now, the marijuana industry legalizing cannabis use is beholden to a tangled web of often contradictory federal, state, and local laws. But for entrepreneurs willing to wade through the confusion and take on additional risk, the rewards are potentially huge. This article covers the basics of setting up a cannabis business, relevant state laws, how to obtain financing, the basics of licenses and permits, marijuana-related tax issues, compliance with public health laws, and more.

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Starting a Marijuana Business: Overview

There are a few main types of marijuana businesses that actually handle the drug, each with their own challenges, costs, and regulatory requirements. These include cultivators, manufacturers of cannabis-infused products, law enforcement or security at labs or production plants, retail sales, and delivery services. Other types of businesses include testing facilities, specialized equipment, and technology. After deciding which type of business you want to start, you will need to consider the following:

Cost (including security, rent, utilities, licenses, and payroll)
Residency requirements (most states require marijuana business operators to have residency in the state)
Criminal record (drug felons are barred from starting marijuana businesses in most cases)
Appetite for risk
Timing (you may have to wait several months for your license to be approved)
Investors and partners (funding a marijuana business can be tricky)

Besides the often-protracted licensing process, constantly changing laws, and limited funding options, the fundamentals of a marijuana business are not much different than for other industries. You will need to write a business plan, find a location, form your business structure, contract with partners, and promote your business.

State and Federal Marijuana Laws

It cannot be overstated that marijuana is still considered illegal under federal law, although the Department of Justice has generally had a hands-off approach to state medical and recreational marijuana initiatives. Basically, marijuana business owners who follow the laws of their state and local government are unlikely to face federal drug charges.

But this conflict with federal law still presents many hurdles. For instance, nationally chartered banks insured by FDIC typically will not do business with marijuana-based operations, since it is seen as too high-risk in the current regulatory environment. Banks themselves may be concerned about being charged with money laundering or other crimes just by providing loans or banking services (although, as noted earlier, the DOJ has largely left states alone).

Also, each state that allows some form of legal marijuana use has fairly unique laws and regulations. For example, Connecticut allows only 10 state-sponsored dispensaries to operate throughout the state, which may not be located within 1,000 feet of a school, place of worship, playground, park, or childcare facility. Colorado, which allows the recreational use of marijuana, has three separate licenses that authorize either the cultivation, manufacture of infused products, or retail sales.

Getting Legal Help When Starting a Marijuana Business

You can start the process of forming a business on your own with FindLaw's DIY business formation resources, but it's often a good idea to consult with an attorney. Since the marijuana industry is even more legally complex and confusing, using the services of an attorney is even more crucial. In fact, there are individual attorneys and entire firms dedicated to the legal marijuana industry. A lawyer can help you comply with the various laws and regulations of your state, giving you peace of mind in a complex industry.

Click on a link below to learn more.

Marijuana Business: Licenses, Permits, and Planning

Each state has its own licensing and permit requirements in place for medical and recreational marijuana businesses. This article offers detailed information about licensing procedures in each state.
How to Get Financing for a Marijuana Business

Federal bans on marijuana sales have led many banks and investment firms to shy away from offering loans to marijuana businesses. Learn about new sources of funding and how these types of financing agreements typically work.
Setting Up a Marijuana Business: The Basics

Setting up a legal marijuana business isn't as simple as renting a space and finding a supplier. Marijuana businesses are subject to many regulatory requirements and legal considerations. Learn about how to do things the right way here.

Federal and State Marijuana Laws

While several states have legalized or decriminalized the use and sale of marijuana, the federal government feels differently. Learn about the federal government's stance on marijuana and how it could affect your pot business.
Recent Trends in the Legalization of Marijuana [book]

Now that Washington and Colorado have legalized recreational marijuana use, navigating state and federal laws has become increasingly difficult. This new Thomson Reuters book provides feedback on current marijuana laws from some of the nation's leading legal minds.