Entering the cannabis industry may reap substantial rewards for business owners. The industry generates billions of dollars in revenue each year. However, starting a marijuana business requires careful attention to the complex laws and regulations that govern this industry. Even after completing the formation process, a business owner will need to monitor state and local laws for changes that could affect them.
Before entering the cannabis industry, an entrepreneur should make sure that they are eligible to operate this type of business. They generally must have been a resident of their state for a certain period of time before getting their business license. They usually also must have a record free from certain types of criminal convictions, often including drug felonies and violent crimes. An owner of a cannabis business must wait patiently to complete the licensing process, which can extend for several months and sometimes for more than a year. Getting financing may be challenging and time-consuming, since banks generally will not lend to cannabis businesses, and investors may be reluctant to enter an industry that remains prohibited by federal law.
Costs of Starting a Cannabis Business
A business owner will want to consider whether they can afford costs such as:
Rent and utilities for a physical business location
Supplies and equipment for producing or selling cannabis products
Marketing to promote the business
Licenses and renewals
Any security that may be required to protect their facilities and products
First Steps in Starting a Cannabis Business
The first step in getting your business started involves choosing the sector of the cannabis industry that you want to enter. A cannabis business may operate at any stage of the production or distribution process, ranging from growing and harvesting marijuana plants to processing raw cannabis materials to selling pre-made products to consumers. In general, retail distribution involves the greatest complexity and cost as well as the greatest reward. Some more distinctive types of businesses include delivery services, testing laboratories, and businesses that make pipes or other items used to consume marijuana products. In states that permit both medical and recreational uses of marijuana, a business owner may want to consider whether they will target patients, recreational users, or both.
Once you have decided on your entry point and researched the applicable regulations, the process of forming a cannabis business is not significantly different from forming other businesses. You will need to decide where to operate your business, accounting for issues such as zoning rules. You also will need to choose the appropriate business form, which might be a sole proprietorship, a partnership, a limited liability company, or a corporation. Each of these forms has distinctive benefits and burdens. You should devise a business plan to help you keep your overall strategy in mind and perhaps attract investors. A plan will describe issues such as costs, goals, funding sources, and benchmarks of success. You also may need to set up contracts with other entities in the industry that will supply you with the materials that you need or bring your products to the market. Some business owners may want to develop advertising strategies to raise awareness among their audience.
Once your business has gotten off the ground, you cannot become complacent. You must keep track of any changes in cannabis regulations that may affect you, while maintaining compliance with license requirements and renewing licenses and permits as needed.