With the legalization of cannabis steadily growing across the United States, more entrepreneurs are looking to jump into the burgeoning cannabis industry.
The opportunities seem boundless, as the US cannabis market is projected to hit a staggering $67.15 billion by 2028. Furthermore, Statista predicts the cannabis industry to grow at 13.93% (2024-2028). The research also expects the US to yield the highest revenue at an estimated $39.85 billion in 2024.
However, as lucrative as starting a legal cannabis business might look, it requires extensive planning and preparation.
By researching thoroughly, securing proper licensing, creating a solid business plan, lining up financing, and attending to key details like real estate and security, you’ll be off to a strong start.
Read on for the top five tips to consider before starting your legal cannabis business.
#1. Research State and Local Laws and Regulations
The regulatory environment surrounding legal cannabis is complicated, with laws varying significantly between states. It’s critical to understand the laws and regulations in the state and municipality where you plan to set up shop.
While medical cannabis is sanctioned in 38 states, recreational cannabis is only limited to 24 states, three U.S. territories, and Washington, D.C. Moreover, at the national level, cannabis is categorized as a Schedule I drug under the Controlled Substances Act. This means that it can be addictive and cannot be used as medicine in any capacity, thus, limiting its usage.
However, despite this prohibition, states have legalized cannabis for medical and recreational use, and some have even decriminalized its use. Each state has its unique laws and regulations regarding almost every aspect of the industry. This includes licensing requirements, approved business types, zoning restrictions, product testing, security protocols, and more.
Local counties and cities add another layer of requirements on top of state laws. Spend time thoroughly researching the applicable regulations. Get expert help. Consulting with a personal injury attorney ensures you have a solid handle on the legal framework before moving forward.
Moreover, it can also help you avoid any potential injury lawsuits, as noted by Burnham Law Firm. Remember, federal prohibition still exists, so be mindful of the potential impact of future policy changes.
#2. Obtain Proper Licensing and Permits
Every legal cannabis business must obtain the appropriate licenses and permits, which vary based on your state and locality.
Begin by researching and selecting the right license type based on your business model – whether it’s cultivation, manufacturing, or retail. Each license type comes with its own set of requirements, so understanding these intricacies is crucial.
Common cannabis business licenses include a marijuana business license, retail marijuana license, medical marijuana dispensary license, or marijuana cultivation license.
Additional permits for health and safety, signage, water usage, waste disposal, and more may also be required. The application process can be lengthy, costly, and complex, so give yourself enough time. Having all required documentation in order is crucial, as operating without proper licensing can result in serious penalties, including fines or even loss of business.
Don’t skip this critical step.
#3. Create a Detailed Business Plan
Writing up a detailed business plan is a must when starting any new business, and cannabis is no exception.
This will force you to thoroughly think through every aspect of your operations. Include an executive summary, company overview, market analysis, operations plan, marketing strategy, financial projections, and funding requests. Define your budget, startup costs, overhead, and profit margins. Outline day-to-day processes and staffing needs.
Doing this upfront work will help set your business up for success and prepare you to pitch your idea to potential investors and partners. Your business plan should be a living document that updates in real time as things evolve.
#4. Secure Sufficient Funding and Financing
Financing your cannabis dream has its fair set of challenges, as the business can be capital-intensive. Build-out costs, equipment, inventory, licensing fees, and operating expenses add up quickly.
New cannabis businesses often struggle to access traditional funding sources, so you’ll need to get creative. Seek private cannabis investors, angel investors, and venture capital firms focusing on the cannabis industry or cannabis-specific lending sources. Consider crowdfunding, partnerships, or angel investors. Talk to industry colleagues who may want to invest in or co-found your cannabis venture.
Having enough capital from the start prevents cash flow issues down the road. Once you have enough capital, focus on the specific cannabis tax implications. Due to federal regulations, cannabis businesses face unique tax challenges. Also known as the sin tax, this tax intends to decrease the consumption of harmful substances such as alcohol and tobacco. It also compensates for the ill effects associated with the drug usage.
However, unlike the alcohol or tobacco taxes, which are meant to discourage users from consuming it, this tax does the opposite. Many states encourage using cannabis in a controlled manner and also the revenue generated from it to fund various programs.
So, focus on creating an extensive business plan. It should provide you with realistic financial projections to attract investors and secure the capital you need to flourish.
#5. Lock Down Real Estate and Implement Security
Finding the right property for your cannabis operation is crucial, as not all locations are cannabis-friendly.
Check local zoning laws and municipal codes thoroughly. Options like industrial parks or vacant big-box retail spaces in commercial zones are potential fits for cultivation, manufacturing, or distribution businesses. For dispensaries, consider commercial or retail spaces, as per the regulations. Work closely with local officials to ensure your desired property works from a legal standpoint.
Also implement proper security like video surveillance, alarms, access control, and lighting. This shows regulators you are serious about compliance and safety. And as KND Labs puts it, safety, compliance, and consistency are key to your business. So, prioritize it.
#6. Network and Build Industry Connections
The cannabis industry is still relatively small and collaborative. So, you don’t need to go at it alone.
Attend cannabis conferences and events, join industry associations, and connect with leaders in the space. Share insights and build relationships with other cannabis entrepreneurs, investors, lawyers, accountants, suppliers, and advisors. These connections can help you keep up with the latest industry trends, regulations, and best practices. It can also lead to partnerships, mentorship, and access to crucial resources.
When networking, look for the most respected suppliers in the industry. A connection with the most respected CBD supplier, for example, could provide you with access to top-quality ingredients, mentorship, and competitive pricing. Tapping into the tight-knit cannabis community gives you a competitive edge as you navigate starting and growing your cannabis business.
Remember, your network is your net worth in this exciting, fast-paced cannabis industry.
In conclusion, establishing a legal cannabis business is no small feat. It demands passion, dedication, and strategic planning.
With proper research, licensing, business planning, financing, location scouting, and security measures in place, you will avoid major pitfalls that derail many entrepreneurs. While the regulatory environment is complex, the potential rewards make the effort worthwhile. Connect with mentors, partners, and cannabis colleagues to further strengthen your chances of success.
With smart preparation and execution, your cannabis venture can flourish. And, never forget, in this dynamic cannabis market, your success is not just about what you know but who you know.
