Cannabis is the fastest-growing industry in the nation. Although it is federally illegal, many states have legalized cannabis for medical and recreational purposes. As more states continue to legalize weed, the business opportunities will keep on growing.
As an entrepreneur in the cannabis industry, you have got to be ready for changes in regulation and other business challenges faced by cannabis companies. Learn how to start a legal weed business with our comprehensive guide.
How to Start a Legal Weed Business
Choose a Cannabis Business Type
In the legal cannabis industry, marijuana businesses must be licensed to operate in their state. Each state has a variety of business license types that cover every step of the supply chain, from the production of cannabis plants to the sale of flower and derivative products.
Depending on the state you are in, you will have certain license types to choose from, including distribution licenses, testing laboratory licenses, event licenses, and more. The most common business license types include the following:
- Cultivation: Cannabis cultivators are responsible for growing cannabis plants in an indoor or outdoor setting.
- Processing: Cannabis processors create a wide range of infused products such as extracts, edibles, and topicals from raw cannabis material.
- Retail: Cannabis retailers, also known as dispensaries, sell cannabis products to medical and/or recreational customers.
Develop a Business Plan
If you have got a business idea of opening a dispensary or any other type of cannabis business, we recommend developing a business plan. A business plan can create a comprehensive framework to guide your business venture and should have the following elements:
- Executive summary: Provide a brief description of the business plan contents.
- Market analysis: Provide an overview of the industry alongside trends and growth patterns, competition, and positioning.
- Company description: Include the legal structure of your business as well as information on all of your business partnerships.
- Marketing and sales plan: A strategy that describes how you will reach your target market, and includes a price structure and advertising plan.
- Facility operating plan: A comprehensive plan includes your facility location, floor plan, security plan, compliance requirements, testing plan, and waste disposal plan.
- Financial projections: A detailed financial plan includes details such as revenue forecasts, sources of capital, operating expenses, and a projected profit and loss statement.
Register Your Business
If you want to start a cannabis business, you must determine a business entity type (LLC or corporation) and create a business name. The business entity type you choose will affect how your business partners and business are taxed and your personal liability.
Obtain a Cannabis License or Permit
Depending on the state, county, and city you plan to do business in, you will have to obtain certain licenses and permits. Research your state and local laws or consult a legal professional who can help you determine how to register your cannabis business and receive licensing.
Cannabis businesses may need to obtain a license or permit from the city and/or county before they can qualify to obtain a state license. Keep in mind, some cities and counties may prohibit commercial cannabis production within their jurisdiction.
Register to Pay Taxes
Although cannabis is legal in many states, it is legal under federal law. The Internal Revenue Service (IRS) has a civil tax code (Section 280E) that states “no deductions or credits are allowed for any amount incurred in a business that consists of trafficking in controlled substances prohibited by federal law.”
As an employer, you must obtain a federal Employer Identification Number (EIN). An EIN is an important element of running a business, especially during tax season when you have to pay payroll and income taxes for your business.
Read the latest IRS tax guidance for cannabis businesses.
Look For Funding
Starting a cannabis business requires a high upfront and ongoing investment. Traditional bank financing is hard to come by in this industry due to federal regulations. Obtaining funding from investors can help you cover the wide range of startup, development, and operational costs.
Startup costs can include non-refundable application fees, which can be several thousand dollars. Ongoing expenses can include annual licensing costs, which can reach six figures. Many states may also require showing proof of liquid funds of at least $1 million.
Business costs can include:
- Business license and application
- Tax/seller's permit
- Employee wages
We provide a list of the best financial institutions that lend to cannabis businesses.
Create a Pitch Deck
A pitch deck for your business can serve numerous benefits including helping you obtain funding and build partnerships with other cannabis entrepreneurs. A cannabis pitch deck is essentially a summary of your business plan in the form of a short series of visually engaging slides.
Generally, pitch decks are visual tools that can be a guide for the audience during an oral presentation. Common slide section topics of a pitch deck include:
- Team/ leadership
- Product or service
- Business model
- Marketing/adoption strategy
- User testimonials
Cannabis businesses require business, general liability, and property insurance to protect their investments. Keep in mind, cannabis business insurance is not widely available and often comes at a premium price due to the risks involved in the cannabis industry.
Check out our blog resource on how to select cannabis business insurance.
Enroll in Cannabis Training University
If you want to get in on the ground floor of the world's fastest-growing industry, enrolling in Cannabis Training University can provide you with guidance from veterans in the industry on starting a cannabis business. Our curriculum takes you through every step of the startup process to help you start a successful cannabis business