Curious about starting a cannabis company? You probably have tons of questions about entering this fast-growing, profitable industry of legal cannabis.
Before starting a marijuana business, cannabis entrepreneurs need to check out these five steps.
#1. Do your research
No matter what your cannabis business idea is, you’ll need to research to understand the competition of your environment. As an entrepreneur, staying on top is your number one priority. To grow your business, you have to commit to being a forever student, focused on learning what makes your service or product profitable to your niche.
Researching the cannabis industry will help you understand the best ways to navigate it.
Read all of the business content you can get your hands on, which will give you valuable tips that will define your growth trajectory. Find role models in the industry with business practices that you can emulate. Blogs, podcasts, youtube videos, ebooks, and online courses are great resources for finding helpful information – and much of it is free or available at a low cost.
As your marijuana business develops, you will want as much support and advice as possible. Networking will be a considerable part of your business. Consider joining local groups of cannabis business owners so you can find peers, mentors, and partners working in your industry. You might also consider enlisting a business coach who can provide insight and guidance as you begin your cannabis business.
#2. Pick a business type
Choosing your marijuana business type is a big deal. You want to pick something profitable, enjoyable, and legal in your area. You must know all of the rules you have to follow before starting your business. Remember that marijuana business sate law varies for every state so you’ll want to make sure your business idea fits your cannabis market. In the cannabis industry, compliance is key.
Depending on what aspect of the cannabis industry you are in, you’ll want to be aware of the legal cannabinoids allowed in your state. Do you want to sell smoking accessories? Do you want to grow cannabis for sale? Do you want to start a dispensary? It’s also a good idea to decide if you’ll be working with medical cannabis or recreational use cannabis. The difference is very important and you need to understand the difference before starting the application process.
Currently, the federal government considers Delta-9 THC a Schedule 1 drug, but states have individually introduced legislation for its medical and recreational usage. The signing of the 2018 Farm Bill legalized hemp-derived products as long as they contain less than 0.3% Delta-9 THC by dry weight. This federally legalized non-intoxicating cannabinoids like CBD, CBG, CBN, and psychoactive Delta-8 THC.
The Delta-8 THC loophole allowed businesses to sell this form of THC in states where cannabis was not recreationally or medically legal until some state governments caught on and introduced legislation to regulate it. Remember, there are over 113 known cannabinoids produced by the marijuana plant, so it’s crucial to think about the big-picture trajectory of the industry. What cannabinoids will become popular and legal next?
#3. Make a business plan and write out the details
Don’t get started without writing a business plan. It’s essentially a helpful guide to running your company. Be sure that every aspect of your business follows state and federal law, so laying it all out in writing can help you see the big picture.
So what should a business plan for your marijuana business include?
- Company goals
- Staff Members and responsibilities
- Marketing plan
- Who you will work with (suppliers, partners, legal counsel)
- The location of your business
- Who your competition is
- Your niche
- How your business solves a problem within the market
Your business plan should include everything you can think of that investors and partners should know about your marijuana business.
#4. Make it legit: taxes, licenses, and permits
Once you’ve researched your market area and created a business plan, it’s time to make your business a reality. The cannabis industry is highly-regulated, so you’ll have to register for marijuana-specific licenses and permits and those typically required of any business.
First, you’ll need to pick a name for your new biz. Be sure the name is available for you to use; then, you’ll be able to register it. Follow the guidelines in your state for registering business names, so you don’t encounter any problems.
Whether you register it as a limited liability company (LLC) or corporation, the business entity you choose will affect your marijuana business’s legal structure. What is the main difference between an LLC and a corporation business license? The amount of personal risk involved plus the amount of taxes you’ll have to pay. Be sure to conduct thorough research on the best type of business entity for your marijuana business.
It’s wise to get some legal counsel during this phase of beginning your business. Every state has different cannabis laws, so you’ll want to be sure you have every license, permit, and registration you need to open your business.
Fortunately, it’s easy to figure out which permits and licenses you need with some research. Some states have whole website portals dedicated to helping owners start their marijuana businesses. Depending on the type of business you own, you’ll be subject to different rules and regulations. The license application is very thorough so it’s important to be prepare. A state license also requires regular reporting, and the state probably has different rules for a dispensary license, growers license, and other types of licenses.
Of course, you can’t forget about taxes. You’ll need to apply for an employer identification number, also known as an EIN or business tax ID number. Apply for an EIN through the IRS website (and get approved almost instantly!) so you’re ready to take on payroll, income taxes, and tax season.
5. Secure funding
Unfortunately, you can’t start a cannabis business without funding. And cannabis businesses, in particular, require many start-up costs. It’s a good idea to request more than what you think you’ll need, as there are many unexpected costs to running a marijuana business. Securing small-business loans can be difficult because cannabis is federally illegal, so your best bet is to explore your funding and financing options with private investors wisely. Additionally, be aware that you’ll have to pay high federal taxes due to the 280E clause, a special tax on cannabis businesses. Be sure to keep your bank account in good standing. An accountant is always a good idea.
Key takeaway on starting a marijuana business
Starting any business is hard, but you should expect some significant challenges if you open a cannabis business. From creating a business plan and navigating an ever-changing legal landscape to picking a niche and following regulations, entering the cannabis industry is a rollercoaster ride. But with diligent planning, research, and regulatory compliance, starting a marijuana business is not just possible – it can be profitable too.