July 5, 2022

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A big business starts small

How to Start a Cannabis Business

6 min read
How to Start a Cannabis Business

There’s no denying that a career in the cannabis industry can be lucrative. However, before starting any business, you should clearly understand the industry landscape: What are the potential earnings? What are the dangers? Who are your direct competitors?

Given the cannabis industry’s short history, no one can be certain of how it will develop over time — or how marijuana businesses might fare. So consider the demand in your area where you intend to start your marijuana business and how you will differentiate yourself from others providing the same service. After all, you aren’t the only one wondering how to create a marijuana business.

Here’s what you should know before starting a marijuana business and the steps you should take if you decide to enter the cannabis industry.

Determine the Type of Marijuana Business to Launch

Typically, the first step in starting a business would be to develop a business idea; however, if you’re ready to start a marijuana business, you’ve already completed that step. Next, you need to decide which aspect of the marijuana industry you want to be a part of. For example, do you want to start a dispensary, cultivate marijuana, or deliver it? Will you source your marijuana using seeds from a retailer such as Zamnesia.com? The processes involved in creating your first canna-business will vary depending on which aspect of this blooming industry you wish to enter.

Additionally, it is essential to remember that marijuana laws vary significantly from state to state. Therefore, you should spend an appropriate amount of time researching the rules governing where and how you can sell marijuana. Talking and networking with people who have started their cannabis businesses is also an excellent place to start.

Create a Business Plan

When starting a marijuana business, your business plan must be more detailed than if you were opening a less strictly regulated industry such as a restaurant or jewelry store. First and foremost, ensure that you abide by all applicable state laws. Make sure everything is legal, from where you want to open your marijuana business to who your suppliers will be. Your business plan will most likely change as the laws vary, but it’s critical to have one in place when you first start a cannabis business.

Register Your Business

Because marijuana isn’t legalized on the federal level, and federal prohibitions prevent interstate cannabis sales, big businesses have generally avoided the cannabis industry thus far, making it an ideal sector for small businesses to enter. Your marijuana business will most likely be local and on a smaller scale. However, it would help if you still chose the correct business entity. The type of business entity you choose will influence the taxes you pay and the level of risk you face. You might consider forming a limited liability company, an LLC, or a corporation. Both entities can protect owners from personal liability, but there are some significant differences between an LLC and a corporation.

You must also choose a name for your marijuana business. The process for selecting a business name will vary depending on your state. Still, you’ll need to search to ensure the name you want is available and then pay a small fee to reserve your name for a set time. So before you try to register your marijuana business, make sure you have both of these things nailed down.

Obtain Necessary Licenses and Permits

Because each state has different laws regarding establishing a cannabis business, different types of business licenses, permits, and registration procedures will be required depending on where you want to open your business. Therefore, you’ll need to do your research and, ideally, contact a legal professional in your state who can guide you through registering your marijuana business and obtaining the necessary permits. Know precisely what documentation, licensing, and regulatory bodies you will need to comply with before starting a marijuana business.

Some states, such as California, have portals dedicated to licensing marijuana businesses and entire websites devoted to business owners interested in starting a marijuana business. However, keep in mind that owning a marijuana retailer or dispensary has different rules and regulations than owning a company that grows or delivers marijuana.

All of these cannabis-specific permits, licenses, and registrations are in addition to simply registering your business in the state to do business there. Remember that while you’ll be responsible for more marijuana-specific tasks, you’ll also be responsible for all of the taxes and registration that a regular business would.

Prepare to Pay Taxes

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Taxes will also vary depending on where you start your marijuana business. However, regardless of where you start your cannabis business, you should apply for an employer identification number, also known as a business tax ID number.

You can apply for an EIN directly from the IRS online and immediately receive approval. However, you’ll need it when tax season arrives, and you have to pay payroll and income taxes for your company. In addition, if you want to open a business bank account or credit card, or if you wish to apply for funding, you’ll need your EIN.

Get Funding

Every new business owner must confront the reality of startup costs. Those starting a marijuana business, on the other hand, may incur additional costs. Suppose you discover that you cannot cover all of these initial costs on your own. In that case, you may seek funding to launch your marijuana business. Another reason to write a thorough business plan is that any investor or lender you approach for funding will want to see it to see if your business is well thought out and has a viable profit plan. In states where medical marijuana is legal, marijuana businesses must typically pay a $5,000 non-refundable application fee to get started. As a result, most certificate applicants fail to meet the startup capital requirements required to ensure smooth operations.

Starting a marijuana business is expensive due to the application and licensing fees and any standard equipment, marketing, and startup costs. And once you’re in business, taxes can be pretty high. Marijuana businesses pay significantly more in federal taxes than the average small business due to the 280E clause (which applies to law-abiding illegal drug traffickers who pay taxes).

Whereas federally legal businesses can deduct various business expenses, which helps them stay in business, marijuana businesses cannot qualify for the many other tax credits and deductions for operational costs. Marijuana businesses may also have difficulty obtaining small-business loans to keep their operations running smoothly. The lack of small-business financing for marijuana businesses stems, first and foremost, from the fact that they are federally illegal.

Many of the best banks for small-business loans are federally chartered and subject to federal banking laws that make lending to a marijuana business nearly impossible. Big national banks aren’t willing to risk being accused of assisting illegal activities under federal law.

As a result, big banks are unlikely to lend money to a marijuana business. But on the other hand, alternative lenders have filled some of the gaps in lending to marijuana business owners.

However, before you start a cannabis business, keep in mind that your financing and funding options will be limited compared to what a more traditional small business could secure.

In Conclusion

Given the many complexities and intricacies of the marijuana industry, would-be cannabis entrepreneurs should think twice about whether starting a marijuana business is the right move for them. The excitement of profit potential in a relatively new and rapidly growing industry must be balanced against the drawbacks, including costs, financing difficulties, and regulatory burdens.

In addition, if you decide to proceed with your marijuana business, you will need to obtain business insurance, find retail space, and hire employees. For the time being, however, these steps will assist you in getting your marijuana business up and running.