Cannabis business

Five Considerations When Starting a Cannabis Business

Starting a cannabis business can be an overwhelming endeavor. Companies that deal with cannabis face heavier regulation than most businesses at each level of government. While the industry offers many great opportunities, your business will fail unless every I is dotted and every T is crossed.

Among the many considerations that a cannabis business must undertake are licensing, compliance, labor, local zoning approvals and the need for a solid business plan. Below we explain how these considerations apply to your cannabis business.

Applicant Requirements for Cannabis Business Licensing

Though specific requirements differ by state, most legal cannabis states have rules about who can own a licensed cannabis business. It doesn’t matter how good your other plans are if you don’t meet the minimum requirements. That’s why it’s important to know exactly who can hold a license in your state.

While some western states have looser rules, getting a license in a state with a newer market can be very difficult. As lawmakers have watched plans and markets develop in other states, they have learned many lessons and often create complex rules to avoid potential problems. States often want “known quantities” when they launch a program.

New York, for example, is in the process of approving licensees to grow cannabis for their coming adult-use program. Under the state’s rules for its Adult-Use Conditional Cultivator License, applicants must have “been authorized to grow hemp under the Department of Agriculture and Markets Industrial Hemp Research Pilot Program.” They also must have grown hemp for two of the past four years. Clearly, this is not an opportunity for newcomers.

Once you have confirmed that you meet licensing requirements, having a solid business plan is vital.

Solid and Successful Cannabis Business Plans

Many states take a keen interest in business plans for cannabis companies in particular. Cities and towns are wary of businesses that will fail and risk becoming a criminal blight or a shuttered eyesore. Having solid and successful plans not only improves a cannabis company’s chance of profiting, but can make necessary approvals more likely.

The Michigan Cannabis Regulatory Agency provides a checklist among its medical marijuana facility application instructions. The checklist specifies the need for a business location plan, location floor plan and a comprehensive business plan. That business plan must be “including but not limited to” technology, marketing, staffing, and inventory and recordkeeping plans.

Cannabis Business Disclosures and Tax Documentation

Cannabis businesses operate under stricter rules than many other types of company, but they still need all normal business documentation. Colorado has had adult-use cannabis since 2014 and originally passed medical cannabis laws in 2000. Their checklist for a “Regulated Marijuana Business License Application” reflects their program’s sophistication.

The Colorado Marijuana Enforcement Division (MED) requires personal disclosures for every “Controlled Beneficial Owner” (CBO). This includes financial documentation, but also tax checks, background investigations and releases of personal information. Missing documentation, even a single authorization signature, can derail an application or cost a business in time and money.

Not having all documentation in order can also doom the license transfers needed to take over an existing business. It doesn’t matter how great a deal you make if the transfer isn’t approved. Whether you’re buying a cannabis business or starting from scratch, a qualified consultant can make sure you’re covered.

Human Resources and Labor Matters for Cannabis Businesses

Regulators often take an interest in human resource procedures and labor agreements. For cannabis businesses in California and New York, a “labor peace agreement” (LPA) is required. As an article from Cannabis Business Times explains, finding a suitable union and negotiating and executing a LPA are “no small feats for entrepreneurs without labor law knowledge.”

The California Department of Cannabis Control requires a labor agreement in place for any businesses that have 20 or more employees. Even businesses that don’t have twenty employees are required to submit a notarized statement that “will enter into and abide by the terms of a labor peace agreement within 60 days of employing its twentieth employee.”

Social equity goals in some states can also factor into labor considerations when starting a cannabis business.

Municipality Approvals for Cannabis Businesses

Finally, in most states that have legalized the use and sale of cannabis, whether medical or adult-use, municipalities have the option to “opt out” of legalization. While local governments can’t continue to enforce prohibitions on use, they do control what businesses are licensed and where they are located. Familiarity with changing attitudes at the local level can be key for growth strategies.

Though Massachusetts allows legal cannabis cultivation, sale and use throughout the state, many localities still will not allow cannabis businesses. Even in the municipalities friendly to cannabis, the Cannabis Control Commission is clear that a plan must be submitted which “shall identify all steps taken with municipal departments or officials regarding local rules and permitting requirements.”

Need help navigating the complicated cannabis industry landscape?
Contact RADD CANN or email us for a free consultation today!

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