Getting Started in the Cannabis Industry

By
Alex Pick
July 20, 2021

When a ‘new’ market as exciting as cannabis begins legally emerging across the country (and really, the globe), it can be daunting to determine the right path of entry for the eager cannabis business entrepreneur. However, before starting any business, it’s important to gain an understanding of what the industry landscape looks like and to start thinking through the answers to some common, yet important questions. We’ve laid out a few considerations below to get you thinking about entering the cannabis industry in a compliant, well-planned, and well-thought-out manner. It is our hope you find this list helpful, and we're more than happy to answer any questions you may have along the way.

  1. Identify your opportunity i.e. narrow in on what type of cannabis business you’re interested in starting, and start thinking through some of the questions to be answered in your business plan. 

One could decide to get into cannabis cultivation, processing, manufacturing, retail, or a combination of these. One could also decide to start an ancillary business to support the industry, such as a PR, marketing, packaging, labeling, etc. type of firm. 

Some questions to get you started:

  • What do you anticipate the total cost to be in starting your business (facility buildout with the help of architects and engineers along with security equipment, hiring personnel, purchasing and maintaining inventory, etc etc etc)
  • What will set you apart from the competition?
  • Speaking of, who are your competitors? What are they doing well, and where are they falling short in your opinion?
  • How will you attract and retain customers?
  • If relevant, where will you source your product? Who will your suppliers be?
  • What will your management team look like and where will they be located? I.e. where will you run your business if not in the same location as your cannabis operation? 
  • Will you need to bring in additional help to start your business and maintain its health long-term? Examples of additional support could be legal counsel, accountants familiar with the cannabis industry, tax planning services, HR and payroll support, security surveillance, and more. 
  1. Research local and state regulations that will have an impact on your business. Oftentimes, it’s not just city and state-level authorities or regulators that will have oversight on your operation, but authorities from health departments, fire and police departments, licensing agencies, etc that are important to keep in mind (and become familiar with early on). 
  1. Register your business: Given that cannabis is still federally illegal, it is an industry primed for local businesses to become established players in local or state-wide markets. Even so, you’ll still need to register your business and acquire the proper licenses and permits required prior to beginning operations. 

Additionally, due to the increased scrutiny on this industry compared to others, it is important to know exactly what documentation, licensing, and regulatory bodies you’ll need to comply with before starting your cannabis business. It is not always clear what is required in each state by a quick google search, as oftentimes there are layers upon layers of licensing you’ll need in place in advance of being deemed operational.  

  1. Taxes: While we highly recommend getting some professional help in this area as this is not one you want to overlook due to the layered consequences, the most basic step in tax planning is to apply for an employer identification number, which is commonly referred to as an EIN or tax ID number. This is typically applied for online directly from the IRS and usually will come with fairly immediate approval. This tax ID number will be required should you decide to open a business bank account, or if you choose to apply for funding for your cannabis business at a later date. 

Another important consideration in cannabis tax planning is the laws surrounding 280E, which is a complex legal clause preventing cannabis businesses from taking the normal business deductions found in other industries, along with the inclusion of many other stipulations that must be followed to maintain operations of a compliant cannabis business.

Lastly, while we recognize that this is an exciting industry to consider entering and becoming part of long term, we can not emphasize enough the importance of pre-planning and figuring out costs and funding ahead of time. While it may seem like a complex, winding road to navigate, rest assured there are many qualified professionals out there to help you find your way!