How To Start A Cannabis Business As An Industry Newcomer

Did you hear the news? Cannabis legalization is coming – and it’s coming fast. The majority of the U.S. now has access to legal cannabis in some form, and many more stats are “coming online” with full adult-use legalization with each passing year.

 

With this new industry comes a new opportunity for you as a business owner. How do you start a cannabis business? There’s a whole lot to learn, and there’s no real shortcut to doing your homework and learning the ins and outs of how you can bring your talents to the emerging cannabis industry in your region.

 

What are your legal cannabis industry business options?

 

Naturally, the first place to start is to evaluate the opportunities available to you. There are two major categories cannabis businesses fall into: plant-touching and ancillary. Here, let’s learn a bit more about both:

 

Plant-touching business

 

If you’re interested in cannabis cultivation, processing, or retail sale, then you’re going to want to start a plant-touching business. When a business has a daily and direct connection to the cannabis they’re selling, they become plant-touching entity.

 

As it currently stands, plant-touching businesses are subject to numerous state and federal mandates that outline how the business can operate and who it can serve. Cannabis businesses in general pay more in taxes, thanks mostly to Section 280E of the U.S. tax code, which denies such companies the ability to deduct regular business expenses. Without those deductions, you’ll likely deal with an average effective tax rate much higher than the 30% average paid by most businesses.

 

Starting a plant-touching business also comes with some hefty price tags. From licensing costs to real estate acquisition, you may have to invest significantly just to have a chance at a license, all while following some extremely fine-tuned guidelines that determine how and when you can operate. These fees can reach into the six figures and easily into the millions. Banking and financing is also a challenge, and you may need to access private equity if securing a loan proves too difficult for your venture.

 

Some examples of plant-touching businesses include:

 

  • Cannabis cultivators. These businesses deal in growing and harvesting the cannabis plant, as well as preparing it for sale. As the backbone of the entire industry, these businesses directly handle the plant from its first seeds.
  • Processing and manufacturing. If you want to create cannabis extracts, edibles, or topicals, a processing or manufacturing license is what you need.
  • Laboratory testing. Cannabis regulations require most businesses to label a cultivar’s potency level on the packaging, as well as other testing for quality and consumer safety. An impartial, third party cannabis laboratory is sought after to conduct those tests.
  • Social consumption areas. A few states and cities allow for consumption lounges, a space not unlike a bar for alcohol where you can attend and consume the cannabis of your choice
  • Dispensary. The ultimate in plant-touching businesses, a dispensary is what most people think of when you start thinking about getting into the cannabis industry. Dispensaries carry an array of products for consumers and provide a retail experience for them to see their options, ask questions, and decide what they want to take home.

Ancillary business

 

If you don’t have any interest in handling cannabis or the in-depth, capital-intense licensing route isn’t for you, an ancillary business may be best for you.

 

Just like any other industry, cannabis businesses need support services to help them get the job done. If you have a transferable skillset that can be put to work in the cannabis industry, an ancillary business may be a more accessible way to break into this industry.

 

The following are some key examples of ancillary businesses that commonly assist the cannabis industry.

 

  • Legal firms. There’s no way around it: If you’re working in the cannabis industry, you’ll need to consult an attorney to ensure you’re within compliance of the rapidly-changing regulations. The number of legal firms throughout the U.S. that specialize in cannabis regulation has grown in recent years, but there’s still no shortage of demand for good legal services.
  • Marketing. If no one knows your business exists, then you won’t enjoy the kind of success you want as a business owner. Luckily, ancillary marketing companies that understand the ins and outs of the cannabis plant and the cannabis market can help boost your brand. that specialize in the growing cannabis market, a great way to drive interest in an incredibly-crowded field.
  • Financial services. Like most other businesses, companies in the cannabis industry benefit from hiring an accountant or CPA to make sure financials are in order. Add in the sticky tax environment that cannabis businesses have to contend with, plus the potential to still deal in cash (although this is changing), and you’ll quickly understand how valuable these services can be.

5 questions to ask before entering the cannabis industry

 

Before you start any kind of business, you should do a little introspective thinking before taking any meaningful steps. This is especially true for new businesses in the cannabis industry, as the steps you need to take to get to opening day can be significantly more involved, costly, or time consuming. If you’re set on hanging your hat on the cannabis industry, then here are some things to ask yourself before you make the plunge.

 

1. What do I need to prepare a plant-touching or ancillary business?

 

This is the first step to take before getting into the cannabis business. After reading the requirements above, you probably have a good idea of which sector you’d like to enter. Once you’ve made a decision on the direction to go, start making your plans, collecting estimates, and networking with other cannabis business professionals to help build the team and connections you need to succeed.

 

2. Where do I want to operate?

 

The answer to this question may seem like a no brainer, especially if your state has passed its own legalization efforts, but the reality is that it may be more involved than you’d think. If you’re a plant-touching entity, you’ll be limited as to where you can operate, as not every municipality within a legal state will accept a cannabis business. For example, around 70% of New Jersey municipalities opted out of allowing plant-touching businesses within their borders. In many cases, you’ll also need to find real estate, a challenge in itself as you look for a property owner willing to lease to you – or be prepared to buy a building. Ancillary businesses, on the other hand, can work from anywhere and service any legal cannabis business.

3. Am I financially ready for this?

 

This is going to be an inherently personal question that you’ll need to answer. Starting any business requires some measure of financial input; on average, a home-based business costs a few thousand dollars to get off the ground. But in cannabis, especially if you’re going to be a plant-touching entity, you’ll have to consider where your funding is coming from. Not only is it a requirement in many states to have cash on hand to obtain a license, but the cash-intensive startup costs can easily add six figures or much more to those requirements, depending on the state in which you want to operate.

 

4. Are my skills needed in the cannabis industry?

 

At the end of the day, your capabilities as a business owner come down to how marketable you are. The cannabis industry relies on a wide range of skill sets from all kinds of people. If you can see your skills bringing major benefits to any other business, then it’s very likely that you can be a boon to the cannabis industry as well. All you have to do is find your niche and operate within it. By carving out a place for you and your business, you can find success in the cannabis industry.

 

5. How will I learn what I need to know to succeed?

 

There’s a lot to learn before launching your cannabis venture. This is not an industry where can simply walk in and say, “here I am, let’s work together.” How do you plan to ensure that you can thoroughly and intelligently engage with the cannabis community? You may want to consider taking courses, signing up for daily newsletters, or even returning to college to obtain a certificate or take college-level courses in cannabis to ensure you have the educational chops to succeed.

 

5 steps to starting your business in the cannabis industry

 

Once you know the type of business you want to start in the cannabis industry, it’s time to roll up your sleeves and get to work.

 

Starting a business in the cannabis industry is a marathon, not a sprint. You’re going to have to go through multiple hoops just to get started getting started. Though it will likely be a long process from conception to opening day, here are some steps you should remember to tackle starting out.

 

  • Learn as much as you can. The cannabis industry can be obtuse to the average person. As a result, you’re going to want to absorb as much information as you can from experts and successful business owners already in the industry. That means making sure you take advantage of any resources at your disposal, including attending workshops and panels at industry events like the Cannabis World Congress & Business Exposition (CWCBE).
    You can also consider enrolling in a number of existing cannabis business courses, either online or in-person. A small but growing number of universities have begun offering cannabis business certifications that can help you get a leg up on your competition.
  • Network. It may be awkward to many, but networking with other cannabis professionals can be a huge help in getting your bearings straight. By going where those individuals will likely be, such as trade shows and other public events, you can get yourself in front of the right people who may be able to help you, connect with you, or introduce you to others along he way. Again, trade shows like the CWCBE are a perfect venue for networking opportunities.
  • Do your research. The most successful businesses today got where they are by knowing more about their target market and competition. As you gear up for opening day, be sure to consider what other cannabis businesses are already operating in your area and how you can outperform them. Whether that means providing a different product or service, providing the same or better product at a better price, or outmaneuvering them when it comes to promotions and advertisements, some footwork ahead of time can make a huge difference.
  • Know your laws. Cannabis laws can be a lot to take in as a newcomer, but knowing your rights as a cannabis business owner could be very important if a conflict comes up or you need to pivot. By knowing what you are and aren’t allowed to do as a cannabis business owner can help keep you, and your clients, free and in the clear.
  • Don’t be surprised if there are setbacks. Even if you’re an ancillary business with fewer risks, you may be surprised to discover that not everyone will be as thrilled as you about your new venture. Basic services like banking may be harder to obtain, while social media platforms like Instagram are generally inhospitable to cannabis, So, too, are many major advertising platforms. Allow time for this, do your homework, and be prepared to get back up a few times to keep going.

Want to get involved in the cannabis industry? Start today!

 

It’s a common dream to want to be your own boss. Small businesses make up a large portion of the American economy and that’s largely thanks to business savvy individuals taking the leap and creating something of their own. The cannabis industry is poised to drive this: As one of the largest-growing sectors in the United States, the opportunity is aplenty if you’re ready to put in the time and you’re ready to learn.

 

Curious about the opportunities that lay ahead? Make plans to attend CWCBExpo at the Jacob K. Javits Convention Center in New York City, held June 2-4, 2022.

 

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