This is intended as a helpful guide for individuals who are new to the industry to understand some key considerations for starting and operating a business in the cannabis industry.
Know the law, rules, ordinances and relevant agencies
Identify State and Local Cannabis Departments or Agencies
The very first step to getting started in the cannabis industry is to identify the state department or agency responsible for implementing the cannabis program and licensing cannabis businesses for the type of license you want to apply for (cultivation, dispensary, manufacturing, transport). Often, different license types will be regulated by different agencies.
State and local cannabis regulatory departments or agencies will draft and publish rules for location and operational requirements, ownership restrictions, forms and methods allowed, and often the information that will be required for individual and business license application. Identify the locality of your operations and what agency is responsible at the local level. State and local agencies frequently have a cannabis specific web page where they will publish all relevant laws and rules.
Review All State and Local Laws and Regulations
Make sure to carefully review all the laws and regulations as well as the application requirements before beginning the application process. In addition to state regulations, localities often have additional requirements or restrictions that must be addressed in a cannabis license application.
Potential applicants must make sure they have a firm understanding of both the state laws and local codes or ordinances regarding cannabis businesses before beginning the application process. There can also be different requirements for medical or adult-use applications and for different types of licenses such as cultivation, manufacturing, dispensary, etc.
Determine Licensing and Permit Requirements
Identify What Type of License or Permits You Need
Identify what license type you need and which applications you need to complete. This includes considering vertical integration. You will need to investigate license and permit requirements at both the state and local levels. More than likely, you will need to apply for licenses and permits on the local level. This may include things like a business license, zoning permit, building permit, sales tax license, etc. Pay close attention to any additional certifications or permits required by the state or locality, such as occupancy certifications or land-use permits.
Review License Application Requirements and Timeline
Applicants must carefully review the application requirements and submission timeline to identify all required documents, due dates, and fees. You certainly do not want your application rejected or delayed due to formatting or procedural issues, which could run the risk of having to pay multiple application fees. This also involves determining which individuals in your organization will be subject to disclosures and, if so, what information they will need to disclose. Some localities require applicants to participate in a hearing with the local licensing authorities prior to licensure. Hearings may determine denials of cannabis business applications and the discipline of cannabis license holders, so be sure to check if there are hearing requirements within your jurisdiction.
Form your Business Entity
Register Your Entity
One of the first steps you will need to take is forming and registering your business entity. You must make a business account in the specific state you wish to operate in, and make sure your chosen business name is available. To get started, visit the state’s Secretary of State website, which provides great resources to get your new business up and running while remaining compliant with state and federal law. Additionally, you will need to choose your corporate structure (LLC, LLP, Corp., etc.) and draft all the required documents such as bylaws or articles of incorporation.
Set up Permits and Registrations Such as Taxes and a FEIN
The cannabis industry is heavily taxed by state and local governments, so it is important to identify all the applicable state and local tax registrations and permits your business will need such as an FEIN or sales tax permit.
Develop a Business Plan
Develop Financial and Capitalization Plans
Starting and operating any successful business begins with the development of a business plan that includes sound financial preparation. You will want to prepare financial projections including a pro-forma, profit and loss statements, and expenditures like license fees and taxes. Additionally, while it can be challenging, finding a banking institution and securing ample financing is a very critical first step to getting started in the cannabis industry.
Perform a Market Analysis
Conducting market analysis will also contribute to the success of your business. Determine what sorts of products or services your business will offer, who your target customer will be, and how many other similar operators there are in your area, among other items.
Find a Compliant Property
Identify Any Required Setback Distances
States and localities frequently require that a cannabis business be set back a certain distance from sensitive uses, such as residential uses, schools, daycares, substance abuse treatment centers, or even churches. Setbacks from other cannabis retailers are also common. Thorough property diligence will be important to the efficient acquisition of a license and establishing a good relationship with the licensing agency and your community.
Identify Local Zoning Requirements
It can also be a challenge to identify and secure a property that complies with all local zoning requirements. All localities will have a zoning code that will outline what zoning areas a cannabis business can be located in and other requirements related to the property. States and localities generally will require a zoning verification letter or similar certifications to be submitted and processed in advance of the application.
Restrictive zoning policies and a wide range of cannabis-specific setbacks typically result in scarcity of available properties, which is compounded by landlord/tenant issues. We suggest hiring a professional surveyor to confirm if a property of interest meets all local and state sensitive use setbacks. Once you have found a compliant property, work with an architect or engineer to draft a site plan, floor plan, construction plan, and renderings of the exterior and interior of the facility.
Identify Social Equity Opportunities
Determine Social Equity Qualifications
Fortunately, many states’ cannabis programs recognize the disproportionate impact of cannabis criminalization on minority communities and have developed incentives and benefits for individuals and entities that qualify as social equity applicants. You will need to determine what criteria are required to qualify as a social equity applicant and whether your business meets those qualifications. Social equity opportunities can come from state or local agencies, so make sure to check both websites and application materials for any applicable social equity opportunities or incentives.
Identify Social Equity Benefits
Social equity programs offer many benefits such as reduced or waived application fees, grants and loans, business planning assistance, and priority processing, among many other benefits. Conducting diligent research at the front end of starting your business will ensure you can take full advantage of such opportunities.
Prepare for the License Application
Establish an Operational Plan
Another important aspect of the application is the operational plans for all the required business operations such as security, inventory tracking, waste removal, etc. Most states have a designated inventory tracking software that all cannabis businesses must use, and applicants must demonstrate how they will utilize the software in compliance with the law. Security is another area in which applicants and licensees are subject to detailed requirements.
Compile and Organize All Required Application Documents
Once you have finalized your business and operational plans you should fill out your application and compile all required documentation. Make sure to review the law and rules, the application, and any other requirements again before submitting your application so that you can avoid any unnecessary delays or added costs
Post-Licensure
If you are lucky enough to secure a cannabis license, there is still a lot of work to do to ensure you remain in full compliance with the law and are not at risk of losing your license. Some states require site inspections by state regulators before you can open your business. In addition to paying close attention to all the post-licensure requirements, you must also remain cognizant of any license renewal fees and deadlines. Most states require licensees to renew their license yearly, and missing a deadline could result in the suspension or revocation of your license.