Even if you are already intimately familiar with the landscape and demographics of a particular industry, starting any new business is bound to be a challenging endeavor. Launching a new enterprise in an industry as heavily regulated and historically stigmatized as the cannabis industry, however, is going to be even more challenging. Unfortunately, this is simply the reality of the cannabis industry today.
With that said, the profit-earning potential of cannabis businesses in areas where products are available can be exponential. Look no further than Colorado, for example. Since legalizing cannabis in 2014, the state’s cannabis industry has topped $6 billion in sales and is projected to reach $50 billion by 2026.
If you truly wish to start your own business in the cannabis industry, despite its relatively young age and the multitude of legal hurdles you will have to overcome, here are five of the first (and most important) steps you will need to take to get started.
Step 1: Choose the kind of cannabis business you want
If you already know that you want to start a cannabis business, then the good news is that the first half of this step is already done. What you need to decide next is what kind of cannabis business you want to start.
For example, do you want to open a standalone dispensary storefront with the aim of growing into a franchise? Perhaps you’d rather open a facility to grow and harvest your own cannabis plants? Or even your own cannabis delivery business like Nug Avenue? Maybe you’re even more ambitious and would like to create a business that does all of these things.
Whatever the case is, your plans for your business can’t proceed further without making this initial decision. Keep in mind that laws and regulations can vary depending on both the type of cannabis business you want to create, as well as where and when you want to create it. During this step, I would strongly recommend doing a lot (and I do mean a lot) of research to help you better understand exactly what you can expect from starting your business.
Step 2: Create a business plan
Now that you’ve formally decided on what type of cannabis business you want to start, the next crucial step you need to take is to create a plan for that business. Unfortunately, because of the widespread regulations still in place which affect the cannabis industry as a whole, this means that your plan is going to need a bit more detail and nuance than if you were launching a business in another less-regulated sector.
First things first: be sure to have a deep understanding of the laws and regulations that affect cannabis businesses in your state or region. Even though some of these laws may be subject to future change or revisions, you need to understand how they will affect and impact your business now and in the immediate future. Along with these, some of the basic information you will need for your business plan include:
- Business costs (i.e., overhead) and potential profit margins
- Marketing strategies to attract and retain customers
- Who your main competitors are, or will be, and how you plan to win over them
- Where your business will be located
- Who your business’s suppliers will be and how you plan to partner with them
- Who your business’s legal counsel will be and how they can help navigate the industry
Once you have outlined this information, you’re ready to start the next step in the process.
Step 3: Formally register your business with the government
Before starting your cannabis business, you likely already know that cannabis and products derived from cannabis are still classified as illegal at the federal level in the US, meaning that interstate cannabis sales are also illegal. However, great opportunity remains for cannabis businesses to operate at the local level.
The next step you’ll need to take is deciding what kind of business entity you want to register your company under, as this will affect both the scale of risk and taxes it will be subject to. The two most common for new cannabis companies are limited liability companies (LLCs) and corporations, and there are several key differences between either option.
Once you have decided what sort of entity you want to operate as and have settled on an available name for your business, reserve that name with the appropriate government business entity.
You will also likely need the help of a legal representative to navigate how to register as a cannabis business in your state before you can register your business with the IRS for an employer identification number (EIN), which will be necessary to open a bank account, credit card, or to receive investment funds for your business. Congress is currently considering a bill that would make banking more accessible to cannabis companies.
Step 4: Obtain any necessary licensing and permits
With the sheer amount of laws and regulations that affect the cannabis industry, as well as how those laws can vary between states and regions, that fact alone makes this perhaps the most vital step in the process of starting a cannabis business—one that should coincide with the prior step, as well.
Before your cannabis business can be officially registered as a business entity, you will need to ensure you have all the proper documentation necessary to register, open, and operate it. You will also need to know exactly which licenses you will need to apply for and which regulatory bodies you and your business will need to comply with.
Again, this is going to vary depending on your business’s planned location of operations, as well as what type of cannabis business you plan to open. This is also on top of the other work necessary to register and open your business as any other new business would. Be prepared for a lot of research, phone calls, email, and time spent in navigating this key step in the process.
Step 5: Start looking for investors and B2B partners
Every new business and business owner has to face the reality that their entity is going to take funding to get off the ground. For businesses in the cannabis industry, the options for funding are more limited than businesses in other industries due to existing regulations. Currently, most small business loans and bank lenders are unable to fund businesses in the cannabis industry as they are still subject to federal finance laws.
This means that to fund the costs of registration and licensing fees, permits, rent, and notoriously higher taxes, you will likely need to enlist the help of alternative investors and financing options. The primary draw for these types of lenders is the high profit potential for cannabis businesses. Your chances of acquiring funding through smaller and independent lenders like these depend on having a solid business plan and growth strategy under your belt.
The bottom line is this: starting a new business in cannabis is far from easy. With laws and regulations, it can take a year or more from the time your business is registered to the time it opens its doors and makes its first official sale.
Be prepared to put a lot of your own personal time and hard work into your new business. But if it is truly a business that you want to start, manage, and grow, then it won’t feel like work.