How to Start a Cannabis Business

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

On the surface, starting a cannabis business should be the same basic steps as starting any other business. However, due to the complex legality and regulations in the cannabis industry, different roadblocks and red tape emerge in the startup process to make sure the business you are starting is legal and legitimate. The complexity and confusion can make this process feel daunting. 

Fortunately, exhaustive online resources can help you through the process. Here are the basic steps to buy a cannabis business, along with recommendations on how to get through some of the unique challenges of investing in this space.

Decide Which Side of the Industry you Want to Work in

The cannabis industry spans everything from cultivating plants to selling cannabis products to the consumer. You could start a business on the agricultural side, the processing and distribution side, the retail side, or even the research and development side. Deciding which sector to go for is key because each has different capital, property and licensing requirements that dictate your next steps.

Capital 

Just like any other business, cannabis businesses have startup cost and since the industry is highly regulated and competitive; cannabis businesses can be expensive to start. Therefore, before considering starting a business in the cannabis space, it is highly advisable to figure out where your capital is going to come from. Often, startup funding is not available to cannabis businesses, so you will have to fund the business out of your own pocket or with your personal credit. 

Apply for or Buy a License

Licensing requirements vary by state, so research the specific requirements of the state where your property is located. In some states, a one-size-fits-all license will work regardless of what side of the industry you are in. In others, you will need separate licenses for each activity from cultivating to retailing. To add to the complexity, some states have different licensing departments depending on which type of license you are getting.  In addition, some states require license applicants to have a property secured before applying for a license. 

This state-by-state overview of licensing and permit requirements is a good place to start. However, your best bet is to consult a lawyer who is familiar with your state’s laws and licensing requirements.

Find the Right Property

Once you know which part of the industry you want to start a business in, you will already have some sense of what kind of property you need. If you are buying a cultivation and production business, you will need a greenhouse, outdoor acreage, or warehouse space. If you are buying a retail business, you need a storefront. 

While you can browse for property on any of the popular real estate listing sites, finding a property that is right for this industry can be tricky. Those popular sites include thousands of listings, not all of which will be suitable for a cannabis business. You may run into some resistance as you struggle to find real estate agents and property owners who are willing to work in the cannabis industry and have the necessary background knowledge to do so.

To get around that, you can use sites like 420property.com, which list only properties and businesses that are or have the potential to be used for a cannabis business. Sites like this, filter out unsuitable listings and connect you with industry professionals who can work with you, which makes this stage of the process much simpler.

Design, Tenant Improvements, Facility Buildout, and Equipment

If you are lucky enough to have made it past the hurdles of finding a location and getting a license for the type of business you want to operate; now, you need to design, buildout, and furnish your new cannabis facility with any equipment or features you want or are required to have. For example, most states require cannabis businesses to have security systems (cameras and alarms) installed, or if you are operating an extraction facility you may need to install fire safety and compliance features. Some cannabis businesses need specialized pieces of equipment to operate, for example, an extraction company may purchase a high-quality closed-loop hydrocarbon extraction system such as the Iron Fist Extractors EX-80, which is capable of extracting 80 pounds of cannabis at one time. 

Get Insurance

Cannabis businesses have special needs when it comes to insurance. For one, you can not assume that a policy will automatically include a cannabis operation. You need to find an agency that explicitly states that cannabis businesses are covered. Skyfront Insurance is one example of a specialty cannabis insurance provider. 

Then, you need to look at what kind of experience the cannabis-friendly insurance agencies have. The unique legal challenges, compliance requirements, and other needs of your business require special knowledge and familiarity. Without that, the agent might not know what coverage you need.

These general steps mark a good starting place for your cannabis business. Depending on your goals and what kind of funding you have available, you might also need to write a business plan, or take other steps to get your new business up and running.

Pay for Expert Help

The cannabis industry operates in a murky legal and taxation world. Cannabis, while recreationally legal in many states, is federally illegal in the U.S. This lucrative and exciting business opportunity offers great growth potential, but it also holds potential traps that could cost you in profitability and legal fees. Consider hiring an accounting or legal firm specifically working in the cannabis industry to protect your business and yourself.

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.