Many entrepreneurs are wondering how to start a cannabis business, as this industry reminds some of the gold rush with everyone rushing to claim a stake.
But starting a successful cannabis business is not for everyone. Once you start to peel back the layers of the industry, you’ll have a better understanding of what you’re up against.
I say this not to scare you away but rather to help you manage your expectations. This can be a very rewarding pathway for the right person, but again, the legal cannabis business is not for the faint of heart!
Let’s get started.
What you need to know about getting into the cannabis industry
If you are wondering how to get into the cannabis industry, don’t worry, we will get there, but first its really important that you manage your expectations.
Prepare for an invasive vetting process
If you are hoping to open a retail cannabis store, or any other licensed cannabis business, you are going to need to prepare for an invasive process.
One of the first steps in the vetting process will be a background check.
In Washington State, we had to undergo two (2) separate background checks; our own Washington State Patrol and one administered by the FBI. There will likely be a “points system” of sorts, but this varies State by State.
So while you don’t have to be a Boy or a Girl Scout, you’ll have to be pretty darned squeaky clean. And, anyone who may have a financial interest in the business will be subjected to these background checks. This includes spouses.
The cannabis industry is unlike any other
Because you are operating a business that is illegal at the Federal level, you will run into issues with taxes, insurance, banking, mortgages, lease agreements, and more.
Many times these “issues” will feel unfair. After all, it’s legal in your state, right? Unfortunately it is not that simple, and in fact, very few things in this business are uncomplicated. You’ll face roadblocks, impediments, and bumps in the road that “normal” businesses wouldn’t.
Expect the unexpected
You’ll also need to expect the unexpected. This is still a relatively new industry, and things are constantly changing around us. Even in an established, relatively mature industry like Washington State, I need to be nimble and ready for almost anything at a moments notice.
If you are in a State just entering the legal cannabis industry, hang on tight while things shake out! You’ll want to be wary, especially if your state has just legalized adult-use cannabis in particular.
It could be a bumpy ride for a variety of reasons. Plan for the regulatory “goal posts” to be moved somewhat in the opening months with changes in rules, regulations, requirements, etc.
As the proud owner of a licensed cannabis retail store in Ellensburg, Washington for the past five years, I am here to tell you it is possible. If you are still reading, it means I haven’t scared you off, which is a great sign! Now, let’s dig just a bit deeper as to how to get into the cannabis industry.
The definitive guide on how to start a cannabis business
Just like any business, starting a successful cannabis business requires real work. You need a strong “why” to remind yourself of during the darker times.
If you have a strong purpose, good organization in the form of a business plan, and the right guidance, you can be very successful. Here are some recommendations on how to begin.
Do your research
This might be the most important step of all. We touched on it at the beginning of this article, but you need to be aware of what you’re up against. You can start by learning about cannabis in general, along with the history of the industry.
On a more specific level, you need to have a deep understanding of the regulations in your respective state. Starting a cannabis business will involve many of the same steps across state lines, but there will likely be intricacies in your state. You’ll need to be totally familiar and comfortable with these details. These include eligibility, how to start the application process, whether you will take the medical or adult-use route, and more.
Get familiar with which government entity is going to regulate cannabis in your State. In Washington, the Liquor Control Board (LCB) was selected to regulate cannabis. Knowing who you are going to be dealing with is very important.
Write your business plan
Next, you’ll need a business plan. This is not just for your sake, but for the application process. Most states require a business plan to even begin the application process, and it will need to be very detailed.
Make sure the business plan takes into account every law in your State; location, vendor relations, employment, funding, and more. Here are some of the most important elements to include in your plan for the highest probability of success:
- Develop a Mission Statement for your would-be business. This should speak to your goals and values you will want to embrace as the owner.
- All of your anticipated expenses, projected revenues, and profit
- Choose and secure an acceptable location, according to both the State’s rules as well as your local town or county’s.
- A key component in any business but of critical importance in retail cannabis will be sources of inventory. You will want to begin forging relationships with possible wholesale sources for product for your store(s).
- I strongly suggest a qualified accountant and attorney, along with an experienced consultant who has extensive experience in legal retail cannabis operation.
This is where things start to get tricky.
The licensing process can vary by state, but in Washington, the LCB took all of the qualified applicants and quite literally drew names out of a hat.
There were to be two (2) picks in our town, Ellensburg, and we were drawn #2. However, we were first to open in the city, as well as the county. We were #37 licensed in Washington, and the 23rd to open and begin reporting sales. We also, at the time of writing this, are one of just a handful of stores in the State with zero violations.
If you are selected, you will need to be ready to act. Your research will be essential here, as you prepare all the necessary documentation. You may be asked to work with a number of regulatory bodies throughout the licensing process. Although, in Washington State, I was assigned a Licensing Specialist. I worked with them exclusively for the entire vetting, pre-opening and grand opening phases over a six (6) month period.
Setting up your cannabis business at the state and federal level
Before you start operating your cannabis business, you will need to register your business with your Department of State. In my opinion, you need an accountant. They can help you set up your business in the proper fashion at the Federal level as well. This will be imperative in obtaining, among other things, an EIN (Employer Identification Number), also known as a business tax ID number.
Since cannabis is still a Schedule 1 controlled substance, normal business tax rules and tax deductions do not apply. The Department of Treasury will allow such a business, but they will tax very heavily. You’ll need to learn about a section of the US Tax Code, 280E. You’ll have plenty of things that may keep you awake at night when starting a legal cannabis business. Don’t let IRS worries be one.
Get funding for your cannabis business
Finding a source of funding for any business can be challenging, but this is further complicated in the cannabis industry (are you seeing a theme here?).
Because marijuana is federally illegal, banks will not offer you a loan, nor will many venture capitalists. The risk for them is too high in most cases, as the government could pursue legal action against them for their involvement in the cannabis industry if desired.
However, if your business plan is solid, you will eventually find an investor willing to work with you. My wife and I made 37 presentations to would-be investors, but I could never quite put a deal together.
The people I spoke with wanted too much for too little, so at the end of the day, we mortgaged everything and took the plunge alone.
Times are changing
It is a new day and time in the cannabis industry now; I was a sort of pioneer, a trailblazing guinea pig is how I always described myself! Nowadays it may be different, even a little easier for you.
But, I know one thing for sure: it will be substantially easier for you if you hire me to help you with this process! If I could have hired the Rob Hendrix of 2019 back during the Summer of 2014, that would have had a profound effect on my success, and more importantly my stress levels!
If in fact you decide to make a go of it on your own or with private and/or family funding, I can assist with that process as well. Bootstrapping a cannabis business is an area many typical cannabis agencies are sorely lacking in, but thankfully, I am not a “typical cannabis consultant”.
Bootstrapping, the idea of proceeding ahead into the cannabis business alone, is an area of expertise that is seriously lacking in the cannabis consulting arena. I have already done the hard work, and am familiar with the do’s and don’ts. Let me help you.
Banking for your retail cannabis store
Another facet of getting funding for your cannabis business is finding a bank willing to work with you. We have an entire article dedicated to cannabis banking.
In all likelihood, you’ll have a hard time finding a bank willing to work with you at first, especially in newly legal states. There are ways to function within these restraints, which we dive into in that article.
Need help starting a cannabis business?
I have been through it all, seen it all, dealt with it all. I have been a hands-on owner who has persevered through short supplies and crazy high prices. In fact, I have even worked with our regulatory body, the LCB, in our capital, Olympia, to effect changes so our industry can survive and ultimately thrive. After all, it is our responsibility as participants in the industry to see that we further it for everyone.
If at any point in your own personal process you are feeling overwhelmed, troubled or lost, I can help. I started Cannabis Consulting Nationwide to help people just like you, and now, you truly have a friend in the cannabis industry. (I know that sounds contrite and cheesy but is the truth!)
Having someone in your corner from the start can be a huge asset. I can help ensure you won’t be surprised by anything. If you have any questions at all, reach out to me and I’ll be happy to chat with you! The first hour of phone time with me is always free. Call me, there is no such thing as a dumb question and there is practically nothing I wouldn’t send you upon request. Looking forward to meeting with you.