CANNABIS (STARTUPS) | Marc Cunningham LLC

Cannabis (Startups)

Familiarity with prudent prerequisites to starting any type of cannabis business in the United States (US), the first of which should be for the prospective owners of the proposed cannabis-related business (C-RB) to decide the proposed target consumer base (TCB) of core consumers to whom the proposed C-RB would be selling its particular products or services, since without first knowing the characteristics, concerns and needs of such proposed TCB, it would be impossible to determine what products or services to sell to them.

This is particularly true if the proposed C-RB would be selling to walk-in customers (such as in dispensary), in which case physical location, local zoning laws and access to major vehicular routes and mass transportation would be important considerations.

To determine the proposed TCB, it is necessary to have actual familiarity with the age group, entertainment preferences, incomes, genders, housing preferences, occupations, political preferences, shopping preferences, transportation preferences, and other important characteristics of the proposed TCB constituents.

Although the prospective owners of the proposed C-RB may have some cursory personal knowledge of such characteristics, in order for the prospective owners to determine the demographics of the proposed TCB with accuracy, it would be prudent for such prospective owners to commission experienced and reputable marketing research subject matter experts (SMEs) to perform a detailed market analysis of the proposed TCB.

Such market analysis will also be extremely valuable further on in the startup process, to include in the business plan that the prospective owners of the proposed C-BR will eventually present to prospective individual and institutional investors when seeking startup capital, to provide evidence of having performed competent due diligence to validate the informed decisions such prospective owners have made about the form and type of the proposed C-RB and the types of products and services they would like the proposed C-RB to sell.

It may be prudent to include in such market analysis some detailed information about the total addressable market (TAM), the serviceable addressable market (SAM) and serviceable obtainable market (SOM).

TAM demonstrates to investors the total yearly revenue opportunity or units sold for your product or service if the proposed C-RB achieved 100% of the available market, and is a quick way to address the potential size of the space in which the proposed C-RB will operate.

SAM is the subset of TAM (expressed as a percentage of TAM) that the proposed C-RB will serve with its products and services.

SOM is the subset of SAM (expressed as a percentage of SAM) that may be realistic for the proposed C-RB to achieve.

Thus, if the region in which a proposed dispensary would operate had 100,000 inhabitants who each spend $10 per year on cannabis products, then TAM would be $1,000,000, but if the proposed dispensary can only serve a maximum of 50% of that region (50,000 inhabitants) due to accessibility issues, (the dispensary is only accessible by car), then SAM would be a maximum of $500,000, and then if only 50% of those inhabitants who have cars want to drive to a dispensary to make an in-person purchase (25,000 inhabitants), then it is realistic to expect that SOM would be a maximum of $250,000, in the best of circumstances.

Once such prospective owners of the proposed C-RB have decided the proposed TCB to whom they wish the prospective C-RB to sell products and services, the second consideration they should address is to determine what type of proposed C-RB to form.

It would be advantageous to have some totally innovative and original idea for a completely new type of business within the cannabis space that may fill a perceived need for a particular market of target consumers, but completely an innovative and original idea does not always appear on cue, so failing such an apparition, there are two general categories of C-RBs: those which “touch” cannabis; and, ancillary.

The types of C-RBs that actually “touch” (meaning to physically cultivate, distribute, grow, handle, process or sell cannabis or some combination thereof) cannabis, are generally breeders, cultivators, dispensaries, extractors, growers, infusers, manufacturers, processors and sellers.

Of those, dispensaries may be the most risky, with very slim profit margins, because even though they may appear now to have high gross sales, further on, as fully-legalized cannabis use may continue to increase in the US (as more US jurisdictions may legalize cannabis for some or all uses), the prices of cannabis-related products would then decrease in response to the increased competition, thus also decreasing net profits for dispensary operations.

There are personal qualifications (generally, no dispensary investor, license holder or owner can have any felony convictions) and zoning factors (generally, the dispensary location must no closer than 500-1000 feet from any church, school or other restricted location) to be considered.

Also to be considered is the cost to open a new dispensary, which can range from a few hundred thousand dollars to over a million dollars, depending on the amenities provided, the construction costs and requirements state in which the dispensary is located, and with anticipated yearly operating expenses of at least $200,000.

In contrast, the cost to construct a new growing facility perhaps for a thousand cannabis plants may run from $500,000 to over one million dollars (excluding the cost for the land).

However, many growers choose to cultivate fewer than a hundred cannabis plants, since Federal criminal sentences for anyone growing a hundred cannabis plants or more begin at five years of jail time.

Startup costs for the facilities to produce cannabis-infused products – which may include beverages, botanicals, cosmetics, edibles, lotions, ointments and tinctures, to which some amount of cannabis or cannabidiol (CBD) has been added – may be at least $300,000, with a similar amount spent on yearly operating expenses.

The types of C-RBs that actually touch cannabis are also the most heavily-regulated types of C-RBs by states, since cannabis remains illegal at the Federal level as a Schedule I controlled substance under the Controlled Substances Act (CSA).

They are also the most-heavily taxed types of C-RBs by states, which also severely reduces their net profits.

For example, if a dispensary sells medical cannabis products (in Arizona, Colorado, Hawaii, Illinois, Maine, Nevada, New Jersey, New York and Pennsylvania), there will be additional state taxes of from 1% to 7% on each transaction (depending on the location and type of cannabis product sold).

Surveys have shown that there may be generally effective tax rate of 60% on C-BRs that touch cannabis.

The Internal Revenue Code (IRC) Section 280E does not allow any Federal tax advantages or deductions for any businesses that actually touch cannabis, or their owners.

Since cannabis is a Schedule I controlled substance and so any form of actual cannabis trafficking is illegal at the Federal level, any US national financial institution that has any dealings with the Federal government, or any agency thereof, will not wish to provide any loans to C-RBs located in the US that actually touch cannabis and will generally not even allow such a C-RB to open an account.

Any such institution is wary of losing the support of the Federal Deposit Insurance Corporation (FDIC) which will not back any financial institution that lends money to any business that violates Federal law, which every C-RB that touches cannabis does on a daily basis.

One extremely important distinction to consider is that the 2018 Farm Act removed hemp – cannabis containing less than 0.3% tetrahydrocannabinol (THC) – from the CSA Schedule I list of controlled substances, thus if it can be proved that the proposed C-RB only deals with hemp, in very restricted circumstances, such C-RB may be entitled to treatment as Federally-legal business for certain limited purposes.

Thus, many C-RBs that actually touch cannabis operate on a fully-cash or partly-cash basis, which besides being inconvenient may be a very risky proposition, considering the reputation of some people on the fringes of the cannabis industry.

In such cases, it has been prudent to hire security guards and to install special crime-deterrence and surveillance equipment within the dispensary, also decreasing net profits.

To circumvent this problem, many C-RBs that touch cannabis immediately convert a majority of their cash on hand into cryptocurrencies such as Bitcoin and PotCoin (a blockchain-based cryptocurrency similar to Bitcoin, but developed specifically for cannabis-related businesses, whether they may touch cannabis or not, and with added anonymity features).

C-RBs that actually touch cannabis have also taken advantage of associations with the online global payment processing sites, some of which have dedicated online banks to provide general banking services, regardless of the actual location of the customer.

Market research studies have demonstrated that offering e-commerce payment options (such as smart phone applications, card scanners and websites) for payments rather than cash only may double the amount a consumer is willing to spend in a transaction.

C-RBs located in the US that actually touch cannabis cannot use the Federal financing statutes to form initial public offerings (IPOs) or be listed on any US exchange.

However, C-RBs located in jurisdictions outside the US may be able to take full advantage of that jurisdiction’s finance statues, including opening bank accounts, receiving loans, forming IPOs and be listed on the exchanges in that jurisdiction (such as in Canada).

The second general type of C-RB, ancillary C-RBs, are those businesses that do not actually touch cannabis, but provide some form of supporting function to the cannabis industry.

Examples of ancillary cannabis-related business may be an accountant (who has one client who is a C-RB that actually touches cannabis), or a software developer (which creates smart phone applications that may locate the nearest cannabis dispensaries), or a “bud and breakfast” (similar to a bed and breakfast, but catering to guests who live a cannabis-related lifestyle), or a business that manufactures hydroponics equipment for growing any type of plant (whether or not a grower of hydroponic cannabis may use such equipment), or an advertising company (that may produce content hawking the advantages of a particular dispensary).

Ancillary C-RBs can open bank accounts in US national financial institutions, receive loans from such institutions, form IPOs, be listed on US exchanges and pay taxes as would any non-C-RB.

An ancillary CR-B may be the least-risky type of C-RB, since it is not subject to the same Federal prohibitions and state statues as C-RBs that touch cannabis, and so for all intents and purposes they are just regular types of business.

The third consideration in starting a cannabis-related business may be the necessity to itemize and fully understand every local law and state statute applicable to cannabis-related operations for the chosen type of cannabis-related business, in the specific jurisdiction in which the proposed cannabis business will be located (and for this exercise it would be most prudent to consult with a local attorney who is expert in such laws and statutes).

The proposed cannabis-related business must continuously remain in complete compliance with such applicable laws and statutes, or the proposed cannabis-related business and its owners may be subject to heavy fines and penalties, and possible criminal prosecutions.

This requirement is of such importance that depending on their size, many cannabis-related businesses employ either a dedicated in-house compliance officer directly, or external compliance subject matter experts (SMEs), to perform compliance audits and continuous monitoring of such applicable existing laws and statutes, as well as any proposed new cannabis-related legislation.

The fourth consideration in starting a cannabis-related business may be the form of legal entity to be used (such as corporation, general partnership, limited liability company, limited liability partnership, S corporation, or the like) depending the balance between a combination of the state statutes in the specific jurisdiction in which the proposed cannabis business will be located and the state tax protections the owners may want to employ, for which both an accountant and an attorney should be consulted about these issues.

Once the owners have decided upon the most advantageous type of legal entity, that legal entity should be named, and then registered with the Secretary of State of the specific jurisdiction in which the proposed cannabis business will be located.

If the familiar name under which the proposed cannabis business will operate is different than the formal legal name, a doing-business-as (d/b/a) certificate must also be filed with the Secretary of State.

The fifth consideration in starting a cannabis-related business may be to apply for an employer identification number (EIN) from the Internal Revenue Service (IRS), which is required when applying for credit or a credit card, paying payroll taxes and income taxes, or when opening a bank account.

The sixth consideration in starting a CRB may be to write a very detailed business plan, which may be the most complicated step of the startup process, although the one most-crucial to getting funding and thus getting the proposed C-RB off the ground.

Studies have demonstrated that entrepreneurs who take the time to write a comprehensive business plan are 2.5 times more likely to gain the funding they are requesting, than those whose proposed business plan is vague and poorly-presented.

There are numerous websites either providing template of business plans for numerous types of business for free, or selling such plans, including plans for starting many types of C-RBs.

Some states have required prerequisites that must be included in any C-RB business plan, such as separate plans covering functions such as cultivation, detailed financials, environmental issues, fire safety, inventory control, manufacturing, patient education (if the C-RB sells medical cannabis), processing, product safety, recordkeeping, security, staffing, transportation.

In general, the business plan may include numerous descriptive sections detailing various characteristics of the proposed C-RB, such as detailed financial projections showing the anticipated timeframe when the business will transition from operating in the loss column to operating in the profit column, how much funding the prospective owners are requesting for their proposed C-RB, the anticipated business costs (such as for construction, licensing fees, site acquisition), the anticipated competitors of the proposed C-RB, the legal structure for the proposed C-RB (such as corporation, general partnership, joint venture, or the like) and why that particular legal structure was chosen, the management team (with biographies of each prospective owner), the strategy to attract the proposed target consumer base (TCB), the chosen location for the proposed C-RB, the potential suppliers for the proposed C-RB, what makes the business unique in the particular space in which it will operate.

Such descriptive sections may be named generally (in no particular order of importance):

appendices and exhibits (any specific detailed information too complex to be presented in a short explanation, such as copies of proposed legal documents, spreadsheets, or any other form of very complex and lengthy information, such as an anticipated profit and loss – P&L – statement and cash flow statement, assets and liabilities, the equity percentages for each owner, credit standing s of the prospective owners, illustrations of each product, descriptions of each service, proposed marketing materials, a schedule of all licenses obtained thus far, resumes of the prospective owners, copies of all contracts with vendors and suppliers, survey results from market research studies);

company description (at a minimum, an explanation of what type of C-RB the proposed C-RB is intended to be, the market opportunity that proposed C-RB is expected to gain, the key features of the proposed C-RB that make it unique among its competitors, future expansion plans for the proposed C-RB and all laws, regulationsand rules applicable to the proposed C-RB);

competitor analysis (a brief analysis of the particular space in which the proposed C-RB will operate, including information about established businesses, industry sales, industry trends, primary competitors – those competitors most-similar to the proposed C-RB – secondary competitors – those competitors in the same space, but which provide different solutions to solve the issue that the proposed C-RB is attempting to address);

executive summary (a brief summary of the entire business plan, emphasizing the anticipated success of the venture, written in a manner to capture the reader’s attention and interest in reading the rest of the business plan, no matter how long it may be), exit strategy (showing the timeline and financial projections for how investors will recoup their initial investment, gain profit and then end their relationship with the proposed C-RB; at a minimum, the executive summary may have subsections, such as a mission statement, the name and type for the proposed C-RB, the location of the proposed C-RB, the prospective owners, a brief overview of the cannabis industry and what the proposed C-RB is expected to accomplish, and some of the optimistic financial highlights);

financial analysis (any form of applicable financial information and projections required to validate the request for funding, preferably prepared by financial SMEs intimately familiar to the exact type of C-RB being proposed, such as proposed balance sheets, cash flow statements, expense forecasts, income statements, which at a minimum should include detailed information regarding the startup costs, sales forecast, expenses, profits and losses, cash flow, graphs and charts to support to figures revenue forecast, sales forecast, projected balance sheet, P&L statement);

funding request (the straightforward ask for funding, which should include at a minimum detailed information about the amount requested, the terms most beneficial for the proposed C-RB, how the funds may be used during the first five years of operation, the length of time required for repayment, any anticipated long-term funding needs);

industry analysis (with information similar to that provided in the competitive analysis, but more detailed, such as the detailed overview of the cannabis industry in general, market trends of the cannabis industry both current and predicted, anticipated market growth for the cannabis industry and the timeline for such growth, future markets into which the proposed C-RB might expand,a detailed analysis of existing competitors identified by similar product and service as well as perceived possible future competitors, factors that differentiate the proposed C-RB from all such competitors, the target TCB and why such target TCB might purchase the products and services of the proposed C-RB, identifying the ideal customer for the proposed C-RB’s products and services by age, gender, orientation and any other applicable metrics);

management and organization analysis (detailing the management structure for the proposed C-RB and the qualifications of the specific people proposed for each management position, and there may also be information about proposed Board of Directors individuals and any other key advisors, which at a minimum should include the structure of the proposed C-RB, the organization chart for the proposed C-RB, detailed information for each member of the management team, and a personnel plan, detailing which types of personnel will start with the proposed C-RB and their necessary skills, and which personnel will be hired as the proposed C-RB expands);

market analysis (to determine the proposed TCB, and whether the products and services of the proposed C-RB will serve the needs of such proposed TCB);

operations analysis (providing detailed information about the number and background of each category of proposed employees, the physical facilities in which various operations will occur, any processes for providing products and services, logistics, and any other information pertaining to the functioning of the proposed C-RB operations);

opportunity analysis (expands upon the brief overview in the executive summary, and provides more detailed information regarding the issues the proposed C-RB is meant to address, the key assumptions justifying the creation of the proposed C-RB, the size and characteristics of the TBD, intellectual property owned or controlled by the C-RB, and other relevant detailed information);

products and services analysis (detailed information about every proposed product and service, which at a minimum should include information about the sourcing for each product and service, the pricing structure for each product and service, the anticipated lifecycle for each product and service, the intellectual property behind each product and service, the research and development – R&D – behind each product and service, and the manufacturing details behind each product and service); and,

sales and marketing plan (detailing how the proposed C-RB plans to provide products and services to the proposed TCB, sales forecasts, strategies for alliances, packaging, partners, positioning, pricing, and other relevant operations functions, which at a minimum should include detailed information about how the proposed C-RB will use marketing efforts to attract and retain customers, whether a marketing company knowledgeable in the specific business of the proposed C-RB has been retained, what the proposed marketing budget and timeline may be, and the types of marketing you plan to do, such as online advertisements, social media advertisements, push technologies, billboards, mailers, commercials, television, radio).

An optional section to include in the business plan for the proposed C-RB might be a strengths, weaknesses, opportunities and threats (SWOT) analysis.

Examples of strengths to support the proposed C-RB might be a clear and tested value proposition (something unique or extremely utilitarian, such as a handy feature, innovative functionality or vital service, intended to make a product or service attractive and desirable to customers), exclusive partnerships, the value of the proposed C-RB’s intellectual property, a recognizable brand, a strong reputation, a high barrier of entry to new potential competitors, physical assets and equipment, a proven and repeatable process for creating sales, the social and physical network supporting the marketing for the proposed C-RB.

Examples of weaknesses for the proposed C-RB might be poor physical location, gaps in skills on the management team, poor reputation, an unknown brand, unexclusive partnerships, no system to add new sales, a low barrier of entry to new potential competitors, an unrecognizable brand, unclear value proposition.

Examples of opportunities available to the proposed C-RB might be underserved markets, regulatory changes that may increase the popularity and value of the proposed C-RB’s products and services, increased referrals from satisfied customers, media coverage of the proposed C-RB, a lack of competitors in the region in which the proposed C-RB operates.

Examples of threats to the proposed C-RB might be an increase in competitors, regulatory changes adverse to the proposed C-RB, an unstable supply chain, technology improvements that render your service less valuable, changing TCB behavior that will impact your business negatively.

Investors will also want detailed information on the pricing strategy of the proposed C-RB, such as schedules of proposed prices for all the products and services offered by the proposed C-RB and what SOM may realistically be achieved from each such product and service, will subscription plans be offered in addition to per unit pricing, will free samples of products and services be offered in order to generate interest, are there realistic opportunities for increases in prices and when, what pricing strategies may be employed – cost plus (the total cost in time and materials to produce a product or service plus an added percentage on top of such total cost, representing the profit), “freemiums” (the basic product or service is provided for free, but prices are charged for additional features), pay-what-you-want (allowing the individual consumer to pay what they may think is fair for the product or service, if anything – which studies have shown may actually result in such consumer paying more than what the product or service is actually worth, assuming they pay anything), market pricing (setting the price for the product or service under the prices competitors charge for the same or similar products or services), value pricing (pricing based on how much value you provide the customer, rather than strictly the cost to produce a product or service).

To assuage investor concerns regarding supply chain issues, it may be prudent to include detailed information regarding the distribution channels the proposed C-RB intends to employ to deliver its products and services to all consumers regardless of their locations (whether by retail distribution – selling the proposed C-RB’s products and services through established retail outlets – or direct distributions – selling the proposed C-RB’s products and services directly to consumers whether online or at facilities owned or controlled directly by the proposed C-RB, or through manufacturer’s representatives who work on commission, selling the proposed C-RB’s products and services to established distributors and retailers), the procurement and sourcing of all goods and services to be used for providing the products and services of the proposed C-RB, the various technologies to be employed by the proposed C-RB throughout the supply chain to ensure a steady flow of business.

The seventh consideration in starting a cannabis-related business may be obtaining the funding for the proposed C-RB.

Ancillary cannabis-related businesses should have no trouble obtaining any form of financing.

There are websites that list crowdfunding platforms and lending companies that specialize in providing funds for C-RBs, although the regulatory recordkeeping requirements for identifying individuals participating in such financing opportunities may prove to be onerous.

Currently, to circumvent the Federal illegality issue and the resulting lack of support from US national financial institutions, the most common forms of funding in the US for C-RBs that touch cannabis are angel investors, debt financing, equity financing, self-funding (“bootstrapping”), startup accelerators, startup incubators and venture capital.

Angel investors are either individuals or groups who wish to provide funds to C-RBs perhaps for ideological reasons, or just because the return-on-investment (ROI) may greatly exceed the risks of investing in a Federally-illegal enterprise, and are willing to risk their cash.

They may be generally the most flexible in terms of negotiations and terms.

There are online sites listing potential angel investor individuals and groups.

Debt financing is any form of funding resulting from a firm raising money for working capital or capital expenditures by selling debt instruments to individuals or institutional investors, in return for which debt instruments, the creditors and receive a promise from the debtor that the principal and interest on the debt will be repaid on a specific schedule by a date certain (and for reasons previously-discussed about Federal illegality, institutions will generally not participate in such arrangements, so the C-RB would have to deal with individual investors).

Equity financing is the process of raising capital through the sale of shares in private or public offerings (and for reasons previously-discussed about Federal illegality, public IPOs are not available for C-RBs that touch cannabis, but private placements are available).

Self-funding or bootstrapping is simply providing one’s personal cash, perhaps supplemented with contributions from family and friends.

A startup accelerator is generally a collaborative privately-funded or publicly-funded program designed to help new startups succeed by providing services similar to startup incubators, in which the startup accelerator may take an equity position, and may make an active effort to promote the startup at the end of the process, for example by hosting an event designed to introduce the startup and its products and services to the general public.

There are websites listing startup accelerators, the services they provide and the types of business and industries in which they operate.

A startup incubator is generally a collaborative government-funded program of a non-profit organization (so it takes no equity position in the startup) designed to help new startups succeed by providing services, such as access to accounting services, access to banking services, assistance understanding the basics of business planning and operations, financial management advice, intellectual property management, internet access, introductions to angel investors and strategic partners, legal consultation, loan assistance, marketing and presentation expertise, screening for board of directors and management teams, social networking connections, technology education, venture capital networking.

There are websites listing startup incubators, the services they provide and the types of business and industries in which they operate.

Venture capital funding is a form of private equity and is a type of financing that investors may provide to startup companies and small businesses that are believed to have long-term growth potential, which may be provided from either financial institutions, investment banks or wealthy individuals (and for reasons previously-discussed about Federal illegality, financial institutions and investment banks will not wish to participate in funding for C-RBs that touch cannabis, so venture capital funding for such firms may be limited to venture capital firms composed of wealthy individuals or from wealthy individuals directly).

Typical operational startup costs may include costs for accounting, business license, construction, equipment, interior décor, land, marketing, security, processing supplies, rent, seller’s permit, state application, tax permit, utilities, wages.

An important decision for the prospective owners of the C-RB is how much capital they feel they may need to sustain the proposed C-RB for a period of three to five years (a generally-accepted rule-of-thumb period during which the startup may prove viable or fail), assuming the startup may initially generate only minimal sales revenue.

The prospective owners may make this decision based upon the bottom line resulting from all the financial calculations they will eventually insert into their business plan, but a prudent strategy might be to also add a contingency amount of at least half to that bottom line, to cover unanticipated contingencies, which always occur, since it is contrary to financial industry practices for a financial institution

The eighth consideration in starting a cannabis-related business may be completing the license application process.

This can be a time and labor-intensive process, so it may be advisable to have an attorney familiar with the process assist in completing the paperwork, since most proposed C-RB applications require in-depth disclosure of personal information, such as financial information from each prospective owner, other business interests owned by any prospective owner, criminal histories, background checks and fingerprinting for all prospective owners, and so the attorney should also then perform a final review of the license application prior to submission, verifying that each required item has been provided by the respective prospective owners (very similar to the due diligence process the attorney would perform prior to submitting a motion in a litigation, in which the attorney must provide an affidavit stating that the attorney has personally verified every statement and allegation in such motion, with the exception that here no affidavit is required from the attorney) in order to increase the chances of obtaining the license the first time going through the process.

An architect may also be needed for assistance with the required submittals, since each license application will generally require a floor plan diagram of the proposed facility, including the locations of surveillance cameras for security, and plans must be submitted evidencing full compliance with permit requirements and with the fire and safety codes.

Since cannabis-related licenses are issued by states, they are only valid within the particular state that has issued such license.

States may require strong proof of financial viability, such as requiring the proposed cannabis-related business that touches cannabis (such as a dispensary) to prove that it has already raised at least one million dollars of cash as one of the conditions precedent to issuing a license.

In general, the jurisdictions that have legalized cannabis for one use or another have a dual licensing structure, in which the local municipality must issue a cannabis operations permit and the state must issue a cannabis operations license for the particular type of proposed cannabis (for example, in California, first obtaining an appropriate municipal cannabis operations permit for the proposed cannabis business is a condition precedent before the state can issue a cannabis operations license).

Just the licensing application process alone may cost a C-RB from $250,000 to $750,000, depending upon the administrative burdens imposed by particular states, since each state has its own particular licensing process (so there is little consistency in the licensing process from state to state).

Generally the licensing process in each state is governed by a particular type of administrative board, which may either be independent or may be a division of a larger state agency, and such board has absolute control over every step in the licensing application process.

Some states require a proposed C-RB to be vertically integrated, meaning that the C-RB must own or control every aspect of the supply chain from seed-to-sale.

Other states separate cultivation and dispensary licenses, meaning a proposed C-RB can only do one or the other.

California has a panoply of seventeen (17) possible licenses, some or all of which may be applicable to the proposed C-RB, depending on the particular type of that C-RB.

No state offer any guarantee that even if the proposed C-RB files all the required paperwork, that such state may grant any license to a proposed C-RB, and the license fees paid to the state are non-refundable.

Some states use the cannabis licensing program to promote social justice and diversity, giving a preference to proposals submitted by minority-owned business enterprises (MBEs), veteran-owned business enterprises (VBEs) and women-owned business enterprises (WBEs).

A transportation license will always be required if a startup must transport cannabis-related products intrastate or interstate, or deliver such products locally (as for medical C-RBs delivering products to home-bound patients).

In some states, direct-to-consumer cannabis delivery is legal, while in other states it is not, even though every C-RB needs transportation for moving harvested product to processing facilities and dispensaries.

Thus, if a proposed C-RB is vertically-integrated, it may be prudent to keep all the facilities within the same state, to avoid having to travel routes from the growing facilities to the production and sales facilities that might pass though adjacent states in which any form or use of cannabis is illegal.

In states where medical marijuana is legal, marijuana businesses generally may pay perhaps up to a $5,000 non-refundable application fee for starting a business.

Such costs may vary drastically by state (for example, in Louisiana an operation license may only cost about $200, whereas in New Jersey the cost may be $20,000).

Individuals and startups interested in selling cannabis or cannabis products will need to register for a seller’s permit (a prerequisite when applying for a cannabis dispensary license), of which there are generally two types: a duration license (either a temporary seller’s permit for up to 120 days or a permanent seller’s permit, renewed every 12 months).

A cannabis dispensary license generally requires a nonrefundable application fee ranging from $1,000 to $5,000, and then if the license is granted, annual registration fees may be between $5,000 and $20,000.

A new medical marijuana testing laboratory in Maryland may only have to pay $100 for a two-year registration.

In Arkansas, a medicinal cannabis grower must pay a $15,000 application fee, and then $100,000 for an annual license.

Some states have one all-purpose fee for any type of cannabis business, while other states charge different fees depending on the particular type of C-RB.

There is no consistency among the states for the same type of license, as evidenced by the fact that in Washington State, a recreational C-RB license costs about $1,500, whereas in adjacent Oregon, a recreational C-RB license costs about $5,000, and in Massachusetts, a recreational C-RB license may cost anywhere from $625 to $25,000, because the cost of the license is based on the square footage occupied by the facility.

Last updated 200803_1728