Going Legal: How To Get Started In The Cannabis Business
- 1. What types of legal cannabis businesses are there?
- 1. a. Growing cannabis
- 1. b. Creating cannabis-infused products
- 1. c. Selling cannabis and cannabis-infused products
- 2. The 5 steps to start a cannabis business
- 3. Important to have in mind before starting a cannabis business
- 3. a. Cannabis is not 100% legal
- 3. b. Every country has its own regulations
- 3. c. Research costs
- 3. d. Opening a cannabis business may take some time
- 4. In conclusion
The legal cannabis industry made more than $ 9 billion in 2017 and will grow to a whopping $ 21 billion by the end of 2021. Due to the huge explosion, more entrepreneurs are trying to get into the legal cannabis market but starting a cannabis business isn’t very easy. This happens because cannabis isn’t technically legal and the laws keep changing, but those who are brave enough to adventure into the cannabis industry can be greatly rewarded if done correctly. So if you want to know more about the legal industry, the different types of businesses and what you need to open a legal cannabis business, read along.
1. What Types Of Legal Cannabis Businesses Are There?
Before actually starting the process of creating your legal cannabis business, it’s important to know what path you’ll be following because each type of business requires you to follow certain regulations; There are mainly three types of cannabis businesses, this means that you can either grow cannabis, manufacture products or sell them in a dispensary or online retail shop.
Growing Cannabis
If you’re a grower and want to make a living out of growing cannabis then you could start a cannabis cultivation business which consists of growing cannabis plants to sell in dispensaries or to sell to other companies that make cannabis products such as edibles, concentrates, or any other cannabis product.
In order to start this type of business, you need a lot of knowledge of cannabis horticulture and, if you don’t, you would need to hire someone who does, which can increase the costs even more. Also, what you need to start a grow operation varies depending on where you live and the size of the grow space but, in general, you’ll need to buy or lease a real estate where your grow operation will be and also apply for the permits required by the place you’re in.
For example, in California, you would have to apply for a cannabis cultivation license with the Department of Food and Agriculture, and if approved, select the specific license that applies, which can vary according to the area of the grow space, if it’s indoor or outdoors, etc. After you get the license, it’s time to get the money needed. Besides the basic equipment such as security, seeds or clones, lighting, you will also have to adapt the grow space which can cost a lot, especially if you were to grow in an old building or a place that hasn’t been used to grow cannabis before.
For a cannabis grow operation you’ll pay an average of $42 per 0.09 m2 in initial expenses, which would go towards adapting the space to the regulations, equipment, and everything you need to get your operation running, this means that the startup costs and operating expenses for a year are a minimum of around $400.000.
Creating Cannabis-Infused Products
Now, if you’re more into medical cannabis or just don’t want to invest a lot of money into growing your own, you can buy cannabis and manufacture your own infused products such as oils, edibles, lotions, and beverages among others.
This is a huge part of the cannabis market that has been growing a lot. In 2016, businesses that sold cannabis-infused products in California were estimated to be worth around $180 million and sales have increased a lot, reaching an estimate of $4.4 billion in 2020.
Getting started in infused-product manufacturing is relatively cheap when compared to a grow operation but due to the different regulations you have to follow and the professional equipment needed, the average cost to start up and operate this type of business is around $250.000.
Selling Cannabis and Cannabis-Infused Products
As you may know, retail locations (either collectives or dispensaries) are places where consumers can buy, and sometimes consume cannabis, legally. This type of cannabis business is amongst the most common ones because it is cheaper than the other two mentioned and is super important, especially in places where cannabis has been legalized recently.
Due to the regulations, it may be a bit hard to open a dispensary because, just like any other cannabis business, you have to submit an application and pay a licensing fee but, despite the hard start, dispensaries are a great way to make a living from cannabis because, as cannabis becomes legal in more places, people are always looking for legitimate dispensaries to buy cannabis and try new products.
Average Costs And Profit Per Type Of Cannabis Business
| Type Of Business | Costs | Profit |
|---|---|---|
| Grower | 42.8% | 57.2% |
| Manufacturer | 59% | 41% |
| Retailer | 55% | 45% |
The initial and operating costs for the initial year, either for a medical or recreational dispensary starts at around $193.000 which isn’t actually cheap, but with an average annual income of $500.000, it’s definitely worth it.
2. The 5 Steps To Start A Cannabis Business
Now that you know the main cannabis licenses, you must be wondering how do I start my cannabis business? Well, there are basically 5 steps, just remember that each country and state are different so there may be a slight difference in requirements, but in general, this is what you have to follow to get your business up and running.
Step 1: Research
Before starting the whole process it’s essential that you’re familiar with the obstacles that you will encounter and see if this is what you really want to do. The information will vary depending on where you live but, in general, you should research the following:
- Get familiarized with the federal cannabis laws;
- Research the laws about consumption and cannabis businesses;
- Find out which licenses and permits you need.
Also, consider how your business will manage its finance because, due to cannabis still not being 100% legal, most banks refuse to work with cannabis businesses. It’s this kind of restriction that makes it difficult to start a legal cannabis business so make sure you know everything you need before investing a lot of time and money.
Step 2: Create a Business Plan
Creating a business plan will make it easier for you to understand your business and also make it easier for possible investors to understand what they’re getting into so it’s essential you write a detailed business plan including the following:
- Write down what your business will do and competitive advantages over other companies;
- Analyze the market to verify the need for your company at the moment and in the near future;
- Define a structure for your business and create a chart in order to understand it better.
- Define a sales and marketing strategy, and plan which type of customers your company will target.
- Make financial forecasts explaining how much money you’ll make vs how much money you’ll spend in the first couple of years.
Creating a business plan is vital, especially if you’re planning on reaching out to possible investors to seek funding so make sure you write a detailed business plan in order for you to understand it better and make it easier to explain it to possible investors.
Step 3: Location
Location is super important because you want to follow regulations while still being well-located, for example, if you’re opening a dispensary you want the store to be easily accessible or, if you’re opening a grow operation, you want the place to be as far as possible from the city to avoid any problems.
Make sure you pay attention to the city and state’s zoning laws, which will basically dictate where you can and cannot locate your business; Also remember that renting a place will take a big part of the revenue so it’s essential that you find a balance between a good price and location in order to keep expenses at a minimum.
Step 4: Know The Legal Basics
Once you’ve figured steps 1-3, it’s time to fill the required paperwork with the government; Depending on where you live, this will require you to pay certain fees in order to apply for the permits and licenses you need. Have in mind that if you’re not familiar with the process or you don’t have someone you trust to guide you, it’s highly recommended that you get advice from a lawyer.
Step 5: Open Your Business
After you’ve done everything and have the permits and/or licenses, you’ve officially created a legal cannabis business, so now it’s time to start building it. For this step you will need to focus your time and effort into implementing your business, this includes:
- Renting, leasing, or buying the space and investing in equipment;
- Partnering with vendors and contractors who can buy your product or you can buy products from;
- Start your marketing campaign to advertise your products;
- Interview and hire employees to work in your business;
- Find the payment platform that better suits you and accepts cannabis businesses.
3. Important To Have In Mind Before Starting a Cannabis Business
Before even starting to plant your business, it’s essential you know the legal market where you want to open your cannabis business, so make sure you keep the following factors in mind to avoid unpleasant surprises along the road.
Cannabis Is Not 100% Legal
Cannabis is not 100% legal, this means that in most places, cannabis businesses operate in a legal gray area so you need to be prepared for the risks and obstacles before starting. This doesn’t mean that it’s impossible, but you need to be prepared to invest not only money but time and effort in order to make your business thrive.
Every Country Has Its Own Regulations
Depending on the regulations where you live, there may be additional requirements apart from the licenses; For example, some countries require that you’re a resident or you show proof of residency for a certain period of time, also, it may be possible that the country (or state) requires that you don’t have drug or crime conviction have a criminal, so make sure you meet every single requirement before starting.
Research Costs
The initial costs vary by the type of cannabis business you want to start, the place you want to start it and several other factors so you do some research to know exactly how much money you need. Startup costs may include:
- Licenses/ permits;
- Application fees;
- Tax permit;
- Marketing
- Security
- Rent;
- Equipment;
- Decoration;
- Employee wages.
Consider every possible option to raise the funds you need, even a loan if necessary. Remember that it takes time and money to make it right, so make sure you don’t cut any corners to avoid problems in the future.
Opening A Cannabis Business May Take Some Time
Opening any type of business takes time, and ith cannabis businesses it may take even more. In some places it may take up to a year or more for your business license or permit to be approved or denied, so be patient.
4. In Conclusion
Starting your own cannabis business isn’t easy at all, you need a lot of money and comply with different regulations but the legal cannabis market is growing a lot, this means that cannabis businesses can be highly lucrative if done correctly so make sure you take your time and research everything you need, once your business is up and running you’ll see that all the effort was worth it.
If you own a cannabis or cannabis-related business feel free to share your tips in the comment section below!
