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The Best Advice For Starting A Cannabis Business

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Consumers continue to drive an ever expanding marijuana industry and new opportunities appear at every turn.  While the market is involving, there is still opportunities to make money and start a successful business.  Public opinion is pro-legalization and it is just a matter of time before the government reschedules driving more growth. If you are considering it, here is the best advice for starting a cannabis business.

Lonnie Rosenwald is a partner in Zuber Lawler’s cannabis practice group and shares some valuable insight into starting a business. In the rapidly growing cannabis industry, small business owners face a myriad of challenges, ranging from the typical complexities of business structures and investment to navigating the particular nuances of cannabis contracts, banking, and real estate. Establishing a successful cannabis business requires careful consideration of these areas of law to ensure compliance, mitigate risks, and foster growth. Here’s a brief guide for small cannabis business owners on five key areas for your focus: legal entities, investments, contracts, banking, and real estate. 

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Photo by Luis Llerena via Unsplash
  1. Legal Entities

Choosing the right legal entity is crucial for cannabis businesses. Each state’s cannabis program differs from all other states, and the legal entity you need may be required by your state’s program. Additionally, each structure has advantages and disadvantages. Sole proprietorships, partnerships, limited liability companies (LLCs), and corporations all offer distinct benefits. For example, LLCs are popular structures for new cannabis businesses due to the liability protection they provide their owners (called “members”) while maintaining flexibility in management and favorable tax treatment. Some sophisticated investors prefer corporations. A sole proprietorship is not an entity, but it is simpler than the other business structures in that you, and only you, control the business, but you do not have liability protection.  Partnerships are just that:  a number of partners work or invest together in the business. A joint venture is a type of partnership whereby the partners are committed to a common goal; general partners may not be protected from liability; limited partners typically are.  Corporations have limited liability for the shareholders and employees. A decision on your business entity structure should be made with advice from your attorneys and tax professionals familiar with cannabis other applicable laws and regulations. Your business may also be required to comply with the U.S. Corporate Transparency Act with respect to reporting to the Financial Crimes Enforcement Network (FinCEN) certain information regarding the beneficial ownership of your entity (effective as of January 1, 2024).   Whether you are required to report should be a topic of conversation with your attorney.  

RELATED: Guess What Is Gumming Up The Marijuana World

  1. Investments:

Securing funding by private capital raises, financial institution lending and/or friends and family commitments is often a crucial step in the growth journey of a small cannabis business because of the significant costs of real estate, equipment, and employees. Investors, whether individuals or venture capital firms, are attracted to businesses with a solid legal foundation, clear growth strategies, and compliance with laws and industry regulations. Business owners should be prepared to present potential investors and lenders comprehensive business plans, showcasing not only the financial viability of the venture, but also a deep understanding of the legal and regulatory landscape. The U.S. and state securities laws typically apply to offerings of securities in cannabis entities notwithstanding that your state may have a cannabis program and that cannabis is illegal at the federal level.  These laws are particularly complex, so before issuing shares or member or partner interests in your cannabis business, please seek legal advice from securities-competent counsel.   Businesses should have an attorney review all investor materials to avoid problems down the road. 

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Photo by Cappi Thompson/Getty Images
  1. Contracts:

Clear and comprehensive contracts are the foundation of any successful business. In the cannabis industry, contracts play a vital role in clarifying and documenting relationships with suppliers, distributors, employees, investors, lenders, and partners. Ensuring contracts comply with state cannabis regulations (as well as other applicable laws and regulations) is critical to avoiding the potential that the contract is unenforceable or worse, illegal. We frequently see clients desiring to buy or sell a cannabis business, obtain loans or investments, and those entering into complex contracts regarding real estate or equipment leases, cultivation, manufacturing, transport, marketing services agreements, and partnership agreements.  Many of these contracts are lengthy, and of course, use legalese that you may not understand.  Some include complex rights and responsibilities, as well as how the parties will calculate various fees and expenses relating to the contract. Seeking legal advice during the contract drafting and negotiation stages is a prudent step. 

RELATED: The Most Popular Marijuana Flavors

  1. Banking:

Accessing banking services remains a significant challenge for many cannabis businesses as the sale and consumption of cannabis remains illegal under federal law, and most financial institutions (banks) are regulated by the U.S. and are required to follow certain regulations applicable to their operations. While some banks are cannabis-friendly, business owners must establish relationships with banks that have experience in the cannabis industry and that understand and comply with state-specific cannabis regulations. It is imperative to maintain meticulous financial records. Exploring alternative financial service providers, such as credit unions or specialized cannabis banking services, can help businesses navigate the financial landscape. Financial institutions such as banks will want to see what collateral your business has, such as ownership of real estate (a lease typically won’t work here), to secure your promises to repay a loan. Most banks will not lend to plant-touching cannabis businesses (even those with real estate assets), nor will they even process your deposits, debits or credits.  Ask cannabis leaders in your state for cannabis bank referrals; caution, most banks doing business with cannabis businesses don’t publicize that fact!   

RELATED: Science Says Medical Marijuana Improves Quality Of Life

  1. Real Estate:

Cannabis businesses must carefully consider real estate issues, including zoning, building, health and safety and other applicable laws and regulations, lease and lending agreements, and compliance with state, county, and municipal property laws, as well as owners associations’ regulations. Zoning regulations can significantly impact the location of cannabis operations, making it crucial to choose properties where cannabis activities are permitted under local ordinances. Often, the cannabis business’ compliance with local zoning codes requires a lengthy and time-consuming review process with a substantial amount of documents, plans, specifications and other costly information, as well as public hearings and numerous conferences with planning staff. Leases should address cannabis-related activities explicitly by including cannabis use (for cultivation, extraction, retail, etc.) in the permitted use provision, permitting limited access to the facility by landlord (and its lenders), allowing early termination in the event of a change in cannabis law prohibiting a cannabis use, and the like, also ensuring alignment with both state and local regulations. Engaging with real estate professionals and attorneys familiar with the intricacies of the cannabis industry can streamline the process of finding and using suitable properties. 

RELATED: California or New York, Which Has The Biggest Marijuana Mess

Small cannabis business owners must be thoughtful and proactive in choosing suitable legal entities, negotiating enforceable contracts, accessing banking and investment and acquiring real estate. Navigating the complex regulatory landscape requires collaboration with legal and financial professionals who specialize in the cannabis industry. By establishing a solid foundation in these five key areas, small cannabis businesses can position themselves for sustainable growth and success in this dynamic and challenging industry. 

Lonnie Rosenwald is a partner in Zuber Lawler’s cannabis practice group. Ms. Rosenwald  is located in Seattle, WA. These comments are general and not specific to your particular business or business situation; these comments are not intended to be legal advice, nor is Ms. Rosenwald or her firm representing you.  We encourage you to seek qualified legal counsel to represent you or your business especially with respect to a cannabis (touching or not) business.  



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Can Marijuana Give A Break From All The Drama

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It is a summer of political news, students protests, family gathering and just every day drama – can marijuana help with a temporary break?

This summer will be filled with ongoing political news as the presidential election is in the fall. Add oversees wars and campus protests and conversations with some people could be fraught with drama. And summer is the time of family gatherings, birthdays, weddings or a 4th of July picnic, it can be stressful. Can marijuana give a break from all the drama. The answer is heck yes! And you will feel better than overindulging in booze.

RELATED: Beer Sales Flatten Thanks To Marijuana

While taking a break, breathing, or going for a walk can help, sometimes you get overwhelmed. Avoiding putting yourself in these situations by reducing your news and social media input, putting boundaries around certain people and other healthy habits are import, a quick, easy solution is needed in some situations. Cannabis can provide a temporary relief as it is a proven help against anxiety. To use this tool, there are a few things to know and also not to be over reliant on it as a solution.

Photo by Anton Petrus/Getty Images

Part of the way marijuana chills you out with the active cannabinoid THC. It acts through cannabinoid receptors which activates the brain’s reward system. These includes regions that govern the response to healthy pleasurable behaviors.  It also adjusts perception of time, which is what makes movies and music sound better as it allows you to stop and really absorb the moment.

The younger generation has taken advantage of consumption methods to have marijuana on-the-go.  Vaping is the second, and trends show soon to be first, most popular method of use.  Like gummies (the third most popular way to consume), it is easy, discreet and portable for those with an active lifestyle. You can also manage dosing so you are not too high or suddenly have couch lock.

Done right, a high, even a moderate one, can last 2-10 hours.  Smoking a joint provides the quickest and most powerful, while a gummy takes 30-45 minutes to kick it, but it is much easier to manage the dosage. Vaping is a way to maintain a steady chill.

RELATED: 8 Ways to Enjoy Marijuana Without Smoking It

One good thing about taking a “time out” and breathing from the drama, it is a better on our mental and physical health.

One recent survey discovered

  • 1 in 5 had lost sleep over politics
  • 20 percent reported feeling fatigued because of political news
  • 29 percent reported losing their temper over politics
  • One quarter said they felt hateful toward those with opposing political views
  • More than 20 percent have had political disagreements damage their friendships

However you do it, be mindful of where you are and make sure you don’t let outside forces squash you happiness and enjoyment of each day.



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Consumer Spending Validates Marijuana Rescheduling

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It is a historic move for a country which had prohibition, but consumers are using their wallets to show they support it,

Culture wars have been an American tradition – from the battle over TicTok to the alcohol prohibition in the 1920s. It was said the only thing to come out of the anti-liquor period was it taught good citizens how to break the law.  But in general, if the public wants it, the public will have it, legal or not. The perfect is example is the Pornhub ban in Utah and Texas, which has sent VPN sign ups sky high. And consumer spending validates marijuana rescheduling in a major way.

RELATED: Beer Sales Flatten Thanks To Marijuana

Some politicians and leaders believe in the nanny state option.  Those include a few governors lead by Ron DeSantis, Mitch McConnell, and a few other special interest groups.  But the Biden’s administration’s decision to reschedule cannabis lines up with public opinion. Over 85% believe it should legal in some form, and more importantly, they are putting their money toward what they want.  Leading analyst firm, BDSA, shared the public’s spending habit’s match their thoughts on rescheduling.

Photo by Anton Petrus/Getty Images

Following the tradition, cannabis sales moved higher again this year. Sales on 20 April 2024 sales were $167M, a 33% increase over the previous year.  Trends like California sober are going strong and Gen Z continues to move away from alcohol and move toward marijuana vapes and gummies. Lifestyle habits are starting to adjust slightly away from alcohol and more low alcohol drinks, mocktails, and cannabis eat away at the traditional market.  Alcohol is much rougher on the body, so many are opting for a semi-healthier option.

It is a benefit for fully recreational states as even Missouri makes significant tax income on cannabis. Most governors are on board with rescheduling at it is not only the public’s will, but it helps the state’s coffers and actually helps in other areas. Even New York State, with over 1,500 non tax paying illicit stores making money, made some income.  They have less than 100 licensed dispensaries generating over $175 million.

RELATED: How To Microdose Marijuana

On an interesting sidebar, like holidays, there are some holidays where cannabis use is up. Here are the largest for 2023

  1. 420
  2. Green Wednesday
  3. Black Friday
  4. St Patrick’s Day
  5. Veteran’s Day

In comparison, alcohol’s largest days are:

  1. New Year’s Eve
  2. St. Patrick’s Day
  3. July 4th
  4. Day Before Thanksgiving/ Blackout Wednesday/ Drinksgiving
  5. Black Friday

Let’s see how the next 12 months works for the industry, the government and the public.

 



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Cannabis Rescheduling Takes The Next Steps

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The Biden administration’s marijuana rescheduling takes the next step

The Department of Justice is moving marijuana rescheduling to the next step. The administration has proposed moving the drug from Schedule I, a strict classification including drugs like heroin, to Schedule III, which is more on the level of Tylenol. It also marks the federal government acknowledgement the plants medical benefits. The industry will watch over the next few months as the process of moving it forward grinds ahead.

RELATED: Americans Want It, Some Politicians Prefer a Nanny State

President Joe Biden announced move on his official account on X (formerly known as Twitter.  In a video Biden shared “This is monumental, It’s an important move towards reversing long-standing inequities. … Far too many lives have been upended because of a failed approach to marijuana, and I’m committed to righting those wrongs. You have my word on it.”

Vice President Kamala Harris also released a video Thursday, hailing the progress. It seems she has progressed in her position over the last 5 years.

Official White House Photo by Andrea Hanks

A key part of the next step is a 60-day comment period. This will allow any and all parties to provide information, opinion, support or random thoughts. Already a group of GOP Senators want to either slow or stop the process. Senator Mitt Romney (R-UT) has started leading an effort to stall the plan if not outright stop it. They are going against the general public opinion with 85%+ believe it should be legal in some form.

The Drug Enforcement Agency is not 100% on board and there are still hurdles to rescheduling. After the comment person, there could be a review from an administrative judge, which could be a drawn-out process.  The total process can take from 3 months to a year, although it is unlikely the issue will not be resolved before the election.

RELATED: California or New York, Which Has The Biggest Marijuana Mess

Considering the stance of the federal government, Senator Mitch McConnell, and certain other opponents, the road is still going to be a bit bumpy.  The industry, in an awkward growth mood, is in need of the government not to be a hindrance.  But only time will tell.



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