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The Best Advice For Starting A Cannabis Business

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10 months ago

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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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  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.  

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  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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  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. 

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  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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3 Wise Men

Three Wise Men Give Marijuana Strain Gift Suggestions

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23 hours ago

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December 20, 2024

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It has become a popular gift with over 20% of the population putting it under the train. So we asked 3 wise man what to give (or consume) during the season.

The holiday season is a special time of year with a combination of Christmas, Hannakuh, and more are the modern hoildays descended from pagan holidays. Food, celebrations, gifts and a hint of something magical are all part of the holidays.  With Christmas, the three wise men bring gifts to the baby Jesus being steered by a star.  As we head into the last part of the season, why not think of the perfect gift to give or for yourself.  We have three wise men give marijuana strain gift suggestions to share with our readers.

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Terran Cooper, one of the rising stars of the industry and a part of the firm Falcon Rappaport & Berman who works in the cannabis industry.  New York based, he says while there are several great strains, he has two to share for the holiday season.

One of my favorite day time strains, Pineapple Express has skyrocketed in popularity following the 2008 film by the same name. This strain is one of the more energetic strains that I’ve come across, allowing for a nice balance between productivity and relaxation this holiday season. Its joyful and uplifting effects may pair nicely with last minute holiday tasks in addition to any festivities. Though infrequent consumers beware – its relatively high THC content means that a little can go a long way.

Beautifully wrapped Christmas gifts under a festive tree with glowing lights.

Andrew Laub, managing partner of Keneh Ventures and CEO of Cannabition, is a leader in the industry and shared his favorites. Golden Goat is my secret to finding joy in any moment, especially during the holiday season. Its tropical, citrusy flavor is bright and uplifting, just like its effects. I love how it gives me an energized, creative boost without feeling overwhelming, making it perfect for everything from decorating the house to hosting friends. It’s my reminder to savor the fun and chaos of the holidays.

Granddaddy Purple is like my personal escape when the holiday rush gets overwhelming. I love its rich, grape-like flavor and how it helps me unwind at the end of a busy day. Whether I’m binge-watching holiday movies or enjoying quiet time by the fireplace, this strain makes everything feel a little cozier and more magical.

Sour Diesel is my motivation when there’s too much to do and not enough time. Its energizing, citrusy aroma wakes me up, and its focus-boosting effects help me tackle long to-do lists with ease. I love using it to power through holiday prep, whether I’m wrapping gifts, planning meals, or brainstorming creative ways to make the season special.

RELATED: Holiday Hangover? Here’s How To Stop It Before It Strikes

Online cannabis influencer Miguel a.k.a Miggy420 (@miggy420) believes consumption of cannabis is a personal experience with everyone being different. He sees the endocannabinoid system as unique as snowflakes in winter. Some smoke to wash away ills, others to wash away the ills of society. He shared his two favorites.

Vin Diesel Diesel is a sativa grown by Dewey’s Cultivars. Her beauty matches her taste with gassy hits reminiscent of early 2000 diesel strains I would buy in the traditional market. These growers come with a biochemical background and it shows with this plant, pure bliss – and this is coming from someone who prefers indicas.

If you’re looking for something post family events i.e you just realized the debt you incurred for the little ones or you’re just happy your conspiracy Uncle is gone, I recommend Gelato Cake by Agro Couture. This indica dominant hybrid will have your mind drifting away and able to focus on what it is you really wanted to do, hot box your bedroom and binge watch YouTube.

Enjoy these suggestions and may everyone have a great holiday season.

 



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Teen Marijuana Use Continues To Drop With Legalization

Published

2 days ago

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December 20, 2024

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In another positive reason for cannabis legalization – teen use continues to drop.

One of the great arguments against marijuana legalization is it will lead to more youth partaking. This argument is brought out, despite teen alcohol use continuing to be a problem. Now, a new study shows teen marijuana is continuing to decline, coinciding with the increasing legalization of cannabis for adult use across the United States. This trend contradicts predictions made by opponents of legalization, who argued that easier access would lead to increased youth consumption.

According to the latest Monitoring the Future (MTF) Survey, supported by the National Institute on Drug Abuse (NIDA), cannabis use among 8th, 10th, and 12th graders is now lower than before the first states began enacting adult-use legalization laws in 2012. This decline is part of a broader trend of decreasing youth drug use, which has reached historic lows since the coronavirus pandemic.
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The U.S. Department of Health and Human Service’s National Survey on Drug Use and Health reported an 18% decrease in the percentage of 12- to 17-year-olds who had ever tried marijuana from 2014 to 2023. Additionally, current marijuana use among this age group fell by 19%. Similarly, the Centers for Disease Control and Prevention’s Youth Risk Behavioral Survey found a 26% reduction in the percentage of high schoolers identifying as current cannabis consumers between 2013 and 2023.

Researchers attribute this decline to several factors:

  1. Regulated markets: Licensed dispensaries require proof of age, making it more difficult for teenagers to obtain marijuana.
  2. Effective ID policies: Studies show high compliance rates among licensed cannabis retailers in checking customer IDs.
  3. Shifting perceptions: There has been a significant drop in youth perceptions that cannabis is easy to access, despite the widening adult-use marketplace.

The trend is not limited to the United States. A Canadian study found high school students reported more difficulty accessing marijuana since the country legalized it nationwide in 2019

These findings support the argument that regulated marijuana markets for adults, with appropriate safeguards, can effectively deter youth access and use. The data suggests that legalization policies can be implemented in a manner that provides regulated access for adults while simultaneously limiting youth access and misuse.

As more states consider legalizing marijuana, this evidence can inform policymakers and public health officials in developing effective strategies to protect youth while allowing adult use. The ongoing decline in teen marijuana use demonstrates that legalization, when properly implemented, does not necessarily lead to increased adolescent consumption and may even contribute to its reduction.



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Cannabis

The Best Tips If You Are Giving Marijuana As A Gift

Published

3 days ago

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December 18, 2024

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Roughly 25% of people are planning to give cannabis as a holiday gift….here are some practical suggestions to make it a success.

Last year was a watershed year for Santa with 1 in 4 planning to add cannabis into their gift giving, the trend is only going up in 2024. Since the plant has become mainstream (except for a few in DC), it is to be found under the tree, next to the menorah and during festive gatherings. Gen Z and Millennials are leading the trend with 78% (vs. 56% of Gen X and Boomers) in planning to include cannabis in their holiday plans. But you you want to do it right, here are the best tips if you are giving marijuana as a gift.

RELATED: Science Says Medical Marijuana Improves Quality Of Life

While giving alcohol is a long tradition, giving cannabis is does have some variances.  To start, so far most can’t grab it out of personal stock or fish it out of Christmas gifts already given for the year. While Costco, groceries stores and Total Wine are the booze top sellers, it can be also purchased in bodegas, gas stations and other locations. Cannabis still has to be purchased at specialized dispensaries.

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First, plan ahead when you shop. The good news is most dispensaries keep hours similar to a grocery store – open by 9 am and closing around or after 10 pm. This makes dashing in for a last minute gift or squeezing it in during the day easy. Remember to bring cash, have a plan and chill out.

The good news isyou can’t seem to be “cheap” giving weed. Most edibles are in a small price range, whereas wine bought at a grocery stores can go for $6-$100.  And the quality of the wine can vary greatly. Most edibles, including gummies, are within the same price point and potency while caring on quality.  Wana Brands, one of the nation’s leading gummy makers, hits the mid spot on price.  Also, unless you are doing a hefty gift basket, you are can give one or two items as a trail.

Never overestimate someone’s usage. Think about the recipient’s experience level and preferences when selecting cannabis gifts. For most, consider starting with low-dose or CBD-dominant products. Gummies, vapes, oil, or gift cards are all popular choices.  Also, ask the budtender what the best sellers for mid level consumers.

RELATED: The Most Popular Marijuana Flavors

If you are in the less than 50% of the population where legal cannabis is available, consider hemp beverages. It can provide a quick, similar high but is legal.  In Texas, they are huge sellers and can be found in some Total Wines, local convenience stores and other locations.

Lastly, have a hint of discretion, it might not be the best public secret Santa gift, but gummies can be a fun White Elephant!



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