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.
Photo by Luis Llerena via Unsplash
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.
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.
Photo by Cappi Thompson/Getty Images
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.
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!
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.
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.
Alcohol has some negative side effects, but cannabis could have one positive health benefit – it might help your good cholesterol.
In the late 1980s cholesterol test became come as the impact of it on the body and heart was becoming more evident. Research shows good cholesterol (HDL) helps remove excess cholesterol from the body, while “bad” cholesterol (LDL) can build up in arteries, potentially leading to heart disease. Alcohol and tobacco are known to be rough on the body, but can marijuana help cholesterol?
Marijuana’s potential impact on cholesterol is an emerging area of research, offering both promising insights and areas for further exploration. While studies have yet to reach definitive conclusions, evidence suggests that cannabis may influence cholesterol levels in ways that could benefit cardiovascular health under certain conditions.
Cannabis contains cannabinoids like THC and CBD, which interact with the body’s endocannabinoid system. This system plays a role in regulating various physiological processes, including lipid metabolism. Some studies have indicated that marijuana use might improve cholesterol profiles by increasing high-density lipoprotein (HDL), commonly known as “good cholesterol.” For instance, research published in BMJ Open found that marijuana users had elevated levels of HDL cholesterol, which is associated with better cardiovascular health.
Moreover, cannabis has demonstrated anti-inflammatory properties and the ability to regulate blood glucose levels. These effects can indirectly support heart health by reducing risk factors associated with high cholesterol, such as diabetes and obesity. Additionally, cannabinoids like CBD may help protect the heart from oxidative stress and inflammation, further enhancing cardiovascular health.
Cannabis has also been linked to weight management benefits, which can positively impact cholesterol levels. Studies have shown that marijuana use may reduce abdominal fat and improve metabolic parameters. Since obesity is a major contributor to high LDL cholesterol levels, these findings suggest that cannabis could play a supportive role in maintaining healthy cholesterol levels.
While some studies highlight potential benefits of cannabis for cholesterol and heart health, others caution against its risks. Daily marijuana use has been associated with an increased risk of heart failure and other cardiovascular issues. However, research also indicates that cannabis may reduce the risk of atrial fibrillation and improve outcomes following heart attacks.
Food asphyxiation is in the news today – and is WAY more dangerous than marijuana.
Food asphyxiation is in the news again. In the US alone, approximately 5,000 – 5,500 people die from choking on food or other objects annually. Factors like living alone, having dentures, difficulty swallowing, and certain foods (like bananas, marshmallows, or gelatinous candies) can increase the risk of choking. These numbers highlight the persistent danger of food asphyxiation and the need for increased awareness and prevention measures. And yet, it is really mention in the media or Congressional reviews. But food asphyxiation is way more dangerous than cannabis.
Food asphyxiation, commonly known as choking, claims a significant number of lives each year. The elderly population is most at risk, with 90% of food-related choking deaths in 2022 occurring in individuals over 50 years old. This statistic underscores the importance of proper care and attention for older adults during meal times. These numbers highlight the persistent danger of food asphyxiation and the need for increased awareness and prevention measures.
In contrast, deaths directly attributed to marijuana overdose are extremely rare and there is no documented case of fatal overdose from natural marijuana alone. This stark difference in mortality rates between food asphyxiation and marijuana use is noteworthy.
The disparity between food asphyxiation and marijuana overdose deaths is striking. While hundreds die each year from choking on food, marijuana overdose fatalities are virtually non-existent when considering natural marijuana use.
These findings suggest public health efforts might be disproportionately focused on substances with lower mortality rates while overlooking more common dangers like food asphyxiation. Increased education on proper eating habits, especially for at-risk populations like the elderly, could potentially save more lives than efforts to prevent marijuana overdoses.
To prevent choking, listen to your mom’s advice – eat slowly and throughly, cut food into bite size pieces, and don’t talk with your mouth full. And be mindful of food which may have small pieces or tiny bones.
Despite the massive investment by some in the industry, outdoor grows are the healthier, cleaner option
Like fruits and vegetables, outdoor floors yield the richest flavor and the least expensive products. The same can be said about cannabis, outdoor marijuana grows are better all the way around. When the industry started becoming legal, hundreds of millions were invested in indoor grow with the assumption cost per pound would stay high. Companies like Tilray built massive indoor grows, but over time they have caused expensive upkeep, high consumer prices, and upset neighbors. And do they produce the best cannabis? By leveraging natural resources like sunlight and soil, this method reduces environmental impact, enhances product quality, and fosters community harmony.
Outdoor cannabis cultivation drastically lowers greenhouse gas emissions compared to indoor growing. Research shows outdoor farming can emit up to 50 times less carbon dioxide than indoor production, which relies heavily on artificial lighting, air conditioning, and dehumidifiers. Additionally, outdoor grows eliminate the need for energy-intensive equipment, reducing electricity consumption and promoting sustainability. Water conservation is another key advantage; outdoor farms often use natural rainwater or precision watering techniques, minimizing waste. Furthermore, the absence of chemical fertilizers in many outdoor setups helps protect local ecosystems from pollution.
Outdoor growing is more cost-effective for both producers and consumers. It eliminates expenses associated with indoor cultivation—such as high electricity bills and specialized equipment—making cannabis more affordable. For home growers, cultivating outdoors fosters a connection with nature while empowering individuals to produce their own medicine sustainably.
Sun-grown cannabis benefits from exposure to full-spectrum natural light, enhancing its terpene profiles and cannabinoid production. This results in richer flavors, aromas, and potency that indoor setups struggle to replicate. Outdoor cultivation also allows plants to grow larger and healthier due to unrestricted space and access to diverse soil nutrients. This translates to higher yields and better-quality products for consumers. Additionally, outdoor-grown cannabis often develops unique characteristics influenced by the local terroir, offering a diverse range of experiences akin to wine production.
Outdoor marijuana farms are less disruptive to neighborhoods compared to indoor facilities. Indoor grows often require extensive infrastructure upgrades, leading to increased energy demand and noise pollution from machinery. There has been an uprising by some local governments about the grows.
In contrast, outdoor farms blend harmoniously with their surroundings, relying on natural processes rather than artificial systems. Moreover, outdoor cultivation supports local biodiversity by integrating companion plants that deter pests naturally and enrich the soil.
While outdoor cultivation is environmentally friendly, it poses challenges such as susceptibility to pests and weather fluctuations. However, solutions like greenhouses can provide controlled environments while retaining the benefits of natural sunlight. Choosing resilient strains adapted to local climates further ensures successful harvests.