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The Best Advice For Starting A Cannabis Business

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1 year 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!   

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  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. 

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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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White House Finally Comments On Marijuana Industry

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6 hours ago

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April 1, 2025

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Part of the cannabis industry supported the new president, betting he was going to move and move quickly on cannabis – the White House finally commented.

The cannabis industry has been a boon for consumers, medical patients, veterans and legal states, but for the thousands of mom and pop businesses is has been a roller coaster.  With a huge demand, it would seem to be easy money, but the federal, tax, and banking restrictions have made it difficult to grow and expand. Part of the industry were all for the new administration assuming they would support positive change, but many in the new cabinet and the House Speaker Mike Johnson are foes.  Now the White House finally comments on marijuana industry…and it doesn’t show a clear path.

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The administration’s current stance on marijuana reform is marked by inaction, despite campaign promises and earlier signals of support for cannabis-related reforms. A White House official recently confirmed that “no action is being considered at this time” regarding marijuana policy, leaving advocates and industry stakeholders uncertain about the administration’s priorities.

During his campaign, the resident expressed support for rescheduling marijuana under the Controlled Substances Act (CSA), which would move it from Schedule I to Schedule III, easing restrictions on medical use and enabling cannabis businesses to access banking and tax benefits. However, since taking office, no concrete steps have been taken to advance this initiative. A DEA hearing on rescheduling, initially planned for January 2025, was postponed due to procedural appeals and remains unscheduled.

The president has also voiced support for state autonomy in cannabis policy and endorsed state-level legalization initiatives, such as Florida’s failed 2024 ballot measure for recreational marijuana. While this reflects a more favorable stance compared to his first term, his administration has yet to prioritize federal reforms like the SAFE Banking Act, which would facilitate banking services for cannabis businesses. Efforts to include such measures in a government funding bill late last year were unsuccessful.

The delay in federal action has significant implications for the cannabis industry. Rescheduling marijuana could alleviate financial burdens by eliminating restrictions under IRS Code Section 280E and promoting medical research. However, the stalled process leaves businesses navigating regulatory uncertainties and limited financial access.

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While stakeholders continue lobbying for reform, the administration appears focused on other priorities such as immigration and foreign policy. Advocates hope the President will leverage his influence to advance cannabis reform, but for now, the issue remains sidelined. Until then the industry struggles and waits.



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This State’s Cannabis Revenue Keeps Pouring In

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1 day ago

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March 31, 2025

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States are starting to scramble with looming budget deficients, but marijuana is a boon to some – especially one state.

The new federal administration is revamping how the government operates. With Doge, they are changing agencies and reducing services and support of states, which has left budget deficients in many. But some states have legal marijana and it has been a boon, for like alcohol…people are still consuming. States who are fully legal are making more money on weed than booze and this state’s cannabis revenue keeps pouring in. Missouri, the show me state, is being shown unexpected revenue.

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“Due to a strong cannabis market and effective, efficient regulation of that market,” Amy Moore, director of the Missouri Division of Cannabis Regulation, told The Independent this week, “the funds available for the ultimate beneficiaries of the cannabis regulatory program continue to outpace expectations.”

Funds will help veterans and other key projects. The other benefit is as seen in data from legal states, teen use is down so it frees up some other funds.  Legal states are seeing benefits from legal cannabis including lower teen use and crime reduction.

States with legal cannabis are experiencing a significant boost in tax revenue, surpassing those generated by alcohol sales. This trend highlights the economic benefits of marijuana legalization, as cannabis markets expand and mature.

In California, cannabis excise taxes have consistently outperformed alcohol-related taxes, bringing in over double the revenue. Colorado has seen even more striking results, with marijuana tax revenues totaling seven times those of alcohol. Similarly, Massachusetts has collected more tax revenue from marijuana than alcohol since fiscal year 2021, marking a notable shift in state finances.

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Nationally, legal cannabis states generated nearly $3 billion in excise taxes on marijuana in 2021—20% more than alcohol taxes. By 2024, total adult-use cannabis tax revenue exceeded $20 billion, with states like Illinois and Washington reporting record-breaking contributions. Illinois alone collected $451.9 million from cannabis taxes in fiscal year 2022—one-and-a-half times the revenue from alcohol.

The funds are being put to good use. States like Illinois are channeling marijuana tax dollars into mental health services and community programs, while Colorado has invested nearly $500 million into public education. California has allocated millions to nonprofits addressing the impacts of the war on drugs.

This growing revenue stream underscores the potential of cannabis legalization to support vital public services and bolster state economies. As more states embrace regulated marijuana markets, the financial benefits are expected to continue flourishing.



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Mixed Messages From The Feds About Cannabis

Published

4 days ago

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March 28, 2025

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The federal administration is all over the board around fed cannabis policy…and millions of patients are worried.

The industry employees over 440,000 workers at all lives and is driven in a large part by mom and pop businesses.  Millions use medical marijuana for health issues ranging from chronic pain to sleep.  But there are mixed messages from the feds about cannabis, and people are very worried. The federal government’s stance on marijuana has become increasingly complex, as recent developments show conflicting approaches to the drug’s potential benefits and risks. On one hand, there’s a push for research into medical marijuana for veterans, while on the other, a campaign against cannabis use is being launched.

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The juxtaposition of initiatives highlights the federal government’s inconsistent approach to marijuana policy. While some departments are exploring the potential benefits of cannabis, others are actively working to discourage its use. This dichotomy is further exemplified by ongoing legislative efforts. For instance, Rep. Brian Mast (R-FL) has reintroduced the Veterans Equal Access Act, which would allow VA doctors to recommend medical marijuana to patients in states where it’s legal. Meanwhile, documents from an ongoing lawsuit suggest that the DEA may have weighted the marijuana rescheduling process to ensure rejection of moving the drug from Schedule 1 to Schedule 3.

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The Department of Defense (DOD) has allocated nearly $10 million in funding for research into the therapeutic potential of MDMA for active-duty military members. This initiative, driven by congressional efforts, aims to explore MDMA’s effectiveness in treating conditions such as post-traumatic stress disorder (PTSD) and traumatic brain injury (TBI). Rep. Morgan Luttrell (R-TX) expressed pride in this development, stating that it could be a “game-changer” for service members battling these combat-related injuries.

Additionally, a bipartisan effort in Congress has been pushing for VA research on medical marijuana for PTSD and other conditions affecting veterans. The VA Medicinal Cannabis Research Act, introduced in both the Senate and House, would mandate studies on how cannabis affects the use of addictive medications and impacts various health outcomes for veterans.

RELATED: The Science Behind Why Music Sounds So Much Better When You’re High

In stark contrast to these research initiatives, the Drug Enforcement Administration (DEA) has partnered with an anti-cannabis nonprofit to launch a social media campaign targeting young people. The campaign, set to run ahead of April 20 (4/20), aims to “flood” Instagram with anti-cannabis content. The DEA is offering monetary incentives to students for creating and posting anti-THC videos, with payments ranging from $25 to $50 depending on the type of content produced.

This approach has raised eyebrows, as it seems to contradict the growing acceptance and legalization of marijuana across the United States. Critics argue that such campaigns may be out of touch with current societal trends and scientific understanding of cannabis.



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