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How To Start A Cannabis Brand: Costs, Facts And Tips (2023)
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Recreational use of previously illegal substances like marijuana is an increasingly relevant topic, even if you don’t use them. The last few years have opened a whole new market for those brave enough to pursue it, with medical and recreational use of marijuana legalized in a few states. In this article, we are going to figure out how to start a cannabis brand and make that a successful company.
Since the cannabis industry is still in the inflationary phase, it is hard to predict the future. But those who think ahead and like to innovate are sure to stand out from the competition. Given things still are in their early stages, opening a cannabis-related business can be profitable if you’re a first-time entrepreneur.
But before we dive head-first into more detailed procedures, let’s talk about how fast cannabis companies can grow. In Colorado, for example, lawful cannabis industry sales have surpassed six billion dollars since legalization in 2014. Current trends predict annual revenue will increase almost eight times by 2027, another proof of this industry’s lucrative potential.
As of December 2022, the recreational use of cannabis products is legal in twenty-one states, and adult-use cannabis for medical purposes is allowed in thirty-seven. Sure, it does seem like easy money to make but take your time with it. You can have significant profits, but getting there takes hard work. You will need to be intelligent, efficient, and, most of all, have an organized system and pay attention to legislation to become a licensed cannabis business.
Mitch Woolhiser, who owns one of the leading cannabis companies in Denver, says that entering this industry can be very profitable. But, simultaneously, it is one of the hardest things you can do. Joining the cannabis space isn’t about fun.
Law And Order
Before getting into it, we should remember that every state has its own legislation and rules! Some places are more strict and cost more than others. Keep yourself updated about specific regulations within your state and the application process. There are online directories about which states have legalized marijuana and how to work with it.
Suppose your end game is to have a physical cannabis market outlet. In that case, you will need a cannabis business license from the local jurisdiction (city) where you plan on operating. These licenses are limited in number and are given only to people who meet all the requirements.
You must have it all figured out on paper to submit your application. Prospective cannabis retailers must develop an executive summary, specific business plans, a solid financial plan, models for the company, and marketing plans. Plus, you’ll need a real state plan for any possible plant cultivation.
There are also restrictions for finances, taxes, production, and distribution, to name a few.
The Controlled Substances Act declares that cannabis is still illegal on a federal level. Marijuana businesses are merely tolerated in states where it’s legal. They could still be closed anytime until marijuana is no longer a national Schedule I drug. The Supreme Court also ruled that a company can be tried for federal offenses even if it operates lawfully. Hence, your business has to be airtight.
How to Start a Cannabis Brand?
Starting a licensed cannabis business looks like an impossibly colossal mountain, but let’s break down a few things for first-time cannabis entrepreneurs.
What Is Your Target Market?
If someone asked what path you plan to follow as a cannabis business owner, would your answer be ‘selling’? Most people would answer like that, which is valid and one of the most accessible options. To sell marijuana for medical and recreational purposes, you need a cannabis dispensary. But there is so much more to it than legal weed for sale.
Consider your business experience. Does it include time in the supply and delivery industries? The sale of cannabis might be your place. Do you know something about horticulture or agriculture in general? Then you may be a successful marijuana farmer. Have you heard about the ancillary part of the industry? It doesn’t deal with the plant directly but still affects the marijuana industry.
Take a look at what exactly each type of cannabis business entails:
Dispensary:
Retail sales are one of the most popular areas of the marijuana business. It may look different whether you sell it for health or recreational purposes. But let’s say it stands for a place where people can get cannabis within legal bounds and safely – usually for medical reasons.
This is not an easy-to-open business, and the road to a physical location is costly. Still, more often than not, it pays off significantly well. Your average starting cost to become a cannabis distributor is around a hundred and ninety-three thousand dollars.
Infused Products:
Taking part in producing cannabis-infused products is another venue worthy of consideration. Things like edibles, botanicals, body lotions, beverages, and many more are infused with marijuana oils. Even the beauty industry is opening up to this kind of product.
It’s one of the most profitable areas in this industry. It earned 29.68 billion dollars worldwide in 2022. Initial investments here are steeper, usually around the two hundred and fifty thousand dollars mark. And the advantage is that you may not need a physical location to sell your products.
Growing The Plant:
When it comes to the most expensive area of the marijuana industry, growing the plant itself takes the cake. That is because it needs particular conditions to grow. These conditions concern lighting, how air circulates, the electric grid, seeds, maintenance, and many other details. Starting costs for this area are an average of four hundred thousand dollars, which can pose a financial challenge for many people. Here it’s good to point out that these averages can vary from state to state since requirements differ too.
Ancillary Business
Ancillary businesses often need to be remembered at the back of the line. Still, they provide essential goods and services in the industry.
Other than consulting, ancillary companies can help with security details and inventory tracking software for cannabis products, a mandatory thing in most states. They also help install electric and HVAC equipment, product packaging, equipment for extraction, growing supplements, and surveillance cameras.
The most significant advantage to this area is that you won’t be bound by such uncompromising measures, and applying for local/state licenses is not mandatory. Suppose your initial investment can’t go up to hundreds of thousands. In that case, this may be your starting step into the marijuana business.
Do Plenty Of Research
We have said it before in this article, but let us repeat it: study federal legislation and state laws regarding cannabis. It will ensure you are acceptable in the future. Make sure to take some time to gather information on which permits and licenses your business will need. Lincoln Fish suggests the Cole Memorandum, a document aimed at US state attorneys about marijuana laws that can help you immensely.
Make yourself familiar with the US Code 280E. This almost confusing tax code affects dispensary owners, especially regarding budgeting. From a financial standing, look around to see if you qualify for loans or discounts. Remember that most banks are against the marijuana industry, so they’ll refuse loans, which means saving up before beginning is best.
Elaborate On A Business Plan:
Your project is going to succeed with proper planning and organizing. To make sure that happens, take time to review every financial aspect of your undertaking. But more important than money, study the legal aspects of getting into the marijuana industry.
Your plan must be ready to be submitted once it is possible to apply for licenses since they are only available sometimes. It requires a reasonable amount of time and financial resources, so starting early is best. Please don’t get too attached to your initial planning because changes will happen; expect them to since laws are constantly updated in the cannabis industry.
Here are a few things your business plan needs to cover:
- A complete description of your business.
- In-depth analysis of the market: who are you competing against? What is your differential? What types of cannabis products will you sell? Are your products/services needed?
- Project your financial future: put your expenses against your expected revenue and create a forecast for the upcoming period. Also, take some time to prepare a security plan. Also, please take a few lines to explain your costs and how you plan to turn them into profit.
- MARKETING STRATEGIES: what is your plan to attract customers? Who is going to be your supplier? Will your business have a loyalty program, and how will it work? Understand your target demographic and create a brand that will reach them directly.
- STRUCTURE: As discussed in this article, you will have to choose the legal format for the company and develop a model of how your business will work and where it is going.
Check On Your Eligibility
If it isn’t as straightforward as it looks, don’t consider opening a cannabis-related business if marijuana isn’t legal in your state. If that is the case, you should definitely move your idea around.
Finances were discussed several times in this article. Still, it’s also worth repeating that you must pass several background checks. They will happen at many points when opening your business unless you have enormous money available. Let’s analyze a practical example.
Say you want to start a cannabis plant farm in Pennsylvania. The initial fee is ten thousand dollars and a two hundred thousand permit fee. That already sounds like a lot, right? You will also need proof that you have a capital of two million dollars, of which five hundred thousand dollars must be available. That shows you are fully committing to your business financially, and you can afford all the expenses that will come up.
Another kind of background check you must go through is the criminal one. A criminal record is a deal breaker for your eligibility for cannabis licenses.
Register Your Company Name And Business Entity
Your business will likely begin on a more local level; you will still need to choose one of the business models we’ve discussed that works best for you. This matters because it directly affects the taxes you will be paying and your risk level.
On the naming part of your plan, it’s another moment where research is needed first and foremost. The name you want must be available for trademarking in your state, and a small fee has to be paid to make it yours.
A nice thing to do right as you begin developing your brand is setting it up to stand out. Insert keywords in the name to clarify what you are offering to customers. Words like organic, free of pesticides, or grown naturally can be added beside your product name if they are valid.
Suppose your desired market for a dispensary is in California. In that case, your company may need to register directly with the California State Department. Remember that the required documents walk hand-in-hand with the appropriate fees for submitting these papers.
Which License Do You Need To Start Your Business:
Knowing precisely what documentation you need, including licenses and which regulatory bodies you must contact, is necessary before starting. FindLaw is an excellent ally for determining which documents marijuana businesses need in each state.
There are four types of licenses you can get to become a cannabis licensee:
- LICENSE FOR DISPENSARIES: Engaging in retail sales lets you sell cannabis and cannabis-derived products. It has a nonrefundable fee of five thousand dollars, a license fee of sixty thousand, and an escrow of fifty, totaling about a hundred and fifteen thousand.
- LICENSE TO GROW: it gives you access to five or fourteen thousand square feet of ground space. The nonrefundable application fee is five thousand dollars, and the license costs forty thousand.
- LICENSE TO INFUSE PRODUCTS: This lets you infuse cannabis extract into edibles and skin products. Like the others, the application is five thousand dollars and is not refundable. The license is five thousand dollars as well.
- LICENSE TO TRANSPORT: rights are necessary even if you’re going to transport cannabis between businesses. The application is nonrefundable and costs five thousand dollars. The license fee is ten thousand dollars if you’re approved.
There is the possibility to apply for more than one of these at once but keep two things in mind:
- The values we’ve discussed so far are only starting costs. Much more will be needed to start a business.
- Licenses are given to a limited number of people yearly. If they are not available, you may need to plan for a transfer to another state where they are and set up your business elsewhere.
Reach out to your local governing body for municipal approval on where you plan on having a retail location. They’ll help you figure out what steps your company needs to take to acquire a license.
Register For Taxes:
The amount of taxes you will have to pay will depend on which area of business you’ll act on, and even if you branch to other states with the same company, taxes may vary based on your cannabis tax permit.
Cannabis businesses can write off the costs of what they sell. Growing farms can deduct some expenses, while dispensaries don’t have the same leeway. Because of that, dispensaries pay much more taxes than cultivation and processing places.
As much as we wished it was that easy to start on a commercial cannabis activity, just seven steps, and you’re all done. But life is rarely that easy. We hope to have made it easier with this article and wish you the best of luck!
Paul Martinez is the founder of EcomSidekick.com. He is an expert in the areas of finance, real estate, eCommerce, traffic and conversion.
Join him on EcomSidekick.com to learn how to improve your financial life and excel in these areas. Before starting this media site, Paul built from scratch and managed two multi-million dollar companies. One in the real estate sector and one in the eCommerce sector.