How to start a cannabis business

The medical and recreational marijuana industry is poised to continue its upward trend in growth. The U.S. cannabis market is predicted to hit $72 billion annually by 2030, according to New Frontier Data. But to cash in on the adult-use marijuana industry, there are several key aspects you need to consider when starting a cannabis business:

1. Industry research
2. Build a business plan
3. Get funded
4. Obtain licenses
5. Grow your network
6. Protect your business with insurance

1. Do your cannabis industry research

Your market research should help you determine which products and services are missing in the marketplace and identify areas where you can specialize. This is your opportunity to choose a niche among a variety of cannabis business types, including:

• Cultivation operations and processors
• Laboratories
• Dispensaries
• Logistical support businesses, like distributors and transportation companies
• Technology companies, such as dispensary software development

After selecting what type of cannabis business you want to start, it’s important to understand the requirements and rules attributed to that type of business. Cannabis laws vary from state to state, and even when it’s legal in a state, it’s not necessarily legal in all the towns in that state.

2. Build your cannabis business plan

The marijuana industry is highly regulated, which means you need to be detailed in the creation of your cannabis business plan. Make sure you're following every law in your state, city, and county, from where you plan to open your business to which suppliers you use.

While your business plan may shift over time due to changing regulations and requirements, your first plan should include:

• Your business name
• Your total business startup costs, including how you’re going to secure funding
• A timeline for when you plan to turn a profit
• A list of your local competitors
• Your business differentiator, or what sets you apart from competitors
• How you plan to market your cannabis business
• How you’ll operate your business, along with a list of suppliers and cannabis products
• The types of insurance coverage you plan to carry or already have
• Your plan for legal counsel if you decide to have it

3. Funding your cannabis business

The state in which you operate can have a significant impact on how you plan to fund your business, as well as your total startup costs.

Starting a cannabis business in a state that was recently legalized will have less competition vying for investors. Comparatively, states with a longer history of legalization and a greater market saturation may not have as many investment opportunities.

Factor in license fees

The costs associated with the licensing process, as well as certifying your marijuana business, can vary greatly depending on the state.

In Maine, because of their caregiver model, the license application fee is extremely affordable at $250. Conversely, Florida charges upwards of $146,000 for the application, because they require businesses to operate as medical marijuana treatment centers.

Prepare for steep taxes

While most small businesses can deduct a host of expenses, cannabis companies can’t qualify for nearly as many federal tax credits and deductions. Because of this they end up paying more in taxes than the average small business.

As of 2022, Rhode Island marijuana businesses can expect to pay a:

• 10% cannabis tax
• 7% state sales tax
• 3% municipality tax

The collective total comes to a 20% tax on recreational use marijuana sales.

Understand there are limited loan options

Because marijuana is not yet legal at the federal level, there is a lack of small business loan options available. Since the banks that offer small business loans operate on a national scale, they fall under federal laws and regulations. This makes lending to a cannabis business nearly impossible.

Look into “accelerator” and “incubator” programs

Several groups focus solely on helping traditionally overlooked or underserved groups of people. If you happen to fall into one of these categories, see if you qualify for seed money from organizations trying to level the playing field. 

4. Obtain your license to sell cannabis

Different types of business licenses and permits are required depending on what state you want to open your business. FindLaw is a good resource for understanding which permits and state licenses you’ll most likely need. You can also work with a legal professional to help sort through everything to register your cannabis dispensary and get your cannabis license.

Additionally, many states, such as California, have “.gov” portals designed specifically for the licensing of marijuana businesses that detail the application process.