With legalized cannabis gaining popularity across the country (especially after this latest election), many entrepreneurs will be looking to take the leap into the industry. Although the space is booming, getting into the cannabis business is not for the faint-hearted. Fortunately, history is sometimes the best teacher and there are common mistakes that can be avoided by those who endeavor to start a cannabis-related commercial endeavor.
Starting and running a business is challenging, and that is especially true in the cannabis industry. All businesses are subject to permit, licensing, and registration requirements put in place for three main reasons: business identification and accountability, public safety, and taxation. To operate a legal cannabis business, basic legal requirements must be met, including:
- Formally forming and/or incorporating the business.
- Filing “doing business as” (DBA) paperwork.
- Obtaining a general business license, tax ID number, sales tax permit, and other permits.
Here’s where things get complicated. The cannabis industry is highly regulated, and rules and regulations vary from state to state. They often differ at the local level, too, as many state programs grant municipalities, counties, and cities the authority to regulate certain aspects of cannabis enterprises. For example, one city may prohibit delivery while a neighboring city allows delivery. Indeed, you may experience some of your most frustrating hurdles at the local level.
The extent of regulation one must endure under a state’s program generally depends on whether he or she operates a plant-touching business or ancillary (not plant-touching) business. Still interested? Here, we highlight some of the biggest and most common mistakes future cannabis business owners want to avoid making.
1. Failing to retain the best legal representation. This is not the time to choose just any business lawyer. Cannabis is an extremely complex and highly regulated industry, so look for a firm or attorney with a proven track record in cannabis matters. Think of it as an investment in the success and longevity of your business: A qualified lawyer will save you money and lots of headaches in the long run.
2. Failing to do sufficient research. No matter where you plan to do business in the cannabis world, it is crucial to be an expert. From product types and the consumers to whom they appeal and from seed to sale, ongoing and comprehensive market research is a must.
3. Failing to keep up with evolution of the laws governing your state’s cannabis program. This is a huge mistake, as your business could fall out of compliance and be fined or even shut down. For instance, last year’s designation of cannabis as an essential business resulted in rapid shifts in laws to accommodate new Centers for Disease Control and Prevention guidelines and expanded safety protocols for cannabis businesses and operations. Those slow to keep up with the changes suffered. Expect complications in your area and be prepared to respond properly to those challenges.
4. Failing to adapt. This industry is constantly evolving, so businesses must adapt and change as the marketplace expands. Adaptability is especially important for those operating in states that are adding recreational cannabis to their medical cannabis program.
5. Failing to understand consumers and their needs. Figure out the best way to receive customer feedback and keep up with cannabis trends. There will be marked differences between a medical cannabis patient and a recreational user, so creating customer personas is a helpful way to pinpoint lifestyles. Other demographic characteristics also will help assess the right messaging for each type of customer.
6. Failing to choose the right partners. It’s essential to understand some companies may be hesitant to partner with a cannabis-related business, but don’t be discouraged. Figure out which companies are a good fit for your business and go from there.
7. Failing to transition from medical to recreational use. Most states that are expanding to include recreational cannabis programs will be utilizing existing operations to get the new program off the ground. Not being able to transition your existing business from medical-only to include recreational use will prove to be a major downfall.
8. Failing to recognize the importance of public relations. PR is an essential part of marketing your business in a responsible manner. A good PR firm can generate and place stories and bylines that ultimately help combat some of the stigmas associated with the cannabis industry. Good representation also is invaluable when your business faces a crisis. Having a solid crisis-PR plan in place before you need it can mean the difference between success and failure.
These are just a few of the common mistakes we’ve seen among entrepreneurs and companies that are new to the ever-changing cannabis industry. The biggest takeaway? Point one in the list: Effective, experienced legal professionals who are familiar with the cannabis industry can help your business avoid costly mistakes. Trust us when we say you don’t want to find yourself tangled up in some of the legal snarls we’ve had to fix.
Take these points we’ve shared to heart, and your business will be on solid footing in one of the most exciting marketplaces today. Good luck!
Laura Bianchi was among the first business/corporate transaction attorneys in the country to specialize in the nascent legal cannabis market. Her groundbreaking work in the industry began with the 2010 passage of Arizona’s medical cannabis law. Today, she has represented clients from seed to sale and beyond, reflecting more than $100 million in transactions.
Justin Brandt is an award-winning attorney and entrepreneur who leverages a background in business economics and accounting to serve cannabis law and business litigation clients. Since embarking upon cannabis law in 2014, he’s been named among Marijuana Venture’s Top 40 Under 40 Rising Stars and Phoenix Business Journal’s Top 40 Under 40.
