Ganjapreneurs — as opposed to less successful entrepreneurs — have almost a zero percent chance of their business failing through typical channels.
Start A Marijuana Business In 6 Steps
1. Decide What Kind Of Marijuana Business To Start
Normally, the first step for starting a business would be coming up with a business idea, but if you’re ready to start a marijuana business, you already have that step completed. What you do need to decide is what part of the marijuana business you want to be in. Do you want to open a dispensary, grow marijuana or deliver it? Maybe you want to do it all.
The steps to starting a marijuana business can’t progress until you’ve decided on this aspect.
Many of the other steps for starting a business will be fairly basic, but remember that with marijuana businesses the laws from state to state can change drastically and you need to be very sure of them before taking action. You’ll want to spend a lot of time doing your research so you completely understand the rules around where and how you can sell marijuana. Talking to people who’ve started cannabis businesses of their own is also a good place to start.
2. Make Your Business Plan
When starting a marijuana business, your business plan will need to be a bit more detailed than it would be if you were opening a less strictly regulated business like a restaurant or jewelry business.
First of all, make sure you’re following every law in your state. From where you want to open your marijuana business to who your suppliers will be, make sure everything is in line with the law.
The most surprising thing about having a cannabis business is the amount of regulation that is involved and how it’s constantly changing.
Your business plan will likely continue to change as the laws do, but it’s key to have it in place when you’re first starting a cannabis business. When you create your first business plan make sure it includes:
Business costs and when you plan to turn a profit.
How you plan to attract customers.
What will set your business apart from others like it, and who your competitors are.
Where you’ll run your business from.
Who your suppliers will be.
Whether you have legal counsel to help you keep everything in order.
3. Register Your Business Name & Entity
Since marijuana isn’t legalized on the federal level, and national prohibitions prevent the interstate sale of cannabis, big businesses have generally stayed away from the cannabis industry thus far — making it a prime industry for local businesses to enter.
Your marijuana business will likely be local and on a smaller scale, but you still need to choose a business entity that’s right for you. The business entity you choose will affect the taxes you pay and the level of risk you’re exposed to. You might be leaning toward opening your business as a limited liability company, also called an LLC, or maybe a corporation. Both entities can shield owners from personal liability but there are some key differences when it comes to an LLC vs. corporation.
You also will need to choose a name for your marijuana business. The process for choosing a business name will be specific to your state, but generally, you’ll need to conduct a search to ensure the name you want is available, and then there will be a small fee associated with reserving your name for a set amount of time. Nail down both of these things before you try and register your marijuana business, as you’ll need this information to do so.
4. Register Your Marijuana Business & Obtain Licenses Or Permits
Every state has different laws around starting a cannabis business, and therefore, different types of business licenses, permits and registration practices will be required depending on where you want to open your business. You’ll need to do your homework and ideally contact a legal professional in your state that can help you sort through everything to register your marijuana business and get the proper permits.
Before starting a marijuana business, know exactly what documentation, licensing and regulatory bodies you need to comply with to start and operate your business. FindLaw has a good resource on what specific permits and licenses marijuana businesses need in each state.
Some states, like California, have portals designed specifically for the licensing of marijuana businesses, and entire websites designed for business owners looking to start a marijuana business. Keep in mind that simply being a marijuana retailer or dispensary owner also comes with different rules and regulations than a business that grows or delivers marijuana.
All of these cannabis-specific permits, licenses and registrations come in addition to registering your business in the state, simply to be cleared to do business there.
5. Register To Pay Taxes
Taxes will also depend on the state in which you’re starting your marijuana business. However, no matter where you’re starting your cannabis business, you should apply for an employer identification number, which is also called a business tax ID number.
You can apply for an EIN online directly from the IRS and get approved almost immediately. You’ll need it when tax season rolls around and you’re paying payroll and income taxes for your business.
Your EIN will also be necessary if you decide to open a business bank account or credit card, or if you apply for funding.
How To Get Funding For A Cannabis Business?
Financing is the primary barrier to entry into the cannabis industry, so it is important to structure your approach to overcoming it as a challenge. It doesn’t matter if you’re a bodega on the corner, a chain restaurant, a cannabis cultivator, or one of the big four tech firms, there are really only three ways to finance any business’ growth:
- Reinvesting profits from running your business
- Taking out debt from a lender
- Selling an equity ownership stake in your business to an investor.
How To Get A Canna Biz Loan
You can avoid predatory lending by first self-evaluating the strength of your candidacy for a loan or credit. Someone who lends you money and expects it back is looking for whether you are earning enough monthly sales to make monthly loan payments and if you have a history of consistently paying your obligations.
They will also want to see business or personal assets that can be seized to recoup the value of the loan if you fail to make your monthly payments.
The Small Business Administration provides a useful rubric for how to make the best possible case for a loan. While the SBA does not lend to cannabis businesses, the Financial Crimes Enforcement Network (FinCen) reported that 723 banks and credit unions (6% of total) across the nation provided banking services to cannabis businesses in 2019.
FinCen stopped publicly reporting which banks and credit unions filed with them, so if you are interested in learning which banks and credit unions in your State offer services to cannabis companies, then we suggest submitting a Freedom of Information Act request with FinCen to disclose the filers.
Other Sources Of Capital For A Cannabis Business
Another worthwhile source of capital is an innovative model emerging out of Illinois. Upon legalizing cannabis for adult use, the State also created a $30 million Cannabis Business Development Fund that is to be used to make low-interest loans to social equity licensees in the State.
The intention was to ensure individuals from disproportionately impacted communities would have a source of capital to jumpstart and grow their businesses, putting them on more equal footing with deep-pocketed multi-state operators. Washington, Colorado, and a number of other states are considering similar programs.
The portrait you paint for a bank lender or government agency should be the same portrait you paint for more informal lenders, such as your mother or father, former boss, business partner, or your rich uncle.
Friends & Family
We encourage you to look beyond institutional financiers and engage with people who believe in your business plan. Relying on family and friends to provide you with loans is advisable (particularly at an early stage) with the upside that they fully understand and appreciate the risk of lending your business money.
In fact, a common misconception in equity financing is that the only viable investors come from multi-million dollar venture capital firms.
The reality is that most businesses’ first equity investors are usually made up of supportive family members and friends.
Though a huge funding injection from an investment group is great, it is equally as impactful to receive investments from peers and like-minded individuals who believe in your idea and want to support what you are building.
Determining Equity Stakes
While debt investors deploy capital for an immediate return, equity investors aren’t looking for a short-term payback. The goal of an equity investor is to support your company’s growth so that their investment increases in value as your business matures.
Having an equity stake in a company is essentially owning a piece of the business, and those stakeholders are usually in it for the long haul, anticipating that their investment bolsters the success of the business.
New business owners run the risk of both vastly overvaluing their company and vastly undervaluing their company. Overvaluing your company puts off sensible investors and ones who believe your company is too expensive. Undervaluing your company can lead to you losing majority ownership or sacrificing control of your company long-term.
Before selling anyone a piece of your company, it is critical to determine your company’s valuation. The only way to determine how much an investment is worth is to look at it in the context of the total value of the company.
Ways to determine the value of your company include:
If you successfully utilize debt and equity to finance your business, you can then unlock the third, aforementioned type of financing businesses use – profits.
The ultimate goal of all businesses is profitability, and after a couple years of stable operations, the profit your business generates can be reinvested back into the company.
Once growth and development are sustained by the cash the business generates from operations, then the business truly becomes viable and is positioned to scale and expand.
5 Ingenious Cannabis Entrepreneurs to watch in 2022
1. Abby Stoddard
Abby Stoddard is a pharmacist with ten years of experience across all facets of the industry including retail, hospital, managed care, and public policy. During her tenure as a pharmacy benefit manager, Abby held the role of principal state lobbyist, directing all advocacy, lobbying, and policy work across 13 states. Excited by the enthusiasm around this burgeoning industry and its potential to impact the prescription drug and insurance spaces Abby made a shift from pharmacy benefits to the cannabis industry. Seeing the massive transition a state makes when its market moves from medical-only to adult use, Abby headed to Oregon to create a program that carves out space for health and wellness-focused consumers in a crowded, adult-use focused market. Her program, The Client Centered Network, serves new wellness consumers by connecting them to resources from the state’s medical program, cannabis education, and providers looking to serve them.
2. Alex Malkin
Alex Malkin is a CBD enthusiast, researcher, co-founder, and the editor-in-chief at cbd.market, which is a trading platform for CBD products and continued education. He’s also the author of the book “CBD: A Door to Better Health” and a certified nutrition-and-wellness specialist. He suffered from insomnia for almost ten years. As an alternative, he started taking concentrated oil. After taking it for about 3 to 4 days, he noticed a true miracle with his sleep quality. He shared his discovery with his business partner, Alexander, and they immediately saw a huge number of weaknesses in the CBD niche today, such as the lack of multi-brand stores with a lot of different trusted brands, the lack of a niche system like Amazon, which would give the opportunity to sell manufacturers their products directly to the consumers at an affordable price, the inability to have a subscription consisting of products of different brands. They decided to launch their project cbd.market and now, step by step, they added all these opportunities so that buyers can provide the broadest possible choice at an affordable price, and the manufacturer has a regular income without serious advertising.
3. Ben Guez
Ben Guez left France 8 years ago to start his entrepreneur journey and founded his business venture as LAXIR a digital marketing agency in 2015, co-founded of Zentap a SaaS company for realtors in 2018, and just launched kloe a marketing software for CBD and Cannabis business owners. Having done digital marketing for the last 10 years and after talking to a lot of people on the CBD and Cannabis space he realized how challenging it was for them to advertise online. Due to regulation on Facebook and Adwords they do not have access to typical ad platform; That is when he created, kloe, a specific marketing software for them.
4. Chelsea Rivera
Chelsea Rivera co-founded Honest Paws and currently serves as Head of Content for the brand. Chelsea graduated from The University of Texas at Austin with a degree in Radio-Television-Film & Advertising. Her role at Honest Paws stems from a love of digital content and the adoration she has for her CBD-loving pup, Baby Rose. When her pup, Baby Rose was just 3 years old, she started suffering horrible seizures. As any worried dog mom would do, she searched for options to help her. However, all the anti-seizure medication came with negative side effects that would cause her to feel lethargic and curb her spunky personality. So, she decided to take the holistic route and look into alternative medicine. This led her to CBD. She knew it was already being used by humans to help with various problems, but she didn’t know much about the animal side. But – within a month – Baby Rose’s seizures stopped. This was the start of Honest Paws! She realized that many pet parents were in the same boat as she was and saw this as an opportunity to help pets everywhere live happier, healthier lives.
5. Isaac Balbin
Dr. Isaac Balbin is the founder of Parsl, a new type of technology company that is helping the cannabis industry communicate effectively through the utilization of blockchain and other cutting edge technologies including IoT, AR, VR, and AI / Machine Learning. Parsl’s aim is to give the industry as a collective the tools to operate as the most intelligent and data-driven supply chain in the world. Parsl’s SmartTag technology will serve as the infrastructure that the rest of the platform is built on top of and will enable Isaac to achieve his vision for the cannabis industry. Parsl is uniquely focused on the people in the cannabis industry, from consumers to businesses to regulators. Parsl will grant people access to the verified and immutable data that drives the global cannabis industry, from product ingredient sourcing to inventory insights to compliance.
If you are an aspiring Ganjapreneur then you will need a solid software system to help accelerate your dreams. We have a product BONGME that is ideal for you to help launch your business in a guided way. Cut through the hassles of Playstore and AppleStore and get it out there for your customers in the form of a Web progressive App.(WPA). Want to know more? Talk to us today and find out!