How to Start a Marijuana Business
Financial experts have described the fast-growing marijuana industry as an investment opportunity "unique in a generation." Christopher Carey, an analyst at the Bank of America, believes that the herb industry could one day reach maximum annual sales of $ 166 billion worldwide, with the United States accounting for roughly a third of revenues.
Marijuana Business Daily put 2018 sales in the U.S. UU. In $ 10 billion. He projects that the industry will grow to more than $ 30 billion by 2024. If he considers that only two nations have legalized the herb completely, and around 40 have legalized it medicinally worldwide; It is clear that the market has a LOT of growth potential. It is growing at a dizzying pace in the United States, although it is not (yet) federally legal.
As always with growing industries, aspiring entrepreneurs get in; hoping to be part of something special. At the end of 2018, approximately 250,000 people were employed by the marijuana industry. This figure alone suggests that it is becoming a competitive market, but there is much more data to consider.
The number of active licenses for distribution, cultivation, testing, and processing grew from just under 10,000 in January 2018 to more than 17,000 in December of that year! Here is a breakdown of the number of licenses in each area for December 2018:
- Testing: 160
- Delivery: 524
- Distributor: 824
- Manufacturer: 2,899
- Dispensary or Retailer: 4,042
- Cultivator: 8,781
The level of competition grows exponentially depending on where you live. For example, in February 2018, there were more than 68,000 cannabis growers in California. At the end of 2018, there were 167 dispensaries in Portland, Oregon, a city with a population of 650,000 or more. In other words, there is a dispensary for every 4,000 residents!
Now that you know the level of competence involved, the next step is to observe the possible difficulties you will face.
There are initial costs associated with any new business, but they are unusually excessive in the marijuana industry. As you saw in the introduction, it is necessary to have a license for each aspect of the niche. Whether you are growing special herbs or selling them to stoners, you must pay for the privilege.
The cost depends on the type of license you are looking for, along with your state of residence. For example, anyone who wants to open a dispensary in New Jersey must pay $ 20,000 for a license! Of this large sum, $ 2,000 is non-refundable, so if your application is rejected, you will only receive $ 18,000 back. In Louisiana, the license fee is only $ 150! In states where medical marijuana is legal, there is usually a $ 5,000 + non-refundable application fee to start a business.
This is just the beginning of your costs. Most potential entrepreneurs cannot pass the first step of the application. Usually, your requests are rejected due to lack of initial capital. If you get here, it has costs such as marketing and equipment. In general, you may need six figures to pass the first year!
In some states, you must provide proof that you have more than $ 1 million in cash to get your dispensary license!
Unfortunately, clause 280E in the tax code severely affects marijuana companies. It applies to illegal drug traffickers who respect the law, and marijuana is a drug on List I. As a result, you must pay a considerable amount of money in taxes.
Let's say your gross income is $ 1 million in a year with $ 650,000 in goods sold and $ 350,000 as gross income. You benefit from non-deductible business expenses, while your non-cannabis business counterpart gets $ 200,000 in deductible fees. Therefore, a tax on all your total income is applied, while the non-weed business is taxed at only $ 150,000.
In the end, he pays $ 105,000 in taxes at an effective tax rate of 70%. The weedless business has an effective tax rate of 30% and pays only $ 45,000.
That is not all. In 2014, a report on the problems facing recreational marijuana companies in the state of Washington was a real revelation. All weed products were taxed at a 'multiple compound rate.' As a result, there was a 25% tax rate on what a producer sells to a processor, a 25% tax on what a processor sells to a retailer, and another 25% tax on what a retailer sells to a customer. !
Once an additional 10% sales tax was added, along with the municipal tax and a 25% federal tax, only retailers faced the 60% tax on the product, and another 30% went to cost of the goods. In the end, the retailer did not get more than 5% to manage the business.
Since marijuana companies are illegally federal in the United States, there is a severe lack of financing for small businesses. Federal banking laws ensure that virtually no bank risks dealing with a weed-based business. In addition to not being able to obtain loans, marijuana companies have to find ways to store their cash since they cannot deposit it in the bank like a typical company.
How to overcome the storm: what you must do to develop a successful marijuana business
Get a lawyer
Any company should have an excellent contracting lawyer; This becomes a necessity in the weed industry. Even in legal states, the list of regulations, laws, and statutes is incredibly confusing and unnecessarily complicated.
For example, all small businesses must comply with regulations, but they are crazy when it comes to the marijuana industry. Federal jurisdiction differs from state jurisdiction when it comes to weed, but since companies are legal state by state, documentation and licensing requirements vary.
In addition to the necessary fees, taxes, licenses, and permits, it also faces the usual problems of small businesses, such as tax paperwork, search for copyrights and trademarks, and all other associated headaches. Find a lawyer specialized in marijuana and make your life easier!
Find your niche: the only thing is good
If you do not want to compete with established retailers, dispensaries, and producers, you should think innovatively. Joel Schneider is from Colorado but worked as a lawyer on Wall Street for decades. Instead of trying to deal with the litany of known marijuana businesses in the state, he did something very different.
Schneider opened a marijuana-friendly hotel called Bud and Breakfast. It is a high-class establishment regularly frequented by celebrities. His initial foray into the market was so successful that it expanded to create two new hotels. Their annual income exceeds $ 1 million, and they grow every year.
The sad reality is that you will need a LOT of capital if you want to enter the industry as a retailer. It's easy to look at large dispensaries in Colorado and California and be envious of their huge income. What it does not take into account is the level of taxes they pay, along with the difficulties in finding a banking partner and the critical initial costs.
Instead, it is better to follow the example of Schneider, who is not alone in the development of a chain of hotels and bed & breakfast friendly to weeds. Marijuana auxiliary companies do not have the same problems with high taxes and legal bureaucracy.
Therefore, ideas for getting involved in the marijuana industry may include the sale of products for the cultivation of marijuana, the education of consumers and growers, or the creation of new technology with a focus on cannabis. Think of these unique and sophisticated vaporizers as an example.
Who is your customer base?
After proposing your idea, the next step is to focus on who is likely to benefit. In addition to knowing and understanding the challenges facing people in the industry, you must also meet the needs of your customer base. What kind of people want your weed-themed clothes? Can you fill enough rooms at your outbreak and breakfast to make a serious profit?
This is where marketing comes into play. Your goal should be to conduct a detailed analysis of future customers to ensure you provide them with a product/service that keeps them happy. Without establishing an authentic relationship with your local marijuana community, the chances of creating a successful company are slim.
At this point, you should realize that the banks will close the door in your face. As a result, you can forget about lowering the traditional commercial loan. Venture capitalists could be their "angels," but convincing them to separate from their cash is another entirely different story. There are specific websites dedicated to informing readers about potential investors passionate about marijuana.
In the early days, it was entirely possible for "start" a new company in the marijuana industry. Today, you need to be smarter by raising money from investors who offer experience from other sectors. Look at the most successful marijuana brands that exist. If they were not experts when they formed their respective companies, surely they are now.
Finding capital implies developing a solid business plan. You should describe your market strategy, observe the competition, financial goals, challenges, and include a kind of development plan. Also, don't be afraid to contact leaders in your specific niche. Some of them may be willing to offer advice on your project.
Final thoughts on how to start a marijuana business
Regardless of the niche you choose, starting a marijuana business is hard work. Whether you're paying excessive taxes, trying to raise enough initial capital, understanding the different regulations or competing against well-established companies, the road to becoming a marijuana millionaire is long and full of obstacles.
For those who have overcome these obstacles, it is often a labor of love, and this love of grass is what helps them overcome. Successful entrepreneurs work incredibly hard and refuse to accept a "no" in response. The key, and possibly the biggest challenge, to form a successful marijuana business, is to find ample initial capital. If you can succeed in this formidable task, the road to success becomes a little clearer; be sure to hire a lawyer who knows the industry.
If all of the above seems too much to achieve, you can still earn money in the marijuana industry. There are hundreds of thousands of jobs with much more safe to create. You can become a store manager, grocery chef, budget, collector, delivery man, or the website manager.
For the record, the Cannabis Extraction Technician paper is one of the most lucrative at $125,000 per year. This individual separates cannabinoid-rich trichomes from cannabis flowers. Otherwise, you can create your role as Joel Schneider did. Perhaps the future is not in retail or growth, but in marijuana businesses that are free of the twin buds of high taxes and enough bureaucracy to fill the Grand Canyon.