How to start a cannabis business

Blog headshot of Jess Holy
As more states legalize marijuana, the profit potential of opening a cannabis business is ripe for the picking. Ready to start a marijuana business? Here are six key steps that cannabis entrepreneurs can take to get their business going.
Woman browsing a cannabis dispensary's marijuana products

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.

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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.

Protect your cannabis business with the right insurance

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.

One example is Growing Talent, a results-driven company dedicated to cultivating entrepreneurs of color in the cannabis industry.

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.

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How to get a business license
Regardless of your type of work, you’ll likely need a small business license from your state or local government in order to operate in your industry.

5. Grow your business network

Becoming engaged in the digital cannabis community is a smart way to learn from fellow business owners, stay on top of industry trends, find employees, and even gain a following.

As part of your marketing efforts, participate in these niche networks to establish yourself as a thought leader and grow your business’ name recognition.

Some leading cannabis social networks include:

  • WeedLife. Like Facebook, WeedLife is helpful for businesses looking to connect with consumers.
  • LeafWire. Comparable to LinkedIn, LeafWire is your one-stop shop for investing, hiring, or the latest news.
  • Vangst. Similar to Indeed, Vangst helps connect job seekers with cannabis businesses looking for employees.
  • GrassCity. One of the oldest marijuana-dedicated websites, it hosts forum-style information.

6. Protect your business with the right insurance coverage

When it comes to cannabis business insurance, having the right coverage helps your business withstand accidents and lawsuits. State laws may require certain policies or bonds, while others should be considered as part of your risk management plan.

General liability

General liability insurance is usually the first policy bought by small business owners. It protects against basic third-party risks, such as a customer who trips and suffers an injury in a dispensary. Some states require this coverage for cannabis businesses.

Product liability

Product liability insurance provides financial protection against lawsuits related to your products. It will help pay legal costs if a customer sues over an adverse reaction to marijuana or a CBD edible. This coverage is typically included or added to your general liability policy.

Business personal property

Business personal property (BPP) insurance will pay to repair or replace lost, damaged, or stolen business property. It covers items like computers, displays, and cases.

Finished stock

Finished stock insurance covers any actual cannabis inventory that’s in its final stage ready to be sold. This would protect your business from any lost income should your cannabis inventory be damaged and unable to be sold.

Workers’ compensation

Workers’ comp insurance is required in most states for businesses that have employees. It also protects sole proprietors from work injury costs that personal health insurance might deny.

Get cannabis business insurance from top U.S. companies

It's easy to get insurance for your cannabis business if you have your company information on hand. Our application will ask for basic facts about your dispensary, such as business income and number of employees.

You can buy a policy online and get a certificate of insurance with Insureon in three easy steps:

  1. Complete a free online application.
  2. Compare insurance quotes and choose a policy.
  3. Pay for your policy and download a certificate.

Insureon partners with top-rated U.S. insurance companies to find coverage that matches your risks and fulfills state requirements for cannabis businesses. Contact our licensed cannabis insurance specialist at (872) 260-5150 or [email protected] to get started.

Jess Holy, Senior Copywriter

Jess is a dedicated wordsmith fluent in marketing writing, grammar and a well-placed pun. She’s put her spin on content for national brands like Big Brothers Big Sisters of America and Ulta, as well as B2B technology vendors including IBM, Lenovo and Microsoft. Jess’ favorite part of her career is using writing to positively impact others; and when she’s not writing, she’s reading a book with a hot cup of coffee.

Content verified by: Matt Hernandez, CIC, Asst. Director, Sales, Partnerships

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