What it Takes to Startup in the Cannabis Industry

I’ve previously talked about how it can take anywhere from 45 days to 12 months to get your marijuana business properly licensed, but of course there’s more than just licensing involved when it comes to starting up your cannabis company.

The cannabis industry has been largely regarded as the up-and-coming industry to watch, as regulations change and states legalize both medicinal and recreational. However, due to the growing number of marijuana-related businesses popping up in Colorado and throughout the U.S., it’s become increasingly more challenging to actually startup in the cannabis industry.

Just a couple of years ago, running a profitable marijuana company was simply a matter of getting the business off the ground and opening your doors. But the industry has evolved at a rapid pace, and a huge number of new businesses entering the cannabis space has raised the level of competition considerably ¹

While the number of challenges are growing, this industry is still bounding with opportunities, so let’s take a look at the biggest obstacles that you’ll encounter on your path to starting a new marijuana business.

1. Physical locations can be problematic

The stereotype about contractors being unreliable, inaccurate on estimating real costs, and slow to deliver on timeline comes from a kernel of truth. Of course, not every contractor fits the stereotype, which is why it is so important to find the right contractor – one you can trust who will deliver on all the promises and agreements made.

Unlike other industries, however, you may run into issues when securing commercial space.  Nearly all local governments have placed regulations on the proper locations and land size requirements for marijuana establishments.  Pair this with landlords who are generally unfamiliar with the cannabis industry and leases potentially including language which may create issues for your business down the line, and you could see your proposed timeframe for operations slip away. 

Additionally, when it comes to outfitting your physical location – retail, cultivation or manufacturing – you may need to obtain specialized equipment, packaging materials or other components of your products that can be more affordable to import from other countries. If you’re not careful, those imports might be seized by Customs and Border Protection, delaying your timeline to open and operate business.

I encourage you to avoid missing your milestones in your timeline by consulting with a cannabis attorney before signing any leases, entering any land purchase deals, or making any overseas purchases.

2. Business formations may add time

However you form your business, you may be surprised to learn that it could add time to your startup timetable.

If you’re getting into the business through the purchase or acquisition of another business, you may acquire assets (like licenses) that reduce your startup time, but you’ll still need to calculate time for inspections. Additionally, the state MED may request information that could delay approval of the business assets transfer.

For those entrepreneurs starting their business from scratch, preparing new applications and securing financing may add tremendous time to your startup process – depending on who’s preparing them. Be sure to work with an experienced cannabis attorney, like myself, who knows the proper order and necessary steps to get your applications approved and keep the investigators happy when processing your requests.

3. Business basics are much harder

Business basics like banking and insurance are still covered in red-tape and may be challenging to get set up. While the banking industry is becoming more accessible to the cannabis industry, there are still problems you’ll likely encounter. If you want to avoid operating on a cash-only basis, be sure to brush up on banking for marijuana businesses. Likewise, finding business insurance is more challenging for marijuana businesses due to tension between state and federal laws. Avoid getting a policy that doesn’t fully cover you, (or worse!) denies your claim when you’re in need: here’s how.

4. The cost of starting up is going up

It’s no secret that competition is growing in the cannabis industry. With the growth of available markets, technologies and new entrants, startup costs are also rising.

It can now cost hundreds of thousands if not millions of dollars to get your company up and running compared to half those numbers just a few years ago. Getting started is just half the battle; with the increase in competition and cost to get started, it’s taking companies longer to break even, let alone turn a profit.  However, the margins to be gained in the cannabis industry are still enticing for those willing to put in the work and take the risk on this new and booming industry,

Not sure if cannabis is the right industry for you? Book a consultation with an experienced cannabis attorney to get all of your questions answered!