Want to Start a Marijuana Business? Here's Everything You Need to Know
Many U.S. states have legalized marijuana for medical and recreational use, so it's a great time to start a marijuana business. Here's how.
- Follow these six steps to start a marijuana business.
- 1. Figure out what kind of marijuana business you want to start
- 2. Create your business plan
- 3. Decide on a name and business entity
- 4. Register your business and get licenses or permits
- 5. Apply for an EIN
- 6. Look for investors and funding
- What is the most profitable part of the marijuana business?
- What is the cheapest state to open a dispensary?
Thinking about starting a marijuana business, but not sure where to begin? The cannabis industry is booming right now as over half of the U.S. has legalized it for medical and recreational use.
According to BDSA, by 2026 cannabis sales in the U.S. will skyrocket to $42 billion, which will make up 75 percent of total global cannabis sales. Legal cannabis sales in the U.S. are projected to increase by 14 percent by the end of 2023.
Before you get started, you need to consider the demand for cannabis in your area, the laws, risks, and earning potential. If you’re serious about learning how to start a marijuana business, keep reading.
Follow these six steps to start a marijuana business.
The future looks bright for the cannabis industry in the U.S., but just like starting any business, it requires time, energy, and a lot of work to prepare, create, and launch. Let's take a look at how you can get started with your own business.
1. Figure out what kind of marijuana business you want to start
Before you get started with a business plan, you need to figure out what part of the marijuana business you want to be in. You can open a dispensary, grow your marijuana, set up a delivery service, or do all three.
But remember the laws vary from state to state and you need to be familiar with them. We suggest you spend a lot of time researching so you understand the laws and rules about how and where you can sell it. Also speak to peers who've started their own business and get some tips.
2. Create your business plan
Again, make sure you're following every law in your state as it can dictate everything from where you want to open your marijuana business to who will be your suppliers and legal delivery areas. Legislation changes all the time so it's important you're always up to date.
While your business plan may change with the laws, it's important to have it in place when you're first starting a marijuana business.
Make sure your business plan includes the following:
Costs, expenses, and when you plan to turn a profit
How you'll attract customers
Your competitors and how you plan to stand out from the crowd
Your business location
Whether you have legal counsel to help you keep everything in order
3. Decide on a name and business entity
While your marijuana business will likely be local, you still need to choose a business entity — sole proprietorship, partnership, LLC, etc. — that's right for you. This will affect the taxes you pay and your level of risk. You should consider opening your business as a limited liability company, also called an LLC, or maybe a corporation because both entities can shield you from personal liability.
You'll also need to choose a name for your business which will be specific to your state and conduct a search to make sure the name is available. There will be a small fee for claiming your name. Decide on both of these things before you register your marijuana business, as you'll need this information to do so.
4. Register your business and get licenses or permits
Before you get started, find out what documentation, licensing, permits, registration practices, and regulatory bodies you need to comply with to start and operate the business in your state. Contact a legal professional in your state who can help you register your marijuana business and get permits.
Some states have portals specifically for licensing marijuana businesses, and there are entire websites designed for business owners looking to start a marijuana business.
Remember being a marijuana retailer or dispensary owner also comes with different rules and regulations than one that grows or delivers it.
All of these cannabis-specific permits, licenses, and registrations are in addition to registering your business in the state. And don't forget that while you'll be saddled with more marijuana-specific tasks, you also have to do all of the other work when it comes to taxes and registration that a regular business would have to do.
5. Apply for an EIN
How much you pay in taxes will depend on the state, but no matter where you're starting your marijuana business, you need to apply for an employer identification number (EIN) number on the IRS website, which is also called a business tax ID number.
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.
Due to the 280E clause (applying to law-abiding illegal drug traffickers paying taxes) marijuana businesses pay a lot in federal taxes, but you can deduct a variety of business expenses. Marijuana businesses don't qualify for the many different tax credits and deductions for operational expenses.
6. Look for investors and funding
Marijuana business typically have more startup costs — applications and licensing fees, equipment, marketing, etc. — than a regular business.
As a dispensary, you’ll need to have licenses to sell medical marijuana. In states where medical marijuana is legal, you may need to pay around a $5,000 non-refundable application fee to start the business. Most applicants for certificates fail to meet the startup capital requirements needed to ensure a smooth operation.
What is the most profitable part of the marijuana business?
According to Gateway Proven Strategies, the average dispensary can make between $100,000 and $1.2 million in annual profit and if you're the sole owner, you can expect to earn the same. Dispensaries typically generate between $1 million and $4 million in annual revenue and generate a profit margin of 10 percent to 30 percent.
Flower is still overwhelmingly the best-selling product category in dispensaries followed by edibles and concentrates.
What is the cheapest state to open a dispensary?
If you're concerned about finances, you may be wondering what's the cheapest state to open a dispensary. Oregon (which is the state with the most dispensaries) was the first state to decriminalize the possession of marijuana and legalize medical marijuana. It's also one of the cheapest states to open a dispensary. The application and licensing fees for a dispensary are $5,000, but they are much lower if you're looking to open a micro business.
Colorado is your second-best bet for opening a cheaper dispensary. Even though Colorado legalized marijuana for medicinal purposes in 2000, it wasn’t before November 2012 that cannabis was legal for recreational use for adults over 21.
Licensing fees are slightly higher in Colorado, so you'd need to pay a $5,000 application fee and an additional $2,000 annual licensing fee. The licensing price is the same for opening either a medicinal or recreational cannabis dispensary.