When starting an adult use (recreational) marijuana business or seeking help with a cannabis business plan, knowledge is power. We at Masterplans, the leading cannabis business plan company, have put together this comprehensive guide, whether you’re starting a marijuana delivery service, grow operation, nursery, testing lab, or retailer/dispensary. Jump to a section by clicking below, or go straight to our sample cannabis business plan.
Recreational marijuana use is legal for those 21 and over in 16 states plus Washington, D.C., as of July 2021. Canada also legalized recreational marijuana use in 2018. Which states have legalized recreational cannabis? In alphabetical order, they are Alaska, Arizona, California, Colorado, Illinois, Maine, Massachusetts, Michigan, Montana, Nevada, New Jersey, New Mexico, New York, Oregon, Vermont, Washington D.C., and Washington state.
More states may follow suit in the near future. South Dakota passed a ballot measure in November 2020 to allow a medical marijuana industry in the state. Though the program was due to start in July 2021, the governor and legislative leaders have delayed the implementation of the program, and it is currently tied up in the courts.
States that could legalize cannabis within the next year include Connecticut, Delaware, Minnesota, and Rhode Island.
Adult-use cannabis is booming. It is estimated that in 2020, despite retail limitations placed on stores due the COVID-19 pandemic, retail sales will surpass $10 billion. New legal marketplaces, led by populous states like New York, will ensure significant growth over the next several years; analysts expect the Compound Annual Growth Rate (CAGR) for retail cannibis to be nearly 20% in 2020-2025. That means the industry is likely to surpass $10 billion in 2023 and is likely to hit $25 billion in 2025.
With sky-high growth expectations, it is no surprise that investment dollars are flowing into the cannabis industry. Much has been made of the consolidation in the industry to large, publicly traded companies, but while mergers and acquisitions are on the rise, the industry is still largely fragmented. As of 2020, there were 3,200 recreational cannabis retail licenses. Of those, just 293 (9%) were owned by the five largest publicly traded cannabis companies (Curaleaf, Green Thumb Industries, Harvest Health, Cresco Labs, MedMen, and Planet 13 Holdings).
Furthermore, states are increasingly adding social equity components to the licensing requirements, ensuring that majority owners would include those who have been historically disenfranchised by marijuana prohibition.
Strains of cannabis vary. Types with more THC may be more commonly used recreationally, as they can induce relaxation and psychoactive effects, whereas cannabis strains that are higher in CBD are more commonly used to treat medical conditions. However, there is no official difference between recreational and medical marijuana. The product is the same; the only difference is how it is licensed and who can legally obtain it.
In states that have legalized recreational cannabis use, typically anyone 21 years old or older can use marijuana. Whereas in states where only medical marijuana is legal, patients often must have a physician-issued medical marijuana card to purchase it (specific rules vary by state). Some states have legalized recreational marijuana sale, while others like Vermont and Washington, D.C., have only legalized recreational marijuana consumption, resulting in a “gray market.”
While recreational cannabis use is only legal in 16 states plus D.C., medical marijuana use is legal in 35 states plus D.C. But the tide seems to be turning toward legalizing recreational use and skipping the medicinal step altogether. That simplifies access and is how Canada recently legalized cannabis.
Interested in launching a recreational cannabis startup, but not sure which kind of company interests you most? Here are a few options (it’s important to note that each state’s rules and license types are different):
Dispensary: This is a retail storefront where anyone 21 and over can purchase marijuana. Typically, dispensaries must follow strict state-mandated protocols for product tracking, security, record-keeping, and hiring. (Each state’s rules are different.)
Marijuana cultivation: These businesses, also called grow operations, grow cannabis plants indoors or outdoors. Marijuana is then either sold through a dispensary or sold to a business that will create products with it, such as edibles or oils. Some cultivators are “vertically integrated,” meaning they grow, process, and sell cannabis to the public. Like dispensaries, grow operations also are required to keep thorough documentation, including water sources, smell abatement procedures, and so forth.
Product manufacturing: Cannabis manufacturers produce items like edibles, capsules, and oils, as well as everything from cannabis-infused soda to lotion. Manufacturers can distribute these products directly online and/or wholesale them to dispensaries and other distributors.
Delivery service: As of early 2021, the states where marijuana delivery is legal are Arizona, Arkansas, California, Colorado, Maine, Maryland, Massachusetts, Michigan, Nevada, New Mexico, New York, Oregon, Rhode Island and Vermont. . In those states, cannabis delivery services process online orders from consumers who are of age, then provide convenient at-home delivery once or on a recurring basis.
Testing facility: Consumers and regulators alike demand consistency and quality control in cannabis products, which creates demand for marijuana testing labs. These labs use methods like liquid or gas chromatography to analyze products for CBD and THC content, pesticides, terpenes, bacteria, fungi, and heavy metals, to name a few.
Ancillary business: If you don’t want to grow or sell cannabis, you still have plenty of options. You can create an app, payment processing service, advertising and branding agency, ad network, consulting firm, pest management product, automated plant watering system, security service, packaging and labeling service, or anything else you can think of.
||Medical Cannabis Broadly Legalized|
||Recreational and Medical Use Broadly Legalized|
||No Broad Laws Legalizing Cannabis Use|
Costs to launch a marijuana business vary widely, depending on your state, the type of company, and additional factors. For example, a testing facility or cultivation facility will cost much more than a cannabis consulting firm or security service. And the application fee and licensing fees are much more expensive in some states than others. In Washington, it’s $1,480 to license a recreational cannabis company, whether it’s new or a renewal, whether it’s a dispensary or grow operation. Whereas in Oregon, the fee to license a recreational dispensary is $4,750. And in Massachusetts, it costs anywhere from $625 to $25,000 to license your recreational marijuana cultivation business, because the cost is based on square footage.
Needless to say, research your state’s particular fees and costs! In general, however, here are the costs you should factor in when budgeting for your cannabis company:
|“||You saved us thousands of dollars and so much time. Because of that, we were able to raise over $2 million.
Jesse Peters, Owner
Eco Firma Farms
Here are two examples of real Masterplans clients who launched businesses in the recreational marijuana industry and their startup funds. In 2020, a recreational marijuana dispensary client of ours in Oregon was seeking a total of $171,000 in investment funding. That broke down into $60,000 for expenses (legal, consultants, grand opening party, website development, branding, and deposits for utilities, insurance, and lease); $93,000 for construction, electronics, and inventory; and $18,000 for working capital.
Another Masterplans client in Las Vegas, Nevada, launched a vertically-integrated cannabis company in 2020. They sought $7 million in investor funding: $4 million for a building, $2.3 million for lab and security equipment and build-out, $154,000 for expenses (legal, website development, and licensing), and $524,000 for working capital.
1. Do some preliminary research and planning
A little research before launching your cannabis company will save you a bunch of time. First, figure out if the market is already crowded with similar marijuana companies. (If you’re starting a brick-and-mortar business, look at local competitors; if you’re creating an app or other nationwide business, look at a regional or national market.)
If you’re launching a cultivation business or dispensary, your local area may have a cap on the maximum number of licenses allowed for that business type. (If your city only allows six dispensaries, and there are already six, you’re out of luck.) However, if there are available licenses, research the geographic areas you’re considering for your business to see if the area is already saturated. Note the locations of schools, as a cannabis business often must be a certain number of feet away from a school.
Even if your ideal area already has recreational cannabis companies similar to yours, that doesn’t mean you have to go elsewhere--read their online reviews or interviews with the founders to determine how your competitors are positioned in the market and whether customers like them. Try to determine their weaknesses so you have an idea of how your company can meet needs that aren’t being met. (For example, do customers complain online that there isn’t enough product variety, or that products are overpriced?)
After that, if you haven’t already, check your state and local fees to open a recreational cannabis company. That will help you determine if you can afford to start--and continue operating--your business. Look at both the initial fees and renewal fees; they should be on the website for your state’s Department of Health or health authority. (These sites typically end in .gov or .us.) In addition to an application fee and licensing fee, you might have to pay other fees like a background check or a fee for a marijuana tracking system. These fees can add up quickly.
Once you know whether you can afford the fees, choose which type of recreational cannabis business to start: grow operation, dispensary, testing lab, app, etc. Use your learnings from your competitor research and available licenses, as well as your professional and personal strengths. Then start brainstorming a long list of possible name ideas (this table can help). Some of them will be taken already, which you can find out with a quick google. (Also find out if the web domain and social media handles are available and whether your ideal name is already trademarked.) Your business name should be easy for potential customers to spell and remember. Decide on a business structure, such as LLC, S-corporation, or sole proprietorship. Finally, talk to an intellectual property lawyer, who will know if anyone has started to file trademark protection for the business name you want. You don’t want to waste money on business signs, a logo, business cards, and so forth if someone beat you to the name!
2. Develop a business plan
Some cities and/or states require a business plan as part of your application for a marijuana business license. But even if not, you still need one. It will give you invaluable insight into your company’s strengths and weaknesses, financial future, potential for success, and whether you need investors. It can help reveal things you weren’t aware of, like the annual disposable income of your target market — and that a slightly different part of town might be more lucrative. It’s a comprehensive deep-dive into not only your potential success but also potential problems that are much easier to correct before you launch!
Here’s what a recreational marijuana business plan should include:
As you can see, a cannabis business plan should be highly specific to your location and business type, so a business plan template isn’t sufficient.
3. Register your business and apply for permits and licenses
Your secretary of state’s website should have a page where you can register your business. And uspto.gov, the U.S. Patent and Trademark Office’s website, is where you can trademark your company name and logo if you want. (Trademarking a slogan is harder, because it can’t be generic or informational; it must be tied to selling your product.)
Now you need local permission to operate from your state (and possibly city/county). Even if your state has legalized recreational marijuana sales, certain cities might not allow it. Apply for a cannabis business permit on your state’s (and/or city’s) official website.
Finally, you need a business bank account! Using your personal one can get you into trouble and make record-keeping difficult. Thankfully, about 400 financial institutions including banks and credit unions welcome cannabis companies, the largest being Partner Colorado Credit Union at time of writing.
4. Get funding
Unfortunately, small business loans guaranteed by the Small Business Administration (SBA) are not available for cannabis companies yet, because the SBA currently “prohibits banks from issuing SBA-backed loans to any company that has a direct business relationship with a cannabis or hemp business.” But you have plenty of other options:
5. Meet employer obligations
If your marijuana business will employ people (it won’t be a sole proprietorship), register with the IRS to get your employer identification number (EIN). You’ll need an EIN to pay employment taxes and other business taxes. You may also need to register with your state’s employment department, in order to pay unemployment insurance.
6. Consider tax obligations and hire an accountant
Your business plan’s financial section should have included taxes, but just in case, consult with an accountant who’s familiar with the recreational cannabis industry to make sure. You’ll have to pay federal taxes, property taxes, income tax, and payroll tax. No one likes paying taxes, but you’ve gotta stay legal!
Confused or overwhelmed yet? That’s normal. With such a highly regulated industry, and one with different rules in every state, starting a cannabis company can be very complex. Get help with your cannabis business plan from Masterplans, the industry leaders. We’ve worked with hundreds of cannabis entrepreneurs like yourself to create investor-ready documents and presentations so you can not only meet regulations but get the funding you need. Click below for your free, confidential consultation: