California Cannabis Startup Guide

Starting a cannabis company in California? We’ve put together a state-specific guide covering everything from available license types to fees, local rules, and what you should include in a California cannabis business plan. Jump to a section by clicking below, or go straight to our sample cannabis business plan.
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Overview
Cannabis license types
Fees and other barriers to entry
Are cannabis business plans required in California?
What to include in a business plan
How to research city regulations
Helpful links
Get expert help

Overview of legal cannabis in California

Since proposition 215 passed in 1996, California adults can possess up to 8 ounces of cannabis if they have a recommendation from a doctor. Nearly 1 million patients have registered for medical marijuana use in California. People can also grow marijuana plants at home for medicinal or recreational use. Medical marijuana sales from dispensaries could reach $1.8 billion in 2018.

Thanks to proposition 64’s passage in 2016, California adults 21 and over can possess up to 1 ounce of flower or 8 grams of concentrate for recreational use. Businesses can grow and sell recreational marijuana and products, and California is one of the few states with no restrictions on the types of cannabis that businesses can sell (many states ban edibles that look like candy, for example). Recreational marijuana sales from dispensaries could reach $1.2 billion in 2018, making California’s overall marijuana market potentially worth $3 billion.

And you don’t have to grow, manufacture, or even sell cannabis to participate in the booming industry. Just look at Weedmaps, the “Yelp for dispensaries,” which is based in California. Weedmaps had ad revenue of $300,000 within a year of launching in 2007 and now generates an estimated $15 million in annual revenue.

Cannabis business license types

California is in the process of making 17-19 different cannabis business licenses. Here are a few of the major ones:

Retailer (aka dispensary): This is a retail storefront where anyone 21 and over can purchase marijuana. In California, the “retailer” category also includes delivery services. As of early 2018, California is one of the only states where marijuana delivery is legal. Cannabis delivery services process online orders from consumers who are of age, then provide convenient at-home delivery once or on a recurring basis.

Cannabis cultivator: 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.

Lab testing: Marijuana testing 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. California is one of the states that mandate that dispensaries must get their products tested to remain in compliance. California requires testing for more than 60 components, and there’s a shortage of testing labs, as millions of pounds of product await testing.

Distributor: A marijuana distributor transports cannabis, arranges for testing, and performs quality assurance.

Microbusiness: If you grow cannabis in an area smaller than 10,000 square feet, you could qualify for a marijuana microbusiness license. However, you also have to become a licensed distributor, manufacturer, and retailer (more info here).

If you don’t want to grow, distribute, test, or sell cannabis, but still want to participate in this growing industry, you have plenty of other 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.

California medical and recreational marijuana business plan facts callout.

Fees and other barriers to entry

Cannabis business licensing can be confusing in California, because there are three different state cannabis licensing authorities: the Bureau of Cannabis Control (which licenses retailers, distributors, testing labs, and microbusinesses), the California Department of Public Health’s Manufactured Cannabis Safety Branch (which licenses marijuana manufacturers who make edibles and other non-flower products), and the California Department of Food & Agriculture’s CalCannabis Cultivation Licensing (which licenses cultivators and runs the cannabis tracking system for California). Permits: California requires recreational marijuana businesses to get both state and local business permits. Local governments may forbid cannabis companies or certain locations, so check city and county regulations.

Application fees: It’s $1,000 to apply for a medical or recreational marijuana business in California.

License fees: New and renewal licenses for a medical marijuana company cost $1,000 in California. For recreational marijuana businesses, the cost of a license varies based on your business’s value. California’s Bureau of Cannabis Control regularly busts unlicensed marijuana businesses, so don’t skip the licensing step!

Do you need a cannabis business plan in California?

California requires detailed information about your cannabis business, including property boundaries, room dimensions, entrances and exits, description of activity, number of cameras, transportation and inventory procedures, and much more -- basically a business plan. The required documents vary based on which type of license you’re seeking. While a complete business plan is not required, it is best practice and developing a comprehensive business plan will help you address all pertinent areas and prepare your company for licensing. And if you plan on raising money from investors, you’ll definitely need a business plan.

What to include in your business plan

Here’s what a California cannabis business plan should include:
  • Product/service description: Will you run a California dispensary, grow operation, testing lab, microbusiness, delivery service, or something else? What’s unique about your company? Be as specific as you can. If you’ll open a dispensary, which strains of flower and/or which manufactured products will you sell?

  • Market research: If you’re opening a dispensary, how many people live in a five-mile radius? If you’ll run a delivery service, what will be your delivery range? If you’re opening a testing lab, cite the long backlog of cannabis that needs testing in California. Use concrete numbers verified by a third party whenever possible (instead of estimates).

  • Competitors: Who will you compete with, both directly and indirectly? What do they do well and poorly? What is their online reputation? How will you differentiate your company?

  • Management team: Summarize your qualifications and those of others on your management team. Include cannabis industry experience, of course, but don’t worry if you don’t have any. Highlight leadership skills, customer service, and business development experience in other industries.

  • Financials: This part can be tricky. You need a five-year financial forecast, including projected annual revenue, operating expenses, costs, and net profit. Each year’s projected revenue should include not only revenue but also your margin and direct costs. You can forecast revenue by estimating how much product you think you’ll sell (based on market potential), your retail price, your production cost, and how much you’ll spend on payroll, rent, and other expenses. Your cash flow statement will show that you’ll have enough cash to stay operational. You might want to include a sensitivity analysis (best- and worst-case scenarios), which shows 15% higher and 15% lower revenue than your initial forecast. For marijuana cultivators, it’s important to do a sensitivity analysis based on future potentialities of the wholesale price per pound. You can also include a break-even analysis, showing which month you will be profitable.

  • Requirements specific to your license type: Depending on which cannabis license you’re applying for, you may have to also include details about your security system, product tracking, secure product transport, manufacturing waste plan, water source, and other aspects of your business.

  • Investor proposal: If you are presenting your plan to investors, how are you valuing the shares? Consult with your attorney to make sure you are within state and federal compliance. Sometimes, you’ll need your attorney to draw up an offering memorandum, often called a private placement memorandum (PPM). A PPM informs potential investors on the details of the investment vehicle (your company) and potential risks associated with the investment.
How to research city regulations

Google your city or municipality name and “cannabis regulations” or “marijuana laws” (here’s Los Angeles, for example). If your city or municipality’s website doesn’t have information about cannabis, contact your city clerk, city manager, or town hall.

Helpful Links
Get expert help

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:
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