California and Colorado continue to be exciting markets
Five states immediately come to my mind as the best places to start a cannabis business. I’ve broken down some of the legalities to consider from each state if you’re looking to start a cannabis business.
Although Massachusetts voters approved a measure legalizing the recreational use of cannabis in 2016, the first adult-use shops didn’t open until November 2018. As of June 17, state-licensed retailers have sold more than $147 million of cannabis in 2019, according to data from the state Cannabis Control Commission.
As of June, the commonwealth had granted licenses to about 60 retailers, but fewer than 20 were up and running, meaning there is a lot of opportunity for growth. However, many Massachusetts counties continue to prohibit cannabis businesses, which can either be a challenge for business owners who are looking for a space or a benefit if these counties eventually open their cities to cannabis. The Cannabis Control Commission is also discussing a timeline for delivery and social consumption.
Currently, there are only two financial institutions that cater to cannabis clients, but efforts are also being made by state lawmakers to open up more opportunities within the industry for banking.
The state has also established a social equity program to provide license opportunities to people from communities that were disproportionately harmed by the War on Drugs. Considering cultivation is needed to keep up with demand, a social equity candidate looking to get into cultivation could have a high chance of receiving a license to operate.
Florida is behind in welcoming the cannabis industry, but as the nation’s third-most populous state, the potential is huge.
Currently there is no legal recreational market and individual counties seem to be implementing laws regarding CBD differently across the state. A bill to legalize recreational cannabis use failed earlier this year; however, state lawmakers are planning to have a recreational marijuana bill on the 2020 ballot, so the traditionally conservative state could be making some slow headway.
In the medical sector, though, Florida is seeing rapid growth in revenue. The state recently approved eight additional licenses, bringing the total of licensed operators to 22, making Florida attractive to investors since it hasn’t experienced the oversaturation seen in other states.
But despite the state having a medical program, Florida isn’t particularly CBD-friendly. Because local law enforcement agencies have no way to tell the difference between hemp-derived CBD and marijuana-derived CBD, which can also contain THC, some people are still being arrested for possession or use of CBD.
Once considered the leader of the cannabis industry, Colorado has become less attractive to cannabis entrepreneurs as other states have adopted medical and recreational laws.
However, proposed ownership, investment, delivery and social-use reforms could reinstate Colorado as a prime option for new cannabis entrepreneurs and investors. On-site consumption could be legal as early as January 2020.
Like most other states, another appealing aspect of Colorado’s cannabis industry is how it uses the taxes collected to help improve quality of services given to the public. Many counties have used cannabis-related tax revenue to build homeless centers and fund education and scholarships. However, the flip side is that Colorado imposes relatively high taxes on cannabis businesses: a 15% excise tax on the sale of marijuana from a cultivator to a retailer, plus a 15% sales tax on retail sales to customers (up from 10% in 2017).
California has long led the country in cannabis legalization, and with the arrival of adult-use sales, cannabis has become a top tourist attraction within the state.
However, California’s legal cannabis industry has already faced a variety of challenges.
Like Colorado, California’s excessive taxes on cannabis are fueling the illicit market. Currently, growers are taxed at a rate of $9.25 per ounce of marijuana flower and $2.75 per ounce of trim, and retailers collect a 15% excise tax from customers.
Plus, according to the California State Association of Counties, 35 of the state’s 58 counties have current bans on dispensaries, and 31 counties have banned commercial cultivation.
Retailers have also faced the potential of a supply shortage, due to expiring cultivation licenses.
Nonetheless, analysts expect cannabis sales to reach $6-7 billion within the next few years, and there are already as many as 50 bills being drafted in Sacramento to address banking options and conditions related to packaging and logistics.
Nevada is looking to set the bar for how a state manages a growing cannabis industry. In 2018 adult-use and medical sales exceeded $550 million even, though many municipalities still ban adult-use enterprises.
As of April 1, 2019, Nevada had 66 stores licensed to sell cannabis, according to the state Department of Taxation. Nevada uses a competitive scoring process to determine who will be granted licenses.
The Las Vegas City Council voted to approve social use May 1, 2019. This bill establishes a business license category and land use regulations for social use venues, together with accompanying requirements and limitations. This will likely appeal to investors looking to capitalize on Las Vegas’ prominent nightlife.
Allison Margolin is a founding partner at Margolin & Lawrence, a law firm specializing in California’s rapidly evolving cannabis landscape. She and her partner, Raza Lawrence, are Harvard Law graduates with more than 20 years’ combined experience representing and advising cannabis businesses and individuals.