By Dr. Aseem Sappal
Crossroads, right turns, speed bumps and highways. Sound like directions? Perhaps, but this isn’t the yellow brick road. The bricks are green and navigating the roads of the cannabis industry faces its fair share of roadblocks.
If you have travel plans to enter the licensed and regulated marijuana industry, be prepared to hit a few pot holes. But understanding what to do and what not to do within the industry should be your first stop.
It’s not only important to find your area of interest or niche but your area of expertise. What you don’t want to do is start a business without any business experience. The fact that your main commodity — marijuana — is something that is still sold on the street doesn’t make business management or dispensary operations any easier. In fact, the challenge is greater as you have far more regulations and far less tax breaks. This is often when a grower and businessperson may choose to partner their skills.
For the purpose of this article, we will focus on four aspects under the umbrella of marijuana enterprise: law, business, dispensary operations and horticulture.
Before you do anything in the cannabis industry, it’s imperative that you understand your local, state and federal laws. Keep in mind that cannabis is federally illegal. Whether you’re talking about one plant, one seed or one flower, the federal government sees it as a crime. So take this moment to give yourself a pat on the back for helping legitimize, monetize and materialize this nascent enterprise.
If you’re entering this industry, you should have a number of legal questions for an attorney. Have your questions prepared so you can get as many of them answered before your $400 hour expires. It’s important that you also understand your rights as a citizen, business owner and patient. Keep in mind that it’s not just important to know your rights, but know how to exercise those rights.
If your state has medical or recreational marijuana laws and you operate within those laws, that doesn’t mean you cannot be arrested. Remember that anything can happen when you have a law enforcement encounter. Not all politicians, law enforcement officers, dispensary owners or even marijuana doctors know the law in its entirety. It’s often open to interpretation and left for the courts to sort out.
Having a medical marijuana card doesn’t make you exempt from arrest. So how do these marijuana laws help you? The difference is prosecution versus arrest. You can still get arrested in this endeavor, but if you follow state law you should be safe from state prosecution. But because marijuana is federally illegal, you are technically still subject to federal mandatory minimum sentences, so it’s important to study those guidelines. The good news is that the federal government has recently backed off on interfering in state affairs, but remember that doesn’t mean it cannot happen.
You should consider retaining both a business attorney and criminal defense attorney for your team. Generally all state marijuana initiatives that have been approved by voters were partially written by or assisted by these two types of attorneys. Seek them out. Working with them assures you that you’re working with very experienced industry experts.
Do you want to work directly with marijuana or prefer an ancillary business? You don’t have to touch the plant to work in the cannabis industry. Figure this out before speaking with your attorney so you know what questions to ask.
Plan out your business name and DBA. Do not use cannabis-heavy names for your legal business name, because you may run into issues when retaining a bank. Research banks and merchant services that will work with the cannabis industry. Know that even if you have an ancillary business that has nothing to do with marijuana, you can still have issues with banks and merchants services, especially if you have the word marijuana in your business name. If big banks won’t take your money, you can always try small, local banks or credit unions.
You can and should know which legal business entity works best for you and your portfolio, whether it’s a corporation, sole proprietorship, partnership or limited liability company. A mutual benefit corporation works well for an individual that will be the sole board member, such as a one-person delivery business. Cooperative corporations require three board members and cost more to form, but for many businesses they offer greater protection.
If you have assets, then generate an asset protection plan. Understand the potential for asset forfeiture. Study recent case history and discuss best entities alongside a potential trust with your accountant and/or attorney.
Make sure you know section 280E of the IRS code. It states the following:
No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.
Know that cannabis is a Schedule 1 controlled substance, which means that it has no medical use, according to the United States government (despite the government’s ownership of Patent 6630507 B1, which registers cannabinoids as antioxidants and neuroprotectants).
In business, it’s important to get out of the red and into the black. In this business it’s important to get out of the gray area first.
The moment you open up a dispensary, law enforcement will pay you a visit. You just may not know when they do. Good or bad, they will pass judgement on your operation the moment they walk in. Do you operate a professional, even clinical patient facility or it is less serious, safe or secure?
Do you remember the last time you went to a store? Were you treated well? Provided good customer service? Will you go back? Law enforcement will judge you the same way you judge stores. A dispensary is no different. Give them a reason to believe you are providing a quality and much needed service to the community.
Don’t just sell dried cannabis. Provide cannabis in other methods of ingestion. Provide sublingual tinctures, topical applications, edible medicine or even inhalers. Provide literature, resources and educational materials. Use proper labels on your products and have them lab tested. Doing so shows that you are less concerned with cash and more concerned with care and compassion for patients and customers.
Train your staff on the different strains, genetics and terminology. Don’t use words like weed, or street terms like “zip” to reference quantities. Take your time with customers, as you often need to exercise patience with new patients and people unfamiliar with cannabis.
Remember when you move into a neighborhood, your neighbors may be uneasy. People fear what they don’t understand. Prove them wrong. Introduce yourself with a handshake and a smile. Don’t allow your customers to use products in your parking lot. Have your security guard circle the block. When you clean outside your entrance, clean to the left and right of your neighbors’ entrances. Have your staff patronize the local restaurants. There will be public hearings regarding your business. When there are, rather than calling you a nuisance, they will say that the block is cleaner, crime has gone down and business is better.
If you’re planning on opening a dispensary, you still need to understand the basics of growing cannabis for two primary reasons. The first is that many states require dispensaries to cultivate their own products.
The second is that the dispensaries need quality assurance that includes an educated conversation with their suppliers. Ask your growers what type and wattage lights they use for growing, what medium they use and how they treat pests and pathogens or mold and mildew. Do they use organic or veganic nutrients or neither? This will also help you grade and price your product for retail.
Just as there are many ways to grow cannabis, there are just as many ways to maintain safety for your grow, your crop, your employees and yourself. The first is security. Security starts with silence. Be discrete about talking about your grow, and be careful about showing the size and location of your facility. Do not poke the bear.
Exercise safe and responsible practices. Make sure your electrical is set up by a licensed electrician. Do not steal electricity. Exercise proper waste disposal of chemicals and nutrients. Do not empty contents into the sink. Do not place trimmings in your garbage. Keep in mind that your outside garbage is public property and anyone can go through it once it’s on the curb.
Transportation is a big concern for growers. Before you transport your product, have a friend help you with your vehicle check. Check to make sure your break lights and signal lights are working. Do you have bald tires? Do you have a tassel hanging from your rear view mirror? How about bumper stickers? Law enforcement can potentially use any of these reasons to pull you over. Keep any cannabis in a locked container in your vehicle. It is best not to speed or cross state lines while driving. Never drive under the influence of marijuana. Don’t give law enforcement a reason to pull you over.
Now, you might say, ‘Why should I be concerned with these things when I am following local and state laws?’ Although you are following the law, that doesn’t mean every law enforcement officer knows that. Following state marijuana laws doesn’t mean you can’t be hassled or arrested. You can win your argument in court, but exercising these practices can avoid the headache all together.
Your best GPS in navigating a marijuana-related business venture is an education in higher learning. Don’t just invest your money, but invest your time into as much research and education as you can. And remember, if you don’t follow the rainbow, you won’t find the pot … the pot of gold, that is.
Dr. Aseem Sappal is the provost and dean of the faculty at Oaksterdam University, which has been conducting cannabis-related educational programs since 2007.