Steps to Set Up a Marijuana Business


California’s cannabis industry is going to boom in coming years. With the legalization of recreational marijuana use and sale for adults over 21, the market has just gotten a lot bigger. The business opportunities may be legion, but there’s a snag: setting up a California marijuana business is very difficult. Without the help of a marijuana business lawyer who knows the ins and outs of both local and state rules, you will not be able to complete the necessary steps to set up a marijuana business.

Attorney Jessica McElfresh has extensive experience helping cannabis businesses establish themselves in California. She understands the complex legal requirements for marijuana businesses, and she can help you set up. Contact McElfresh Law today at (858) 756-7107.

Free consultation for criminal defense cases only. Cannabis business consultation requires a fee.

Setting Up a Cannabis Business in California

There are two primary laws that govern California’s marijuana industry: the Medical Cannabis Regulation and Safety Act (MCRSA) and the Adult Use of Marijuana Act (AUMA). Despite the significant differences between these two laws, the steps to setting up a business under either regulatory scheme are similar. So you should follow the steps below whether you want to open a recreational or medical marijuana business.

Step 1: Make a Business Plan

Before embarking down the complicated and costly road to setting up a California marijuana business, you need to have a concrete vision that includes:

  • The county or municipality where you want to open your business
  • The kinds of activities your business will engage in (cultivation, manufacturing, testing, distribution, transport, or retail)
  • How much capital you have access to
  • Whether you will have investing and/or managing partners
  • The number of employees your business will have
  • Your criminal record and those of your partners and prospective employees
  • If you want to grow cannabis, the details of your cultivation methods and crop size

Step 2: Consult With a Lawyer

Once you have a good idea of what your business will be and where you want to open it, it’s time to consult with a lawyer who has experience and knowledge of California’s marijuana business laws. The earlier you meet with a lawyer about your cannabis business, the better. This way, you will avoid mistakes that could plague your business from the start, and set yourself up for the smoothest path through the licensing process.

Step 3: Make Your Business Official

Depending on how your business will be funded, how many partners you have, and how you want to shield yourself and your assets from liability, there may be several corporate forms that your business could take: sole proprietorship, limited partnership (LP), general partnership (GP), limited liability partnership (LLP), or a corporation. Once your business is officially registered with the California Department of State, you should also take out insurance (which you will need in applying for your state license).

Step 4: Obtain Permission from Your Local Government

If you want to obtain a MCRSA medical cannabis business license, you must submit proof that your business has a permit from your municipal or county government as a condition of your application. AUMA, however, does not make local permission a condition for a state recreational cannabis business license. But if you do get a state AUMA license, you will need to obtain local permission if you want to actually open your business. Thus, going through the local permitting process is an essential step in opening either a recreational or medical marijuana business.

The process for obtaining a local Conditional Use Permit (CUP) is expensive and extremely complex. One of the most difficult aspects of obtaining local permission to operate your business is to comply with local zoning laws. In most instances, cannabis businesses can only operate in manufacturing and industrial service zones. Marijuana businesses are almost always banned from residential and even some commercial areas, and cannot operate within a close distance to schools and parks.

Step 5: Choose and Apply for a State License

No state licenses will be available until early 2018. MCRSA creates 17 license types for medical marijuana businesses, while AUMA creates 19 adult use cannabis business licenses. There is significant overlap between recreational and medical marijuana business licenses – so much so that recreational licenses are marked “non-medical” or NM to avoid confusion. The main difference between the two licensing schemes concerns vertical integration.

While AUMA does not contain specific provisions that ban vertical integration, MCRSA prohibits a single medical cannabis business from growing, manufacturing, distributing, testing, and selling medical cannabis. The ability to hold multiple licenses is restricted as follows:

  • Small cultivators can also hold manufacturing licenses.
  • Distributors must hold transporter licenses.
  • Any cultivator (large or small) or manufacturing business may also hold a dispensary license.
  • Dispensaries with multiple locations may have a combination of manufacturing licenses and cultivation licenses as long as the total cultivated area is less than four acres.

The state agencies in charge of issuing licenses are still finalizing their requirements, but for now we know the following:

  • Unless you’re applying for an AUMA license, you need to provide proof that your local government has given you permission to operate your medical cannabis business.
  • You must show that you have the legal right to occupy the property where you will open your business.
  • If you’re a cultivator, you must register as an agricultural employer.
  • To obtain a cultivation license, you must provide details about the size of your farm, the kinds of pesticides and fertilizers you will use, water consumption and storage, waste removal, security protocols, inventory tracking, quality control, product labeling and storage.
  • For any other license types, you must submit a detailed business plan.
  • You must show proof that you have a bond of at least $25,000.
  • If you expect to employ more than 20 employees, you need a labor peace agreement.
  • You, your employees, and partners must send your fingerprints to the Department of Justice for a background check.
  • If you’ve been convicted of a felony involving drug trafficking, fraud, violence, or deceit, your application may be denied. AUMA is a little more permissive regarding prior convictions for drug offenses than MCRSA.

Step 6: Ensure Continued Compliance

Once you obtain your state and local licenses, you may begin to operate your cannabis business. But you also need to ensure that your business continues to comply with local and state laws and regulations – which are always subject to change. For this reason, it’s advisable to continue to consult with your lawyer even after you open your cannabis business. Your lawyer can inform and counsel you regarding regulatory or legislative changes that could affect your hard-earned business.

At McElfresh Law, we are closely watching the developing rules and regulations that will apply to California’s recreational and medical marijuana businesses. Our goal is to give San Diego area cannabis businesses the best chances at success, and to defend their rights when the state brings legal action against them.

If you want to set up a cannabis business, call McElfresh Law today at (858) 756-7107 and schedule your consultation.

This website is intended for informational purposes only. Use of this website does not create an attorney-client relationship. Free consultation for criminal defense cases only. Cannabis business consultation requires a fee.