The Challenge of Acquiring and Maintaining Cannabiz Licenses
Business owners in the cannabis industry face numerous hurdles in the process of acquiring and maintaining a business license. The challenges of applying for and acquiring a cannabis business license varies from state to state. States like Oregon and Alaska have relatively easy applications compared to states like Maryland, Pennsylvania, and Ohio. Some application processes are “open,” meaning they continually accept applications, while other states have created application “periods,” meaning companies have a limited time to apply for a license.
The application process in all states requires background checks of most, if not all, investors and owners. Licensing fees range from reasonable to indecent. Application questions can require everything from standard operating procedures in detail, to creating a business and marketing plan for a market that doesn’t exist, is not tracked by traditional banks and is under-reported. New cannabis business owners seek out marijuana consulting firms or legal firms to assist them in creating the content of their applications. The licensing fees and consulting fees alone can be in the hundreds of thousands. Now, let’s consider the commercial real estate costs.
If an owner purchases a building, they pay costs related to insurance, retrofitting the space accordingly, planning and zoning fees, health department inspections fees, and utility inspections fees. Most of the costs are increased compared to other local business licensing because many municipalities do not have the necessary personnel or a department devoted to cannabis industry licensing. Leasing space comes with increased costs related to leasing terms and the related risks. Plus, cannabis business owners are responsible for all the aforementioned additional costs. Most states require business owners to have one or more property selected and under agreement before applying for the business license. Now we are approaching a million dollars invested into this business thus far, and the doors aren’t even close to open.
280E of the federal tax code requires cannabis business owners to pay at least 70 percent of revenue to the government. Add that to fees associated with the local and state sales tax licenses, business licensing and real estate costs and you have very little to run that brand new business on. Cannabis businesses cannot write off expenses, including salaries, utilities, rent, insurance and other business-related costs. These costs would cripple any business, but in the cannabis industry, business owners cannot secure traditional business loans. Either owners invest their own capital, or they must rely on capital raised by investors, creating an added draw on profits.
We have not even considered the cost of goods (COGs), staffing (facility workers and managers, accountant, legal representation) maintenance and operating related costs in this summary. I have heard so many people in the industry complain about low wages, but they make sense when you consider the costs vs. expenses of owning a cannabis business. There is a solution, and cannabis industry workers should be paid more, but until local, state and the federal government create reasonable taxing and banking solutions, working the in “plant touching” part of the industry is never going to be as profitable as it was in the grey or black market. Until then, owning a cannabis business is a careful balance between profits and margins.