Before you take the plunge into starting a legitimate cannabis business, it’s important to have a roadmap to keep your business profitable and not run into easily avoidable pitfalls. Despite the fact that pot is now legal, changing state regulations can be confusing for new cannabis. Even though news that legal cannabis businesses are estimated to bring in 6.7 billion dollars of business in 2017, there are potential stumbling blocks that will lead some marijuana entrepreneurs astray. Here are the three biggest mistakes that cannabis entrepreneurs can make and how to avoid them:
1. Purchase or lease real estate without knowing local land use regulations.
Although Oregon legalized recreational marijuana, the state has left it up to the local county and city to regulate reasonable time, place and manner regulations governing where a cannabis entrepreneur can actually establish its business. Local land use regulations govern recreational marijuana producers, processors and dispensaries. Unfortunately, entrepreneurs ran out to lock up desirable properties in counties and cities without checking the land use regulations to see if they could actually do what they wanted to do on the property purchased. For example, Deschutes County land use regulations only allow for a recreational marijuana production company on a minimum 5 acre parcel zoned for EFU or MAU. Therefore, if you purchased a 4 acre parcel of land for recreational grow, you would have wasted your time and money. My clients will provide me the address of the proposed property they are interested in and ask me to let them know if they can do what they want to do on the proposed land before they invest too much time and energy in acquiring the property.
2. Fail to get an agreement in writing among the owners.
The prospect of going into business together and starting something new is always very exciting. I know. I have been there. I also speak from experience as to how important it is to solidify your agreement in writing. It not only protects your business, but it protects everyone’s assets. Having a roadmap detailing how to run your business legally will help you avoid wasting time and resources later if you encounter a disagreement. Trust me, if you have partners, you will likely disagree from time to time. It’s best to have a roadmap that everyone agreed on that keeps profits moving in an upward trajectory rather than try to form an agreement when conflict arises. Conflict can be a pathway to generate new solutions and expand your business, but only if differences of opinion can be discussed with a legal framework in place.
3. Underestimate the start-up costs.
Many of my clients underestimated the cost associated with starting up a recreational cannabis business. Aside from the obvious start-up costs, such as real estate costs (rent or purchase), legal fees, and OLCC licensing fees, there are many additional potentially hidden costs. First, you have to think about all the fees associated with the land use regulations in the county or city in which you are seeking land use approval. For example, in Lane County, there is a $130.00 filing fee for the LUCS, but additionally there is also the cost of (1) obtaining an opinion from a mechanical engineer as to the ventilation plan that needs to be submitted as part of the LUCS, and (2) the cost of any building permits required to allow for the land use proposed. In addition, many clients overlook the cost of security systems required to comply with OLCC security regulations. Sometimes, there are just hidden costs – for example, Deschutes County assesses a SDC fee based on ITE booklet of trip generations. Make sure you do a business plan, calculate all of the start-up costs, and then double it. For California, triple it.
The quickly expanding cannabis business is being refereed to as the “Green Rush.” While this certainly isn’t a low-risk business, having an attorney who understands the complex marijuana laws is the first step in increasing your profit margins and keeping your business thriving. According to Chris Walsh, editor of Marijuana Business Daily, “Assuming current trends continue this is one of the best financial opportunities that most people will see in this lifetime.”