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How to legally start a cannabis business
Legal cannabis is a budding industry with room for innovation – but you'll need to follow provincial and federal laws when you start a cannabis business in Canada.
The cannabis industry is a budding billion dollar industry that is continuously growing thanks to the legalization in Canada in October 2018. Although it’s legal, starting a cannabis business isn’t a cut-and-dried process. Laws and regulations are always changing, and you’ll need to keep up with them to stay out of trouble. But if you’re willing to start a venture in the industry, you could be rewarded handsomely.
You have many paths to pursue in the cannabis industry. Here are three main categories to start with:
- Grow it. You can start a marijuana cultivation business, meaning you’re growing cannabis for the masses to consume. To do this, you’ll need knowledge of cannabis horticulture. If you don’t have that expertise, hire someone who does. To start your cannabis business, you’ll need to budget for a location to grow, as well as lights, air circulation, electricity, seeds, water, staff, security, licensing and legal costs and others. Initial startup costs for a wholesale cultivation business could start around $700,000.
- Create infused products. Infused products are products combined with marijuana oils, such as edibles, botanicals, lotions, ointments, beverages and tinctures. Startup costs for this market could potentially be much lower than starting a grow operation, but you’ll still need to budget for expenses such as research and marketing, legal and licensing fees, staff, rent and utilities, and more.
- Start a store. In the cannabis industry, retail locations are known as collectives or dispensaries. They’re places where consumers can get cannabis safely and legally — most notably for medical reasons. You may need to jump through regulatory hoops to start a dispensary, such as submitting an application and paying a licensing fee. However, a retail business can pay off big, especially as more consumers look for legitimate places to obtain cannabis. The median startup costs and annual operating expenses for medical dispensaries and recreational stores is around $193,000.
How to start a cannabis business in Canada
Ready to start your cannabis business? Follow these five steps to get up and running.
1. Conduct preliminary research.
Before going all in with your business, see whether it’s a venture you really want to pursue. Although its a budding industry, not every cannabis business is successful, and even if the company is successful, not every business is going to make big profits.
The legal arena is a good place to start your research:
- Familiarize yourself with federal cannabis laws.
- Research your province or territories laws, as well as any local municipal regulations, for marijuana consumption and starting a business.
- Find out what documentation and information you’ll need to provide to get a cannabis license.
You should also look into your financing options and consider how your business will manage its finances. Many banks (with the possible exception of BMO) won’t fund loans to cannabis businesses, however some online lenders, credit unions and alternative banks will.
It’s restrictions like these that make it difficult to start a cannabis business. Before pouring resources into your venture, understand what you’re getting into. You could save a lot of time and energy you’d otherwise lose by diving in headfirst.
2. Create a business plan.
Writing a business plan will help you gauge the feasibility of your venture. Its contents might include:
- A company description. Clarify what your business does and who it serves. Consider which competitive advantages your business will have.
- Market analysis. Is there a great market need for your business? Who will be your competitors? Are there trends that your business is looking to capitalize on?
- Organization and management. Choose a legal structure for your business. Create an organizational chart to show who will lead your business.
- Marketing and sales. How will you find customers, and what defines a sale — or the point at which you make money — in your business?
- Financial projections. What will your revenue and expenses look like? Make financial forecasts for at least the next three years, and explain why they make sense.
If you’re writing a business plan to seek funding, include a funding request section. Here, you’ll describe how much funding you’ll need, what you need it for and how you’ll deploy the capital.
3. Choose a location.
Location is especially important if you’re opening a dispensary, as you want a place that’s easily accessible by your target market and abides by all local laws.
Even if foot traffic isn’t your primary concern, pay attention to your city and province’s zoning laws. They can greatly affect where you can locate your business.
Rent may be a factor as well, as it’ll eat into your revenue. Picking the right location may help you keep expenses low.
4. Get licensed.
In Canada, you’ll need to be licensed at the federal and provincial level to run a cannabis business. Given the tight regulations surrounding this industry, it would be wise work with a lawyer to make sure you’re filing the right paperwork, including all the right information and paying all the necessary fees.
Federal licensing requirements for running a cannabis business
- Health Canada license. You must get a Cannabis Drug License from Health Canada to possess, transport, store and destroy cannabis. This license also lets you engage in cannabis research and development and sell cannabis in bulk to other federal license holders.
- CRA license. You must be licensed by the CRA if you want to cultivate, produce or package cannabis. You don’t need a CRA license if you’re growing cannabis for personal use or your own medical use. You also don’t need this license if you’re an industrial hemp grower who produces industrial hemp byproducts; in this case, a different licensing process applies. Visit the government site to find out more.
- Cannabis stamping regime registration. If you’re packaging cannabis for retail sale within Canada, you must be registered with the CRA to affix cannabis excise stamps to the packaging that products are sold in.
Provincial/territorial licensing to run a cannabis business
Each province and territory has its own cannabis licensing requirements and fees. Application fees can be several thousand dollars. You must also pay an annual fee to renew your license — the cost typically ranges from just under $1,000 to $3,000.
Bear in mind that you’ll have to comply with whatever organizational structure your province or territory has in place to regulate the sale of cannabis. In many regions, there is one organization with exclusive wholesaler or retailer rights. This means that, as a cannabis business owner or a cannabis consumer, you may only be able to buy from one source. For example, in Ontario authorized retailers can only buy cannabis wholesale from the Ontario Cannabis Retail Corporation (OCRC). In New Brunswick, Cannabis NB is the only retailer that’s legally allowed to sell cannabis to consumers for recreational use.
5. Build your business.
After completing the four previous steps, you’ll have created a legal business. Now, it’s time to start making money.
Decide where to focus your efforts to build out your business. This could include:
- Developing your operating space. Activate utilities, sign a lease for retail space or a warehouse, buy merchandising equipment and invest in technology.
- Forming partnerships. Your business will need the help of vendors, contractors and other partners. If you run a retail shop, you may want to pursue relationships with product wholesalers and cultivators.
- Marketing. Get the word out about your business. A few avenues you can start with include online advertising, social media and print advertising. Look for cannabis publications and local hotspots where your target market frequents. If you run a business-to-business operation, you could develop relationships through mailers, cold email and even LinkedIn.
- Hiring employees. Make job postings on websites like Indeed, Craigslist, Monster, LinkedIn and ZipRecruiter. Create a page on your website that explains the type of employees you’re looking for, and include a contact form. Ask your network for referrals.
It can be challenging to start a business from the ground up. Stay patient and keep up with federal, provincial/territorial and local laws. In time, you could have a thriving cannabis business to be proud of.
Although cannabis is now legal across Canada, many of the big banks are not yet comfortable with providing funding to cannabis business owners – although BMO is said to be the exception, offering loans and lines of credit to cannabis businesses. Online lenders, some credit unions and smaller banks, such as Alterna Bank, could provide the much needed financing your cannabis business needs. Some online lenders will approve loans to cannabis businesses on a case-by-case basis, but you’ll typically need to have been in business for a few months at least.
What to consider before starting a cannabis-based business
Although operating a legal cannabis company is now possible, it’s still a very new and developing industry – and you should prepare for the risk before you begin any operation in this market.
Prepare for some uncertainty, but also be eager to invest significant resources to get your operation off the ground.
Your province or territory has specific regulations
Each province and territory has unique laws that determine:
- How cannabis can be sold
- Where cannabis stores may be located
- How stores must be operated
- What the individual possession limits are for customers
- The minimum age required to purchase cannabis
- Where cannabis can be used in public
- Requirements on personal cultivation
- Rules surrounding the transportation of cannabis
Research your startup costs
Costs vary by the type of business you want to start, where you intend to start it, your provincial and local laws, as well as other factors. Do your research to learn how much funding you’ll need lined up before starting your business.
Here are a few costs you may need to budget for:
- Cannabis license
- Cannabis stamping regime
- Other permits
- Interior decorations
- Employee wages
Consider your ability to raise funds, if necessary. Some potential investors won’t want to contribute to a cannabis business. And as mentioned above, it’s typically difficult to obtain funding from most banks for a cannabis operation.
Starting a cannabis business is no easy feat. You may need significant capital, and you’ll likely jump through many regulatory hoops. On top of it all, the industry is very new and hasn’t been growing as fast as analysts thought it would.
But if done right, a cannabis operation can be a highly lucrative endeavour, as the legal cannabis industry is growing. You can carve out your own slice of a market already worth billions — and one that’s likely to be worth more in the years to come.
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