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Marijuana is the world’s most commonly used drug.
In 2019, the U.S. legal marijuana industry was estimated at $13.6 billion (1), and as the number of states with legalization grows, so does the industry.
So, no wonder that more and more entrepreneurs want to start a cannabis LLC.
In this guide, we will examine everything you should consider before starting a marijuana business, including licensing and other legal regulations.
We will also provide you with our top three business formation services that can speed up your business start and help you deal with a ton of paperwork. Read on to learn more!
A Quick Preview:
Best for Compliance — Northwest RA
Our List of the Top-3 Cannabis LLC Formation Services
Best Overall — Zenbusiness
- one of the cheapest in the industry;
- includes one free year of registered agent service in every package;
- stellar customer service.
Zenbusiness is an excellent formation service to start your first Cannabis LLC. It’s one of the cheapest, incredibly transparent, and contains all the necessities to launch your business, even in the Starter package.
Zenbusiness offers three packages:
- Starter ($49/year), which contains only necessary documents, annual reports' manager, and a registered agent;
- Pro ($199/year), which is the most balanced and tops your formation with things like EIN, worry-free compliance, and all the business licenses;
- And Premium ($299/year), which has the fastest processing and shipping times.
Zenbusiness team takes its job very seriously and will help you obtain all the essential permits and licenses as a cannabis vendor. Plus, it will remind you of the important license renewal deadlines, so your business will remain in good standing with the state.
- Balanced packages without unnecessary upsells.
- The online cabinet where you can track your formation progress.
- A convenient compliance manager that will remind you of all important paperwork deadlines and reports.
- Unless you choose the Premium package, you need to pay an extra $100 for the Rush Filing Speed.
- Registered agent service available only in plans.
Best for Compliance — Northwest RA
- perfect for those who want to submit the docs themselves;
- one of the best registered agents and compliance services in the industry;
- focuses on personal data protection.
At some stage of forming your cannabis LLC, you will have to appoint a registered agent service, and Northwest RA is a perfect choice for that. It combines ideal security, round-the-clock customer support, and a super-easy formation process.
You can even use Northwest as your LLC formation service, but you have to file the forms yourself; they only provide you with templates and instructions. Also, Northwest doesn’t have licensing services, so you should obtain the permits for your cannabis business elsewhere.
However, if you need top-notch privacy and data protection, there’s no one better than Northwest. The company focuses on data security solutions and has perfected them over the years. Plus, $115/year is a pretty reasonable price for comfort.
- The first year of the registered agent for free ($115 per year after that).
- Top-notch data protection and customer support.
- Pretty fast turnaround time.
- You will have to file all the forms yourself, which might take time.
- No templates for licenses or contracts, so you might need another service to obtain them.
The Fastest — Incfile
- the Silver formation package is free: you only pay state fees;
- includes free registered agent service for a year in every package;
- company with 27,000 positive ratings.
One of the fastest and most intuitive services you can trust to form a cannabis LLC is Incfile. Their Platinum package can help you file documents with the state in only a couple of business days. And the Silver package files all the essential paperwork for free — you only need to pay a state fee!
But these aren’t only great things: Incfile offers a bit of help with the licensing too. The cannabis industry has pretty strict regulations, but Incfile’s license search tool can easily narrow down the amount of paperwork and show you only the permits you need, depending on the state and industry of your business.
Finally, all the Incfile’s packages contain one year of registered agent service for free. RA will take care of your business and legal docs and keep you updated on annual reports and license renewals, so you won’t have to worry.
- You can start your LLC basically for free if you choose the Silver package and have all the necessities, such as EIN and permits, on your hands.
- Convenient license search tool: just enter your state and industry, and Incfile will show you the main permits you need to get.
- Their registered agent service will cost you only $119\year after the trial year has passed, which is one of the cheapest on the market.
- The Platinum package seems a bit overpriced, considering it’s mostly the price of shipping and processing.
- It doesn’t have a legal form builder for creating contracts.
Is It Difficult to Start an LLC For Cannabis Business?
An LLC is one of the easiest business entities to form, regardless of the industry. Its formation steps usually include the following:
- picking a name for your business;
- appointing a registered agent service;
- file in the essential paperwork: the Articles of Organization and Operating Agreement;
- obtaining the documents needed for financial operations and taxation: Employer Identification Number (EIN) and banking resolution;
- for specific business industries, including cannabis business, you also need to obtain federal and local licenses;
- registering documents with the Secretary of State;
- holding an initial meeting.
And then, you only need to provide the state with annual or biennial reports and pay taxes.
The best part is: you don’t even have to do it yourself!
There are a lot of online LLC services that will do the job for you and keep your business compliant with the state.
LLC Benefits for a Cannabis Vendor
Starting an LLC for a cannabis business is not only easy but also packs a lot of benefits for you as a vendor:
- Personal liability protection. Your LLC is a separate legal entity. It has a different tax ID and contact address (that’s why you need a best-rated registered agent for an LLC, as it will receive all the legal docs on your behalf). This also means that the company’s assets are separated from yours, and, in case of any legal repercussions, your company will be responsible for them, and no one will come after your possessions.
- Pass-through taxes. A multi-member LLC is taxed like a general partnership, and a single-member LLC is taxed like a sole proprietorship. Both of these means that if you have a physical presence in the state, your cannabis store itself will not pay taxes. Instead, all the profits pass through the entity, and you will pay only income tax as an owner when you file your tax report. The pass-through model helps avoid double-taxation and is overall more flexible for entrepreneurs.
- Management flexibility. You can start an LLC yourself and be the sole owner and manager. Or, you can cooperate with a team and delegate each member specific responsibilities and shares percentage. Overall, LLC has more management options than traditional corporations and is less regulated, which is why it’s so appealing to business owners.
Plus, registering a cannabis business gives you more credibility because it means that you have passed all the state regulations and won’t avoid paying taxes. The latter might be especially appealing to investors and potential vendors, should you want to look for them.
What are the Licensing Requirements for a Cannabis Vendor?
There are currently 36 states where medical marijuana is legalized (2). And the licensing requirements vary significantly from state to state and even between counties. Some states will hold a certain application period and will give the licenses to everyone who needs them. Others are much more restrictive.
Plus, different states appoint different departments for licensing a cannabis business (3). So you might contact a local clerk to find out how to obtain permits in your city of operation.
Generally, LLC for cannabis business might need a license in one of the following categories:
- Cultivation and growth. This heavily regulated industry will require a significant amount of investments, a detailed site plan, and proven horticulture knowledge and skills.
- Retail businesses. The main requirements for a retail business are additional security for a cannabis store. Also, the state may ask you to limit the amount of final product sold to a single individual. Plus, some states, such as Nevada, require business owners to have at least $250,000 in liquid assets, and if you plan to obtain several business permits, you need to have enough funds for each establishment.
- Manufacturing edibles. If you plan on manufacturing edibles, some states might require that you do this at the commercial kitchen. You must produce cannabis oils and butter used for edibles on-site as well.
- Investing. If you want to act as an investor for a cannabis business, you might need to follow additional statutory and regulatory provisions as well, depending on the state.
And note that almost all states can deny you a license if you have been convicted before or have a bad track record.
If this amount of information and regulations seems overwhelming, don’t worry:
You can always seek some help from reliable online incorporation services. Most of them can help you obtain permits for a small fee or have convenient tools to show you essential documents for your industry.
What are the main liability risks for a cannabis vendor?
Marijuana businesses face plenty of potential liability risks. For example, a client can sue you if you sell defective goods or if your advertising is misleading. Plus, if you own a brick-and-mortar store, you might face liability issues because of staff or operational facilities accidents.
What products can you sell as a cannabis vendor?
You can open a retail business and sell medical marijuana and marijuana-based vaping solutions, supplements, or seeds. Or, you can cook and sell cannabis oil and butter, as well as edibles.
Starting a cannabis business is relatively easy but might have more legal responsibilities compared to other industries. Cannabis LLC owners face more strict legal regulations. They might need more permits from the state to own a business in certain categories, for example, manufacturing cannabis-packed goods or owning a retail store.
You can delegate the business formation to online incorporation services, and we found out that Zenbusiness works best for that. It takes care of every step, including licensing and permits from the state, and you can start operating your business once you receive a hard copy of your incorporation docs.
Are you interested in starting a cannabis business? What will you focus on? Share your answers below!
- Deborah D'Souza (2021, September 27). The Future of the Marijuana Industry in America. Retrieved from https://www.investopedia.com/articles/investing/111015/future-marijuana-industry-america.asp
- National Cannabis Industry Association. State by State Policies. Retrieved from https://thecannabisindustry.org/ncia-news-resources/state-by-state-policies/
- Marijuana Business: Licenses, Permits, and Planning (2019, October 18). Retrieved from https://public.findlaw.com/cannabis-law/starting-a-cannabis-business/marijuana-business-licenses-permits-and-planning.html
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