Thinking about getting into the weed industry? Here’s how to start a cannabis business in California.
In California, there are several different licenses for the commercial cannabis business. For those with a green thumb, there are licenses for cultivation (i.e. mature, flowering plants) and nursery (i.e. genetics, research and development, and immature plants). Manufacturing licenses allow for production of edibles, beverages, concentrates, and more. Distribution licenses are for those interested in logistics, quality control and assurance, and transportation. Testing licenses help with regulatory compliance of the industry. Of course, there are storefront and delivery retail licenses for those interested in consumer sales. Finally there are cannabis event organizer licenses for those who like to organize big occasions like cannabis cups, fairs, workshops, and other affairs at which cannabis might be sold.
Once you’ve figured out which type of commercial cannabis license you want and you’ve secured initial capital, there are two primary ways to acquire a cannabis license in California. You can apply directly for one, or you can purchase one from a current operator.
Purchasing a Cannabis Business
Stage 1: Research your options. It is no secret that opening your own marijuana/cannabis business is a significant investment of time, money, and other resources. That means you want to make sure you find the right fit for your goals. Think about your target market and brand. Where is the best place to be – rural, suburban, or urban? How is traffic (both vehicular and foot!) in the area and will it impact your cannabis business operations? What’s the distance between your ideal location and other vendors and partners you want to work with?
Stage 2: Interview potential sellers. Just like with any major purchase, you want to know about both the benefits and drawbacks of having the cannabis license the other party is selling. Ask why they are selling and if they’re operating in other areas. Have they ever had any issues with the local authorities? Have they ever had any compliance or enforcement issues? What’s their revenue been like for the past few years? What’s their relationship with the landlord and surrounding community like? How many other parties are interested in the license? Having more knowledge beforehand will make sure you are better prepared in the event you do take over the license.
Stage 3: Get your paperwork in order. So you’ve found the perfect place and seller, you’ve Hi got the capital, and you’re ready to go. Now you need some legal contracts to hammer out the details and make the cannabis license purchase a reality. Having a cannabis attorney draft up your contracts will help you avoid pitfalls as you work through the legal agreements. You will also need to start preparing documents to submit to the state including business formation documents (e.g. articles of incorporation, operating agreements, bylaws, etc.), an updated premise diagram in the event you want to make changes, and your financial information.
Stage 4: Decide with the buyer what the ownership transfer will look like. See more details on this in the next section, but the bottom line is that you’ll need to decide if you want the cannabis business to stay open while the ownership transfer happens, or if you’re okay with stopping operations until the cannabis license transfer is complete. California allows for either to happen, but there are requirements for both.
Stage 5: Fulfill state and local requirements. Once your contracts are signed, the state and local authorities will need to be notified of the ownership transfer. California requires notification to the state within 14 calendar days of such a change; local jurisdictions have their own requirements so make sure to check in with your local regulator. The state will require personal information about each new owner of the business, a recent LiveScan (i.e. fingerprints) for a background check, and paperwork confirming the ownership transfer. It will also require each owner to set up an online account through its licensing portal. Again, local requirements vary but typically align closely with those of the state.
Ownership Transfers
California law allows for compliant cannabis businesses to continue to operate during an ownership transfer as long as one of the existing owners remains as an owner under the new proposed structure. However, if all of the owners will be transferring their ownership interest at one time, then the business must stop operating while the DCC reviews the new proposed ownership structure, the owners’ history, and the proposed business details. If you are thinking about an ownership transfer, then you will need to come to an agreement with the other party about which path you would like to take.
Notification
Once all parties are in agreement, the DCC must be notified within 14 calendar days of any ownership changes that will take place. Your local regulator will also need to be informed of the ownership change. Be sure to check on your local ordinance to see what the requirements are – hiring an expert can be very helpful in navigating this process and ensuring you are meeting all local requirements.
Documentation
After notifying the regulators, you will need to submit documentation about the new ownership structure, i.e. business formation documents, an organizational chart, etc. As mentioned earlier, new owners will need to submit LiveScans and other personal identification information to the state. Be aware, however, the analyst that works on your file may request more information. To be sure that your license application is reviewed in a timely manner, make sure to respond to them as quickly as possible.
If you have decided that the business should pause operations during the ownership transfer, then you will need to prepare all of the documents required for a new license application, wait for approval by the DCC, and pay all application and license fees prior to opening your doors for business once again.
Taking the Plunge
Starting a marijuana business is certainly not for the faint of heart. But the process is a lot easier with an expert on your side. Our attorneys and licensing specialists have a combined experience of XX years helping hopeful cannabis entrepreneurs secure licenses and maintain compliance. Give us a call today to set up a consultation and see how we can help you reach your goals.
Frequently Asked Questions
- What documents do I need to prep for the state to purchase a commercial cannabis business license?
- How do I know which type of ownership transfer is best?
- Where do I find out what the local requirements are to purchase a commercial cannabis business license in California?
- How much does it cost to complete an ownership transfer?
- How do I notify the state and locals of an ownership change?
- I’ve decided this isn’t for me and now I want out. How do I sell?
You’ve decided that you are ready to sell your business and move on. What steps do you need to take to make that a reality?
Stage 1: Finding a buyer.
Stage 2: