G&K attorney Kortney Otten authored “Starting a Cannabis Business? Here’s What Entrepreneurs Should Consider First” for the Phoenix Business Journal.
One of the questions I get asked most often is, “How can I get into the cannabis industry?” Immediately followed by, “Have I missed the boat?”
Arizona legalized adult-use of cannabis in 2021. And although two years might seem like two years too late to get into the industry, keep in mind that a cannabusiness is just another type of business. Albeit one with specialty regulations, lots of rules, and some unique hoops to jump through, but a business, nonetheless. Many other industries, such as alcoholic beverages, nutraceuticals, cosmetics, and financial products, are also highly regulated with difficult qualifications, but entrepreneurs continue to enter and thrive in those markets as well.
Entrepreneurs are good at spotting opportunities, and opportunities abound in the cannabis world. But before you take that leap and invest everything, here are a few considerations from a business owner/operator and cannabis lawyer.
What do you offer?
Remember that skills and talent are transferrable, and the cannabis industry is always seeking qualified, new talent. Like other businesses, cannabusinesses need products and services. Cannabusinesses need real estate agents, accountants, insurance, landlords, product displays and even janitorial services. Determine what skills and experience you have or services you offer that would be valuable in this industry. If you can supply a certain product or service to a cannabusiness, that’s one way to get your foot in the door.
Who do you know?
Do your research, develop your knowledge, and build your network through connections. Like any circle, people are important. Arizona has a lot of cannabis-specific associations, groups, and resources available to those interested in the industry. Create relationships with industry leaders and with other business owners providing products or services to cannabusinesses. Talk about your specific skills and interest in the industry and ask what problems they need solved.
What do you need?
Because this industry is heavily regulated, the legal requirements can seem insurmountable. For ancillary businesses with peripheral involvement, such as packaging or equipment service, there could be no legal requirements. For realtors or those involved with real estate, there are certain zoning and use requirements to be knowledgeable about. For fully-integrated, plant-touching businesses, this involvement likely entails applying for and obtaining a license, and that means government regulation and legal considerations.
In Arizona, the Department of Health Services controls and issues the relevant licenses for cannabusinesses. Establishment licenses (read: dispensaries) are extremely limited and are generally only available by acquisition, or until the department decides to issue more based on certain demographics of registered pharmacies, among other things. Other licenses, like facility agent licenses used for employees connected to a dispensary, cultivation site, manufacturing, or testing facility, are not currently limited.
Among other requirements, the process of qualifying for a facility agent license includes obtaining a fingerprint clearance card, and not having certain types of criminal offenses, which is verified through a background check.
What do you do next?
If you are looking to start your own cannabusiness, remember that the same business rules and sage advice applies: make sure you consult with and retain experienced legal counsel who understands your goals, the cannabis industry, and proper business formation. Requirements change regularly, so be sure to assemble a team who is proficient in cannabis law and can ensure your compliance with the myriad of current and changing rules and regulations; who can ensure proper documentation, like contracts and legal corporate documents that have been specifically drafted for your cannabusiness; and who understands the unique tax and banking problems and consequences that cannabusinesses face – and how to structure your taxes accordingly.
If things do not go as anticipated with your cannabusiness, know that bankruptcy is generally not an option – at least so long as it remains federally illegal. This prohibition on bankruptcy filing can even extend to employees of cannabusinesses that find themselves in financial distress. Because of that, it’s important to plan accordingly and be aware of the full scope of financial options and alternatives available.
Although Arizona reports more than $2.6 billion in sales since adult-use became legal in 2021, the cannabis industry is still in its early stages. It is projected to continue to enjoy substantial growth in the years to come and holds a lot of opportunity for savvy, business-minded people. But like any other industry, cannabusinesses are susceptible to the economy and will experience economic downturns, layoffs, sales declines, supply and cost issues, and inflation pressure. And like other industries, the cannabis industry has shown that it is resilient and comes back stronger. As revenue increases and the industry grows, labor demands also increase, including those of skilled professionals, creating openings for those still interested in getting into the industry. So, go ahead and consider starting a cannabusiness; it’s not too late.