As a lawyer for the Cannabis industry,Steve Schain says he helps entrepreneurs, “dodge landmines” and hold onto their revenue. He works on marijuana finance and business issues including application submission, regulation interpretation, and lawsuits. Here he lays out five important things for any budding entrepreneur to remember when they embark on a cannabusiness venture.
If You “Touch The Product” Things Are Much Stricter. The cannabis industry is divided into two main groups: Those who “touch the product,” like growers, processors and dispensers, and those who don’t, like sellers of ancillary products like vaporizers, lab testing services and cultivation products. Businesses that touch the plant are intensely regulated and must strictly follow additional rules and precautions, so be ready to track details.
Under Federal law, Marijuana is still 100% illegal. While legal in some way in23 states and the District of Columbia, marijuana like heroin, is listed as a“Schedule 1 Controlled Substance.” This classification empowers the Feds to swoop in, shut down, seize funds and imprisonthose “touching the product.” Under the Obama administration there has been no direction to enforce these Federal laws but that could change under a new administration. Further, because the business is 100% illegal under federal law, growers, processors and dispensers are ineligible for bankruptcy law protectionand courts may refuse to enforce any of their contracts like leases. They are also disqualified from deducting business expenses from their revenues for Federal tax purposes.
Scarce Banking and Credit CardAccess. While certain to change ifremoved from Schedule 1, few banks now will take cash generated by – or provide banking services to – legalized marijuana growers, processors and dispensers, so those businesses work with state chartered credit unions and community banks when they can. No less skittish than the banking industry is the credit card industry which has launched a “black list” which canterminate the accounts of both “touch the product” merchant’s corporate identity andthat of its business owners.
Packaging And Warning Label Rules Are Strict and Important. With cannabis infused edibles comprising 50% of 2015′s $5.4 billion of U.S. legalmarijuana sales, packaging and warnings are among the most regulated areas. Failure to strict comply with “child resistant infused product packaging” specifications and required disclosures and warnings are big red flags to regulators.
Barbarians are at the Gates, So Think About An Exit Strategy With 2016 sales predictions in the $6 billion range, the cannabis industry is exploding and thetobacco companies, “Big Pharma” anddietary supplement concerns are perched to jump in and dominate the industry. Anticipating changes in the market and preparing a viable exit strategy is essentialto launching and sustaining a successful legalized marijuana business.