Legal Risks of Opening a Cannabis Business

The Federal Legal Risks of Opening a Cannabis Business

Although there has been a general relaxing of attitudes towards marijuana on Capitol Hill, the primary legal risks of opening a cannabis business relate to federal law. The cultivation, distribution, retailing and use of cannabis is still regarded as illegal under the Controlled Substances Act; and, although efforts have been made to reclassify the drug, the risk still exists that your cannabis business could receive a visit from DEA agents and be closed down.

The ongoing legal risks of opening a cannabis business exist despite the House of Representatives voting in favor of a spending deal in March 2014 that prohibited federal prosecutors and DEA agents from using funds to undermine state laws permitting the use of marijuana for medical and/or recreational use. The ban on pursuing businesses and citizens acting within their state laws did not stop existing prosecutions or extend any protection to residents of states without such laws.

There are other federal laws that also present legal risks of opening a cannabis business. Anti-money laundering and employment laws have to be complied with, as do health and safety regulations. If your business is involved in the transportation of marijuana, you have to be aware of federal anti-trafficking laws, and – if you cultivate cannabis for sale or for your own personal use – there are federal laws prohibiting you from growing the plant on public land.

Federal Laws are Not the Only Cannabis Laws to be Concerned About

In addition to the federal legal risks of opening a cannabis business, there are multiple state, county and city regulations that you have to comply with. These can relate to zoning, the hours during which you are allowed to operate, and even the products you are allowed to sell. Similar to federal law, states have their own rules about how marijuana should be transported, and the use of water and pesticides in the cultivation process.

State laws may even determine what type of business entity you have to be in order to establish a cannabis business. In California for example, all cultivating operations and dispensaries are required to be “non-profit” cooperatives. This scenario is likely to change in the near future, as are many other laws throughout the country relating to the cultivation, distribution and retailing of marijuana and marijuana products.

Indeed, the rapidly changing legal landscape of the marijuana industry is one of the biggest legal risks of opening a cannabis business, and why you should always seek professional legal help from a marijuana business attorney. A marijuana business attorney will be able to guide you through the legal risks of opening a cannabis business as they apply to your specific location and your specific venture to smooth your passage into the marijuana industry and mitigate the risk of failing to comply with the complex and varied regulations.

Legal Risks are Not the Only Risks When Opening a Cannabis Business

Despite being described by the New York Times as “the next gold rush”, there are many financial risks associated with opening a cannabis business. As businesses in the industry are involved with a Class I drug, banks are unwilling to lend money for business set-up costs and business owners are unable to write their expenses off against their tax liabilities under Section 280e of the tax code.

Add state and local licensing fees, and the margins in the cannabis industry can be very slim indeed – especially if your business is located in a jurisdiction where there is no limit to the number of authorized growers or dispensaries, and there is plenty of competition. Therefore, one of the most important considerations when opening a cannabis business is your business plan, as this can help you raise funds from private investors to launch your business. A solid business plan also shows your intentions to licensing authorities and potential business partners.

To get help with your business plan, and to find out more about the legal risks of opening a cannabis business, it is advisable to speak with a marijuana business attorney at the earliest practical opportunity. A marijuana business attorney will be able to guide you through the regulations in the jurisdiction you intend to open your cannabis business, have experience of the licensing processes and potential obstacles you may encounter, and also be able to advise you on company formation, contract law, employment law, intellectual property rights and – if necessary – funding.