10 Legal Considerations When Starting A Hemp Business In Tennessee

Bradley Arant Boult Cummings LLP
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Bradley Arant Boult Cummings LLP

Tennessee’s hemp industry is growing fast, and you want in on the action. You have your big idea and a business plan ready. But at some point, you begin to wonder whether you should be thinking about any legal issues as you get your company off the ground. That’s where we come in.

1. Establish a Corporate Entity to Operate Your Business.

Many entrepreneurs choose to establish a corporate entity to operate their budding business. The costs of doing so are relatively small, and the benefits are substantial for both you and your business. In Tennessee, this process runs through the Tennessee Secretary of State’s Office, and Tennessee law sets forth specific requirements for new business formation and operation.

2. Obtain All Necessary Licenses to Conduct Your Business.

Licenses are essential in a highly regulated industry. Hemp companies may need different licenses from different levels of government in certain jurisdictions. In Tennessee, you must obtain a license from the Tennessee Department of Agriculture to grow hemp. Processing hemp generally does not require a hemp-specific license, but if you are making a hemp product for human consumption (like gummies), you must be licensed as a food manufacturing facility. No hemp-specific license is required to sell hemp products at the retail level.

3. Obtain Funding for Your Business.

Even the best ideas cannot succeed unless they get off the ground. Sometimes the difference between success and failure is having access to capital – more importantly, strategic capital. Raising capital in the hemp industry is a particular craft that calls for a mastery of different skill sets.

4. Prepare Contracts with Suppliers/Processors.

Unless your hemp company is fully vertically integrated, you will have contracts with other players in the hemp space. Whether you are a grower, processor, supplier, or retailer, your company needs thoughtful, well-negotiated contracts to survive in this competitive market.

5. Understand What the Law Allows for Hemp.

Even though hemp is legal at the federal level, the hemp industry is still highly regulated by various levels of federal, state, and local government. For example, the Food and Drug Administration prohibits the introduction of hemp and hemp-derived products (including, for example, CBD) into certain products at the federal level. States and some municipalities have their own hemp-specific rules and regulations. The U.S. Department of Agriculture recently approved Tennessee’s hemp plan for the 2021 growing season.

6. Protect Your Intellectual Property.

Intellectual property is the most valuable asset of many companies. Without a trademark, your clever name and tag line are there for the taking. Invented a novel way to process hemp? A patent may be the appropriate strategic choice for your company.

7. Establish a Banking Relationship.

Many hemp companies are surprised to learn that many banks will not provide services to cannabis-related businesses, including hemp companies. Operating a business without the ability to utilize banking services is a recipe for failure.

8. Establish an Accounting Relationship and Understand Hemp’s Tax Treatment.

Let’s face it, you don’t want to handle complicated tax questions. But that’s exactly what you can expect in a highly regulated industry. Let our tax professionals do their part while you focus on growing your business.

9. Understand Employment Laws.

A company is only as good as its employees. It is critical to comply strictly with the employment laws of each jurisdiction where your business operates. Like most states, Tennessee law prescribes a variety of requirements that employers must meet related to issues like wages, health inspections, and employee benefits. This is one place where it definitely does not pay to be penny-wise, pound foolish. Get it right on the front end.

10. Get the Right Insurance.

All businesses should have appropriate insurance coverage, but hemp companies quickly realize that not all insurance companies will write hemp insurance policies. And in the event of a claim, the hemp company may learn that many hemp claims are denied for various reasons. Don’t find yourself facing a loss without insurance coverage.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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