11 Legal Considerations When Starting a Hemp Business in Mississippi

Bradley Arant Boult Cummings LLP

Bradley Arant Boult Cummings LLP

Now that Mississippi has enacted legislation legalizing the cultivation of hemp, you want to start a hemp company. You have your big idea and a business plan ready, but 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.

Bradley’s Cannabis Industry team has a deep understanding of the many unique legal and business issues that impact hemp companies in Mississippi and beyond. Our multidisciplinary team of attorneys helps businesses successfully identify and mitigate risk and recognize opportunities for sustainable growth. In our experience, here are the 10 things to consider when starting a hemp business.

1. Submit Your Application Before October 31, 2020.

The Mississippi Hemp Cultivation Act became law on June 29, 2020, but state funding is currently not available. Those interested in applying for a license to cultivate hemp in Mississippi must, therefore, apply through the United States Department of Agriculture. The USDA began accepting such applications on August 1, 2020, and the deadline to submit an application is October 31, 2020. The next application window will be August 1, 2021, through October 31, 2021.

2. 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, but the benefits are substantial – for you and for your business. In Mississippi, this process runs primarily through the Mississippi Secretary of State’s Office, and Mississippi law sets forth very specific requirements for new business formation and operation.

3. Obtain All Necessary Licenses to Conduct Your Business.

In a highly regulated industry, licenses are essential. In certain jurisdictions, hemp companies will need different licenses from different levels of government. No item on this list poses a greater existential risk to your operations than the failure to obtain appropriate licenses. Mississippi’s hemp laws contain detailed and specific licensing requirements, some of which are yet to be fully developed.

4. 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.

5. 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.

6. Understand What the Law Allows for Hemp.

Even though hemp is now legal at the federal level, the hemp industry is still highly regulated by various levels of government. For example, the Food and Drug Administration prohibits the introduction of hemp and hemp-derived products (including, for example, CBD) into foods and beverages. Certain states and municipalities have their own hemp-specific rules and regulations, such as the Mississippi Hemp Cultivation Act.

Don’t get tripped up over the rules of the road. 

7. Protect Your Intellectual Property.

For many companies, their most valuable asset is their intellectual property. 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.

8. 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 and offer banking services is a recipe for failure.

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

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

10. 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. This is one place where it definitely does not pay to be penny-wise, pound foolish. Get it right on the front end. Like most states, Mississippi law prescribes a variety of requirements that employers must meet related to issues such as wages, health inspections, and employee benefits.

11. Get the Right Insurance.

All businesses should have appropriate insurance coverage and surety bonds, but hemp companies will quickly realize that not all insurance or surety companies will write hemp insurance policies or issue bonds. 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. Mississippi’s Hemp Cultivation Act expressly requires that all hemp processors procure an adequate surety bond, or an acceptable certificate of deposit or irrevocable letter of credit from a bank or banking corporation insured by the Federal Deposit Insurance Corporation.

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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Bradley Arant Boult Cummings LLP

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