5 Things You Need To Know Before Entering The Cannabis Industry

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Vicente Sederberg LLP

From afar, the cannabis industry can look a bit like Oz: It’s full of excitement, colorful characters, and there’s green stuff everywhere. But a closer look behind the green curtain reveals a complex wonderland of regulatory changes and oversight, financial opportunity and risk, frustration and hope, and social and economic justice. As such, prospective cannabis business owners and other service providers interested in working with cannabis businesses are wise to take a step back and assess what it really takes to not only enter the cannabis industry, but to succeed in it.

1. There are scientific and legal differences between marijuana and hemp.

There are big differences between hemp, CBD, THC, and marijuana, both legally and scientifically. Importantly, both marijuana and hemp are indeed cannabis plants. From a legal perspective, however, hemp is defined as cannabis that contains 0.3 percent or less of the cannabinoid Tetrahydrocannabinol, also known as THC. Marijuana is defined as cannabis with THC exceeding 0.3 percent.

Cannabidiol, more commonly known as CBD, is one of the many other cannabinoids that can be derived in various amounts from both marijuana and hemp, depending on the specific cultivar and growing conditions. And, depending on which state you plan to operate in, be aware of your state’s laws regulating the cultivation and sale of hemp-derived CBD products vs. marijuana-derived CBD products, as there are different regulations pertaining to each scenario. Keep in mind also that regulatory structures for marijuana and hemp vary greatly, so find an experienced attorney to assist with navigation.

2. No matter what: It’s risky business.

The next thing to understand about the cannabis industry, regardless of which state or states in which you plan to operate, is that it is still federally illegal to engage in the sale of marijuana, which is a Schedule 1 drug, i.e. it has no “proven” medicinal value. When you start touching cannabis, you are assuming risks of seizure, closures, and lack of full access to financial services and insurance coverages.

The plant’s federally illegal status also makes interstate transport of marijuana illegal. Although marijuana is legal in 17 states (welcome aboard, New York, New Mexico, and Virginia!), interstate transport of marijuana plant material is not, even between the legal states. You can, however, transport your company’s intellectual property, packaging and money between states, which opens opportunities for collaborations and licensing deals for expansion. Interestingly, hemp can be legally transported across state lines, but it is still a tricky endeavor as law enforcement personnel get up to speed on the differences between hemp and marijuana.

3. It’s (very) expensive.

In large part due to the plant’s federally illegal status, it is downright expensive to start a cannabis-touching business. Ancillary businesses such as accountants, marketing agencies, packaging suppliers, and builders needn’t be concerned about many of the upcharges that come with cannabis-related real estate and regulatory compliance-related expenses. Rather, “plant-touching” businesses such as dispensaries, cultivation and processing facilities, laboratories and kitchens, must be prepared for the costs of doing business in the quasi-legal cannabis industry.

Just remember that with each state you enter, the complexity of the patchwork of regulations that need to be followed in order to stay in full compliance with disparate state regulatory authorities only grows. Save time and expense by working with experienced service providers and vendors who have established systems, documents, and processes in place to save you time and avoid headaches relating to non-compliance.

4. You have responsibilities regarding social justice.

Businesses profiting from the sale of cannabis, whether as cannabis retailers or electricians setting up cultivation facilities, have a responsibility to understand the history of the war on drugs and how cannabis arrests affected generations of primarily Black, Hispanic, and poor families.

For decades, activists, patients, and business leaders have made great progress opening the doors to responsible cannabis legalization across the U.S. and world. While that progress should be celebrated and acted upon, we must also acknowledge and take action to eradicate the ongoing harms presented by disproportionate enforcement of drug laws. Everyone profiting off of cannabis-related sales has a responsibility to support social equity and economic empowerment programs, and to acknowledge the positive, lasting impact restorative justice can bring to a brand and the communities in which cannabis businesses operate. Fortunately, great organizations are popping up to address these inequities. Our firm recently helped launch the National Hispanic Cannabis Council, a group tasked with encouraging Hispanic entrepreneurialism in the cannabis industry.

5. Medical marijuana is real.

Although there is so much more to know and learn while entering the regulated cannabis space, whatever your motivation or ambitions, understand that medical marijuana is real. I’ve personally worked with dozens of patients who have seen real relief from various medical marijuana therapies, including vaping flower for relief from seizures and to wean off opiates, utilizing suppositories for quick and intense pain relief, applying a soothing salve to sore knees and arthritic hands, and chewing hemp-derived CBD gummies to curb everyday anxiety.

If members of your family and company aren’t already using cannabis in some medical form now, they will soon. CBD is everywhere, and additional cannabinoids, including cannabinol (CBN) and cannabigerol (CBG), are becoming more popular and accessible to treat other conditions, including diabetes and insomnia. With each new state that creates laws to allow its use, the stigma will continue to wane and more people will try cannabis in one form or another.

Not only is cannabis extremely interesting as an economic and social movement, this stuff works, and the industry is only poised to continue to grow. At the end of the day, whether you are selling widgets or weed, business is business. Like all other tax-paying entities, you have obligations relating to finances, your community, your workers, and facilities. The companies and business leaders who understand the industry’s scientific and legal nuances, and respect its economic and cultural potential relating to social justice, will grow strongest.

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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