Congratulations on your new adventure! Starting a business is both exciting and terrifying! Mostly exciting though, don’t worry! BUT! We can definitively say from our own experience there are a lot of potential pitfalls when you’re first starting out. We also know from experience that money is always tight at the beginning and you must make a little go a long way. But in the spirit of “you get what you pay for”, here are three people we think are well worth the investment when starting your cannabis business...
1) A lawyer
Not just any lawyer though. You need someone who has industry specific knowledge. Every new business really needs a lawyer to establish legal documents for entity formation, contracts, agreements, etc. But cannabis businesses in particular face a lot of extra-legal compliance headaches.
Laws vary from state to state, licensing issues are abundant, and the laws around what legal entity you can form are specific when it comes to cannabis. You need someone who can help you navigate all of this. Look for a lawyer who has helped other clients get through the licensing process. Also ask if they have multi-state operator experience if you plan to cross state lines. While many cannabis business owners may not intend to operate in multiple states at the beginning, having a lawyer who can help you cross that bridge as you grow can be helpful. Make sure they understand what type of entity you can be. Some states require license holders to be individuals or non-profits, while others will allow corporate license holders. You need to ensure that your selected professional knows the laws that specifically govern cannabis businesses in the state you’re operating in.
2) An accountant
We know we’re tooting our own horn here but stay with us. You like your green, right? Not just the grown-on plants kind? If you don’t feel good about giving a huge portion of your cash to the IRS, you need an experienced cannabis accountant. IRC 280(e) still prevents cannabis business owners from deducting operating expenses. That means your entire gross profit is subject to income taxes, potentially self-employment taxes, and that is after you pay sales taxes. In our experience, most dispensaries must clear more than a 40% profit margin just to break even!
An experienced cannabis accountant can help you navigate the impact of all these taxes but can also help you maximize your deductible expenses compliantly under 280(e). Cannabis businesses can adjust their taxable revenue for cost of sales, however, calculating what goes into cost of sales can get complicated and requires your financials to be presented using Generally Accepted Accounting Principles. Not sure what these are? A good cannabis accountant will know, and they will be able to set you up for the best success from the beginning. Protecting your business from paying too much in taxes means more money stays in your bank accountant to help you grow (pun intended).
3) The insurance Agent/Security team
This won’t come as a surprise to cannabis business owners but you’re at risk of theft and damage. You need to insure appropriately for your risk. Cannabis businesses are typically loaded with cash daily. Thanks to the Federal rules still preventing cannabis businesses from having access to banking, hoards of cash are on hand at these business locals daily. Most insurance policies cover minimal amounts of cash (like under $2,000) and you won’t be covered for amounts above that if something happens.
After you install a security system and buy a fireproof safe, find an insurance agent who understands the industry and who has insured other cannabis business owners. Especially if you have growing plants on the premise, you need an agent who understands damage losses to crops. Other unknown insurance nuances can relate to anything your customers put in their mouth (think baked goods and other edibles). There is specific liability related to anything considered food grade and you will need insurance riders that cover these liabilities. Even if you buy these products from suppliers and simply sell them in your store, make sure you understand what your liability is and what your coverage is. Do not assume that all your suppliers are properly insured!
Bottom line, find professionals you trust who know and understand your business specifically. Cannabis does not operate like any other business out there so you need to employ experts who will do the best job for your unique endeavor. At Cultivate we have connections to other professionals that we have developed through our own networking to make sure we can always deliver the strongest team to our clients.
Call us today for a free consult or book us on our website at www.cultivateconsulting.co