Want to break into the California cannabis market? Here's why it's extremely complex, and how to sell cannabis in the biggest legal market in the world.
California’s cannabis market is worth over $3 billion. The industry has been growing ever since the state legalized marijuana for recreational use.
Unfortunately, California marijuana business owners are faced with a myriad of different liabilities.
Do you want to start or expand an existing cannabis business in California? Here’s some vital information about cannabis California law and how to sell cannabis products in California.
Basic California Cannabis Laws All Businesses Need to Know
California has similar cannabis laws as other states. But all business owners should know these basic laws before selling marijuana in California.
• You can only sell marijuana to customers who are 21 years or older. Selling cannabis to minors is illegal.
• You can only sell 28.5 grams of marijuana or 8 grams of marijuana concentrates to each customer.
• You can only sell cannabis products if you hold proper licensing (we’ll go over this in later sections).
California also has stricter laws and regulations concerning cannabis business owners. This makes the California marijuana market difficult for all business owners.
Why Breaking Into the California Cannabis Market Is Difficult
Legalizing marijuana helped users and patients easily access marijuana. But California has strict laws that still hinder a cannabis entrepreneur’s chance of thriving in the cannabis market.
California Proposition 64, also known as the Adult Use of Marijuana Act, limits some actions for business owners. This law states that businesses can’t sell marijuana unless they have specific licenses. This law also allows certain cities and counties to regulate and prohibit recreational marijuana.
These laws also extend to marijuana grow sites and cultivators. Marijuana cultivators must hold specific licenses, separate from marijuana sales and retail licenses. There are also strict standards marijuana cultivators must abide by, such as only growing a certain number of plants.
Some business licenses are difficult to obtain. One of which is a medical marijuana delivery-only service license.
The Medical Marijuana Regulation and Safety Act monitors medical cannabis products and prescriptions. This law prohibits medical marijuana delivery sales. Medical cannabis may only be sold at a brick-and-mortar location.
Cannabis businesses also have limitations when securing a physical location.
Landlords who charge 20% or more of the tenant’s profits (in lieu of rent) are part-owner of these companies. One person can’t “own” multiple cannabis companies. Landlords are usually wary of entering an agreement with cannabis companies.
Every cannabis company must adhere to strict quality standards. This includes testing and tracking of cannabis products. But California’s compliance standards are more complex, compared to other states.
Many tracking details are hidden for safety reasons. This includes seed-to-sale tracking details regarding changed hands.
California’s track-and-trace system has strict standards regarding cannabis tracking. Businesses are struggling to implement cannabis tracking software to follow California cannabis laws.
California cannabis businesses risk an audit if they’re missing data, specifically in their tracking records and inventory activity. This can lead to business suspension and hefty fines.
A common yet costly error that businesses make is selling cannabis products to a single customer over the legal amount.
This may be an issue for businesses expanding to California. The legal cannabis sales amounts might be different in California than in other states. This is the case if businesses don’t own software that limits purchase amounts automatically.
As the industry grows, more compliance issues are coming to light. These include child-safe packaging, product security, anti-theft protocols, and workplace safety.
California imposes hefty taxes on cannabis businesses. Unfortunately, their tax liabilities are only expected to increase. Since January 1, 2020, the marijuana excise tax raised to 80%.
Cultivation tax rates also increase, adjusted for inflation. For example, in 2019, an ounce of cannabis flower was taxed at a rate of $9.25. In 2020, this rate increases to $9.65.
In addition, marijuana sales taxes are monitored differently than cultivation tax. The California Department of Tax and Fee Administration (CDTFA) recalculates marijuana sales taxes every six months. They only recalculate cultivation taxes once a year.
Many efforts to lower state marijuana taxes have failed. These taxes also put businesses at a disadvantage. They’re losing customers to unregulated cannabis sellers, known as the “black market.”
Cannabis businesses also face tax deduction restrictions. Under federal law, cannabis is still a Schedule I drug. Under tax code 280e, businesses trafficking Schedule I and II substances can only write off Cost of Goods Sold.
Cash Flow and ROI Hurdles
The cannabis industry is thriving in California, generating billions annually. Unfortunately, cannabis business owners face many financial risks.
One of the biggest disadvantages of owning a cannabis business is the lack of funding opportunities. Cannabis businesses face restrictions when signing up for a business bank account. This also limits their financing opportunities.
Even with legalization growing, many investors are hesitant to invest in cannabis businesses. The cannabis industry is still new and carries many risks. Therefore, assessing capital is difficult for marijuana businesses.
Many cannabis businesses have to only use the cash they generate from sales. This threatens their security and limits their spending. Working with cash only also makes cash flow management more difficult.
Even though the cannabis industry generates hefty profits, there’s no ROI guarantee. Hefty taxes, fines, liabilities, competition, legal considerations, and inflation will make achieving your ROI difficult.
In addition, California’s cannabis black market is growing in popularity. Unregulated sellers are able to sell cannabis to consumers at a lower rate. This takes profits away from regulated businesses.
California cannabis businesses face many risks. But you can still comply with the laws and make a profit by having a cannabis consultant at your side.
A cannabis consultant will ensure you comply with all laws and regulations. They will educate you on licenses, taxes, product tracking, cash flow management, and all other risks and compliance issues.
Cannabis business owners have some limitations that other business owners don’t have. A consultant will help navigate your options.
Consultants will also recommend different software and other equipment for your cannabis businesses. Cannabis software will improve your quality control and will help you stay compliant.
If you’re starting or expanding your cannabis business in California, your consultant should have experience working with California-based businesses. California imposes strict laws and regulations. An experienced consultant will know these laws and regulations. They will save you time and prevent fines and business suspension.
Selling Cannabis in California: The Licenses and Permits You Need
Permits and licenses are required for cannabis businesses. This is necessary to create and distribute cannabis products in California.
State Cannabis License Fee
All cannabis businesses are required to sign up for a cannabis license in California. You will first need approval in your jurisdiction before you can receive your license.
Recreational cannabis companies need local and state permits. Some local governments forbid recreational cannabis businesses from practicing in their area. Some cities and counties also have limitations for recreational cannabis businesses.
The type of permits and licenses you need depend on the type of product you’re creating and selling.
All cannabis businesses need a seller’s permit, whether you’re a cannabis cultivator or a dispensary owner. You can apply for a permit online and they’re free. If you plan on hosting multiple business locations, you’ll need a seller’s permit at each location.
The only exception is if you own a health facility that dispenses medical cannabis to patients.
If your cannabis product requires cultivation, you need the proper licensing.
There are different cultivation licenses you can get.
• Specialty Cottage
• Specialty Cottage Indoor
• Specialty Cottage Outdoor
• Specialty Cottage Mixed-Light
• Specialty Mixed-Light
• Specialty Indoor
• Small Indoor
• Small Outdoor
• Medium Outdoor
• Small Mixed-Light
• Medium Mixed-Light
• Medium Outdoor
• Large Indoor
• Large Outdoor
• Large Mixed-Light
Some of these licenses, such as large-sized cultivation farms, won’t be issued before 2023. You have to sign up for your license through the California Department of Food and Agriculture (CDFA). There are different licensure degrees, including temporary and annual licenses.
Do you grow marijuana in an area less than 10,000 square feet? If so, you’re considered a microbusiness and you require a different license. You may still need other licenses including a manufactured or distribution license.
Cannabis Manufacturing License
Cannabis product manufacturers require multiple licenses.
First, you need a land-use permit. You get this permit from your county government or local city. You’ll also need specific business licenses. You also need a business plan, site plan, floor plan, community relations plan, security plan, and financial analysis.
Part of this licensing process includes an environmental assessment. Not all businesses will require this.
From here, you’ll need building permits and a certificate of occupancy.
After you have these licenses, you’ll sign up for a California manufacturing license from the Department of Public Health.
What if you’re making edibles and other non-flower cannabis products? You’ll need a separate license from the California Department of Public Health’s Manufactured Cannabis Safety Branch.
Creating a Cannabis Business Plan
The state of California requires a business plan for all cannabis businesses. Your business plan must include this information:
• Product/service description
• Market research
• Management team
• Investor proposal
• Any requirements specific to your licensing
You may also need to include a description of the activity, room dimensions, property boundaries, entrances and exits, transportation, and inventory procedures.
Other Facts to Know
Whether you’re a new cannabis business or are expanding to California, there are some best practices that all business owners should know. Here are a few facts to know.
Know the Medical vs. Recreational Marijuana Laws in California
Differentiating your products as either medicinal or recreational is crucial in California. This impacts the amount you can sell to consumers, where you can sell the products, proper labeling, consumer documentation, and other legalities.
Pricing Your Cannabis Products
California is one of the states that require certain businesses, such as dispensaries, to operate on a non-profit basis. This means you should price your cannabis products fairly.
If you don’t own a dispensary, there are several fair pricing strategies you can use. These include the market approach and the cost approach.
You’ll also want to look at California cannabis market trends and your customer demographic.
There are also important security measures to note. This extends to all cannabis businesses — cultivators, manufacturers, dispensaries, and more.
First, your location should be as “neighborhood friendly” as possible. Any building imagery should be non-offensive. If your building artwork has a marijuana plant or any type of cannabis-influenced imagery, try and keep that imagery as subtle as possible.
You’ll also want to keep your location clean and have safety measures for employees and customers. This will prevent any liabilities.
Since cannabis businesses work primarily with cash, you’ll also want to protect your finances. Create cash settlement procedures to prevent theft. You’ll also want to protect your physical product. With the rise of California’s cannabis black market, businesses can be subject to product theft and robbery.
A Cannabis Consultant Will Ensure You Comply With California Law
California law imposes strict requirements on cannabis businesses, including new and existing businesses. Failure to comply may result in fines and business suspension.
The best course of action is to have a cannabis consultant on your side. The best cannabis consultant will offer an all-in-one service to easily enter the California cannabis market.
We can help bring your cannabis business to success. Sign up for our services today
Headquarters is a team of highly-focused and seasoned experts who will get your product into California’s robust cannabis market no matter where you’re located.
Whether it’s compliance, distribution, marketing or product development, we can not only get you in the marketplace, but help you stand out from the pack. Drop us a line or sign up for our newsletter today.