Each year, new legal cannabis legislation or ballot referendums open new markets in the rapidly expanding cannabis industry. For many entrepreneurs and small business owners, this represents an opportunity to pivot toward an international, high-growth industry with enormous growth potential.
We’ll examine what the cannabis industry’s growth and expansion mean for entrepreneurs interested in the space and explore some of the biggest business opportunities available.
The U.S. cannabis market is projected to reach $72 billion annually by 2030, according to industry research group New Frontier Data. This projection comes at a time when cannabis remains federally illegal despite the legalization of medical marijuana by 37 states, three territories, and Washington, D.C., as well as the legalization of adult-use (sometimes called recreational) cannabis programs by 21 states, two territories, and Washington, D.C.
As cannabis legalization movements expand into new states – and some members of Congress advocate for reform and even federal legalization – the cannabis industry seems poised to continue its breakneck growth as new markets open.
Entrepreneurs are eyeing magic mushrooms as the next cannabis industry, as research shows potential medical uses for psilocybin and other psychedelics.
Five states voted on some form of cannabis legalization during the November 2022 elections. Additionally, proposed legalization measures did not collect enough signatures to be added to the ballot in two states.
In November 2022, the Marijuana Legalization Initiative was a referendum on voting ballots across Arkansas. This bill would have legalized marijuana use for adults over 21 and allowed adults over 21 to purchase and use recreational marijuana with a 10 percent state sales tax. Voters did not pass the bill.
Maryland voted yes on marijuana legalization in November 2022, making the state at least the 20th to legalize adult-use marijuana. The law makes it legal for adults over 21 to possess up to 1.5 ounces of marijuana and grow up to two marijuana plants at home.
Voters in Missouri voted yes on the Marijuana Legalization Initiative. This law permits retail sales of marijuana with a 6 percent tax and will also expunge the records of residents with nonviolent marijuana offenses.
In Nebraska, neither the Patient Protection Act nor the Medical Cannabis Regulation Act made it to the November ballot. Organized by Nebraskans for Medical Marijuana, the Patient Protection Act would, if included on a future ballot, let patients and medical professionals possess and use medical cannabis. The Medical Cannabis Regulation Act would create a regulatory committee to oversee the production of cannabis and give patients a path to reliable marijuana products.
In North Dakota, the New Approach North Dakota group collected enough signatures to get a cannabis-legalization measure on the November ballot. However, this measure failed at the ballot box. If passed, the measure would have legalized the use and possession of up to 1 ounce of cannabis, 4 grams of concentrated products and up to 500 milligrams of edibles.
An organization called Oklahomans for Responsible Cannabis Action was the driving force behind gathering signatures to support State Question (SQ) 818 and SQ 819. However, neither amendment made it onto the 2022 ballot, though both could in future years. SQ 818 is an amendment to the state constitution that would guarantee access to marijuana and legalize adult use, while SQ 819 would impose a 15 percent sales tax on cannabis products. SQ 820 is a third measure, from Oklahomans for Sensible Marijuana Laws. It would legalize marijuana for adults age 21 and over and include a 15 percent tax on all recreational purchases.
South Dakota residents voted no on the South Dakota Marijuana Legalization Initiative in November. The initiative focused on legalizing the possession, use and distribution of marijuana for adults age 21 and over.
Two states passed cannabis legalization measures in November 2022, and another three voted no on legalization.
It’s easy to think of the cannabis industry as the cultivators that grow the plant, the manufacturers that refine it into products and the dispensaries that sell those products. However, while these elements are central to the legal-cannabis supply chain, the cannabis industry is much more complex and varied.
Cannabis businesses can be broken down into two broad categories:
Here’s a closer look at these categories and business examples pertaining to each.
Plant-touching businesses include those that might come to mind when you think of the cannabis industry, such as breeders, cultivators, manufacturers and dispensaries. However, other plant-touching businesses might not be so obvious, including the transportation and delivery companies that bring harvested cannabis and finished products from point A to point B.
Here are some plant-touching cannabis businesses:
Plant-touching businesses are the most heavily regulated companies in an industry already characterized by immense oversight. To open a plant-touching business, entrepreneurs typically must secure a cannabis business license through an application process, which can be lengthy and expensive with no guarantee of success. Application licensing processes vary from state to state, and there is typically a cap on how many licenses are available, similar to how liquor licenses work.
Some states require “vertical integration,” in which one company manages all cultivation, processing and dispensary businesses. Other states employ a specialization system where licenses for each operation type are kept separate and are often awarded to different companies.
Ancillary cannabis businesses comprise all the other types of companies in the cannabis industry. These companies support plant-touching businesses but aren’t necessarily involved in breeding, growing, refining or distributing cannabis products. They can include professionals like lawyers and marketers, as well as companies that produce packaging or machinery that can improve plant-touching businesses’ processes.
While many people are excited about starting a plant-touching cannabis business, ancillary businesses arguably offer a lower barrier to entry. Ancillary businesses still face significant regulation compared with many non-cannabis businesses, but they don’t have to vie for a license through a complex and costly application process.
Start an ancillary business by pivoting your existing business strategy toward the cannabis arena. For example, an experienced digital marketer could easily translate their skills to the cannabis space.
Cannabis businesses face challenges beyond those faced by startups in other industries. Navigating these challenges in the early days of your business and building a foundation that allows you to grow and adapt as regulations inevitably change will be crucial to your success in the cannabis industry.
Here are some common challenges growing cannabis businesses encounter and some tips for overcoming them:
It’s challenging, if not impossible, to go it alone in the cannabis industry. The partnerships you develop at the early stages can make or break your fledgling cannabis business.
Scott Rudder, president emeritus and founder of the New Jersey CannaBusiness Association, said that how you establish your company in the beginning is critical to its long-term success.
“The best way to do it right now is hiring a consultant who can help develop your plans with you,” Rudder told Business News Daily. “You need to develop partnerships and relationships across the country to give your team a competitive advantage – the right processes, the right [standard operating procedures], the right security plan. Get the right local attorney and local CPA … with experience in cannabis.”
It’s also likely that the regulations that apply to your cannabis business are subject to change, as the industry is a new and evolving space and public officials are regularly working to revamp and revise rules and regulations. Jessica Gonzalez, a cannabis and intellectual property attorney at Hiller, PC, advised aspiring cannabis entrepreneurs to engage with an experienced attorney who can look ahead.
“Given the fluctuations in regulations across the country … the best way for folks to keep apprised of what their state requires is to have a lawyer who is able to interpret the regulations and statutes,” Gonzalez said. “We all recognize in cannabis that the industry is always changing, so as … entrepreneurs, we need to be ready to pivot at a moment’s notice.”
Banking is a particular pain point for cannabis companies, especially if their business name reflects the industry. Because the federal government still considers cannabis an illegal, Schedule I drug under the Controlled Substances Act, many banks are hesitant to work with cannabis businesses for fear of losing their FDIC status or inviting money laundering charges related to drug trafficking, despite cannabis’s legal status in many states.
“In any other industry, you could open a business bank account and name your LLC or corporation anything you wanted, and it’s not an issue,” Gonzalez said. “But if you go to the bank and you have ‘cannabis’ in your name, you may have a lot of trouble finding a banking partner. I’m not saying to lie to your bank about what you’re doing, but … by having ‘weed’ or ‘cannabis’ in the entity name, you’re cutting yourself off at your knees. I always advise folks when creating an LLC or corporation to stay away from those names because it inhibits banking options and insurance options as well,” she added.
State regulations and private company policies limit how cannabis businesses can advertise themselves. Advertising cannabis on the radio, television or billboards is often banned, and many local marketing channels, including Facebook, make it tough by prohibiting the purchase of sponsored content for cannabis businesses.
These limitations mean many cannabis businesses must rely on a combination of content marketing and more organic social media content, email marketing campaigns and in-person marketing opportunities at trade shows and industry events. Networking and word-of-mouth referrals are essential tools in a cannabis business’s marketing toolbox.
Cannabis still faces the stigma of being associated with stoner culture. In reality, however, cannabis patients and consumers come from a broad range of backgrounds. Avoid reinforcing the stereotypes associated with cannabis, like the head-shop vibe or the underground associations linked to nearly a century of prohibition.
Instead, work closely with community stakeholders and elected officials to be a responsible community member. Doing so will go a long way toward gaining any necessary regulatory approvals and reaching your target customers, who are likely more turned off by the stigmatized trappings of the past than you might think.
“There are outdated historical stereotypes of who cannabis consumers are,” Rudder said. “They are moms and dads, lawyers, pipefitters – it covers the gamut of who cannabis consumers are. The foundation of cannabis is as a medicine, and it will be for a very long time. It’s very important for people to understand … the science side and medical side of the industry.”
It’s crucial to provide customers with the information they need. “The consumer, whether a patient or adult-use consumer, is getting smarter and doing their own research,” Rudder explained. “When people start asking questions, you need to have those answers.”
Starting a new business in the cannabis industry isn’t for everyone. It requires a lot of patience, time and money. It could even take a significant investment to get a business license. But the industry has more support than ever, with roughly 88% of Americans supporting legal cannabis. When it comes to the product, growing cannabis requires real estate and an expert team of botanists to ensure your crop is getting the maximum yield. Then you must find the right partners and keep up with ever-changing regulations. And all that’s before you get to a storefront.
However, it’s possible to stay ahead of any foreseeable problems. With the right partnerships in place, you’ll have a team to support your dream. And with some savvy business budgeting practices, you’ll be prepared for all potential business startup costs. Once your operation is up and running, you can be at the frontier of a lucrative new business model.
Max Freedman contributed to the reporting and writing in this article. Some source interviews were conducted for a previous version of this article.