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Setting Up a Legal Marijuana Business: State Laws to Know

Setting Up a Legal Marijuana Business: State Laws to Know

Marijuana (or cannabis) is big business in states that have legalized the herb's recreational use, despite its federal status as a Schedule I controlled substance. The federal government has mostly not intervened in states that allow legal marijuana businesses, but its ambiguous legal status creates unique legal challenges and an uncertain future.

States that have given recreational marijuana the green light have drafted their own regulations for businesses hoping to break into the industry, typically in different stages of implementation. Additional states are likely to follow, which may prompt more conclusive federal action.

Summaries of state laws and regulations affecting legal marijuana businesses serving the recreational cannabis industry are listed below. See Medical Marijuana Laws by State for more information about medical-specific regulations and FindLaw's Marijuana and Other Highly Regulated Businesses section for additional resources.

Alaska

Recreational marijuana was legalized in Alaska through a ballot initiative in 2014. The initiative removed penalties for adults who use or possess marijuana (also allowing for home cultivation), with the regulatory framework for businesses expected to be up and running in 2016. The Alaska Marijuana Control Board is responsible for enacting regulations for the cultivation, processing (edibles, tinctures, etc.), and retail sales of marijuana.

Highlights of Alaska's regulations (still in draft form as of October 2, 2015) include:

  • Types of Business Licenses: (1) retail stores; (2) cultivation facilities; (3) testing facilities; (4) manufacturers of edibles and other finished goods
  • License Restrictions: Must be at least 21 years old; those convicted of a felony, found guilty of illegally selling alcohol, or who have operated an unlicensed-licensed marijuana business are ineligible; business owners must be state residents
  • Application/License Fees: n/a
  • Taxation: $50 excise tax per one ounce of cannabis transferred or sold from cultivation facilities

California

In 2016, California voters passed the Adult Use of Marijuana Act. Under this ballot initiative, it's no longer a crime for adults 21 and over to purchase, possess and consume up to 1 oz. of marijuana in their private residence or in a licensed establishment.

The unlicensed sale of marijuana by individuals is a crime punishable by up to 6 months in county jail and a fine of up to $500. Businesses selling marijuana without a license could face civil penalties of up to 3 times the amount of the license fee for each violation. The Act also created the Bureau of Marijuana Control within the Department of Consumer Affairs which starts issuing business licenses in January 2018.

Highlights of California's regulations include:

  • Types of Business Licenses: (1) cultivation facilities; (2) manufacturers; (3) testing facilities; (4) retailers; (5) distributors; and (6) microbusinesses.
  • License Restrictions: Must be at least 21 years old with continuous California residency since at least January 1, 2015. Licenses can be denied to those convicted of serious or violent felonies or felonies involving fraud, deceit, embezzlement, providing controlled substances to minors, drug trafficking with certain enhancements. Licenses can also be denied to those previously fined or sanctioned for unlawful cultivation, production or commercial activities related to marijuana.
  • Application/License Fees: Fees for applications and renewals are set by the licensing authority.
  • Taxation: Effective January 1, 2018, the law provides for a 15 percent excise tax on the average gross receipts of any retail sale by a dispensary or other licensee, a cultivation tax of $9.25/dry-weight ounce for marijuana flowers, and a $2.75/dry-weight ounce of marijuana leaves.

Colorado

Colorado, which legalized recreational marijuana in 2012 through a ballot initiative, was the first to enact regulations for retail marijuana shops and related businesses on Jan. 1, 2014. The Marijuana Enforcement Division (MED) handles licensing and enforcement of legal marijuana business regulations. Other states are using Colorado's legal marijuana regulations as a template.

Highlights of Colorado's regulations include:

  • Types of Business Licenses: (1) retail stores; (2) cultivation facilities; (3) testing facilities; (4) manufacturers of edibles and other finished goods; see Business License Application Process - Retail Marijuana for more details
  • License Restrictions: Must be 21 and a state resident for at least two years prior to application; may not have a drug felony conviction in last 10 years (or any felony that has not been fully discharged at least five years prior to application); may be denied for having a criminal history showing that one "is not of good moral character"
  • Application/License Fees: Application fees range from $250 to $2,500, while license fees range from $2,200 to $8,000 depending on type and scale of business, and other factors (see the MED Fee Table for details)
  • Taxation: A 15 percent excise tax is levied on the average market rate for retail marijuana

District of Columbia

Washington, D.C. removed criminal penalties for the possession, transfer, and cultivation of up to two ounces of marijuana for adults 21 and older on Feb. 26, 2015. It's important to point out, though, that much of the District of Columbia is federal land, which means these federally controlled areas are subject to federal drug laws. Also, the ballot initiative legalizing recreational marijuana in the nation's capital does not authorize retail sales. Adults may grow up to 12 plants (only six being mature), but may not sell to others.

This means D.C. does not grant licenses for marijuana businesses involved in cultivation, product manufacturing, retail sales, or testing -- but that is likely to change. For now (as of Oct. 2, 2015), legal marijuana business in D.C. is limited to retail sales of marijuana accessories (such as pipes and grow equipment) but nothing involving the plant or its derivatives.

Massachusetts

By a ballot initiative in 2016, voters in Massachusetts approved Question 4 legalizing the recreational use of marijuana. Under the law, effective on December 15, 2016, adults (21 years of age or older) can possess up to 1 ounce of marijuana outside of their residence and up to 10 ounces within their residences. It also allows adults to grow up to 6 marijuana plants in their residences and to give up to 1 ounce of marijuana to another adult without payment. The initiative also created the Cannabis Control Commission to, among other things, oversee licensing of marijuana commercial establishments.

Highlights of Massachusetts' regulations include:

  • Types of Business Licenses: (1) retail stores; (2) manufacturers; (3) cultivators; and (4) testing facilities.
  • License Restrictions: To be set by regulation of the Cannabis Control Commission; prior convictions solely involving marijuana-related offenses are not disqualifying unless the offense involved distribution of a controlled substance to a minor.
  • Application/License Fees: Up to $3,000 for an initial application; up to $15,000 for a retail license; up to $15,000 for a cultivator license; and up to $10,000 for a testing facility license.
  • Taxation: A 3.75 percent state excise tax is levied on the total sales price received by a marijuana retailer. Local governments are also authorized to impose a sales tax of up to 2 percent of the total sales price received by a marijuana retailer.

Nevada

By a popular state vote in November 2016, the residents of Nevada approved a ballot initiative legalizing recreational use of marijuana. The initiative, taking effect on January 1, 2017, would allow adults (21 years of age or older) to purchase, cultivate, possess, or consume either up to 1 ounce of marijuana or up to 1/8th of an ounce of concentrated marijuana. Adults are also allowed to cultivate, process or transport up to 6 marijuana plants in certain secure areas. The initiative also places the Nevada Department of Taxation in charge of regulating marijuana-related businesses and licensing.

Highlights of Nevada's regulations include:

  • Types of Business Licenses: (1) retail stores; (2) manufacturers; (3) cultivators; (4) distributors; and (5) testing facilities.
  • License Restrictions: Licenses are not to be approved for applicants with prior convictions of certain felony offenses or who have had medical marijuana licenses revoked in the past.
  • Application/License Fees: $5,000 for an initial application; $20,000 for initial retail store license; $6,600 for renewal of retail store license; $30,000 for initial cultivation facility license; $10,000 for renewal of cultivation facility license; $10,000 for initial manufacturing facility license; $3,300 for renewal of manufacturing facility license; $15,000 for initial distributor license; $5,000 for renewal of distributor license; $15,000 for initial testing facility license; $5,000 for renewal of testing facility license.
  • Taxation: A 15 percent state excise tax on the fair market value at wholesale.

Oregon

Recreational marijuana became legal in Oregon on July 1, 2015, and legal marijuana retail shops opened their doors on Oct. 1 of the same year, nearly one year after voters approved a ballot initiative. Sales of up to one-quarter ounce to those 21 and older are allowed in the state's existing medical marijuana dispensaries, while additional licenses will be offered in 2016.

License applications for recreational marijuana businesses will be accepted beginning on Jan. 4, 2016 (you can get updates by submitting your email address to the Oregon Liquor Control Commission). See the state's Recreational Marijuana in General - FAQs to learn more.

Highlights of Oregon's regulations include:

  • Types of Business Licenses: (1) producer; (2) processor; (3) wholesaler; (4) retailer
  • License Restrictions: Must be at least 21 and a state resident for at least two years prior to application; those convicted of violating a law -- if "substantially related" to the applicant's ability to lawfully conduct business -- may be denied; those considered to be incompetent, physically unable to carry out the duties of the business, or not "of good repute and moral character" also may be denied a license
  • Application/License Fees: Annual license renewal fee of $1,000, plus non-refundable application fee of $250 (but since the state legislature requires the program to be fully paid for by these fees, the cost is likely to be higher once implemented)
  • Taxation: A 25 percent excise tax will be levied on all retail sales beginning in January, 2016

Washington

Voters in Washington approved a ballot initiative legalizing the recreational use of marijuana in 2012, and recreational sales to adults 21 and older (at existing medical marijuana dispensaries) began on July 8, 2014. Unlike laws in other states that have legalized the recreational use of the herb, Washington strictly prohibits the personal cultivation of marijuana, which is still a felony in the state.

Washington grants a limited number of licenses for legal marijuana businesses. Visit the Web portal for the Washington State Liquor and Cannabis Board to learn more about eligibility, procedures, and other details.

Highlights of Washington's regulations include:

  • Types of Business Licenses: (1) producer; (2) processor; (3) retailer; no business may hold all three licenses (a licensee may be both a producer and a processor, but retailers may not hold additional licenses)
  • License Restrictions: Must be at least 21 years old and a resident of Washington State for at least six months; premises may not be within 1000 feet of a school or other restricted entity; those with a felony conviction, a misdemeanor involving controlled substances, or a pattern of criminal activity will be denied a license
  • Application/License Fees: $266 application fee, $1062 annual renewal fee
  • Taxation: An excise tax of 37 percent is applied to all retail sales at the point of purchase (payable to the Liquor and Cannabis Board); tax is no longer levied on the license holders

What Are Your Next Steps?

As you can see, laws relating to recreational marijuana are fluid and are subject to changes each election cycle. This often results in a tricky regulatory environment for marijuana-related businesses, especially considering the ever-present risk of violating federal laws. You can stay ahead of the curve and receive assistance navigating these new laws by reaching out to an experienced business law attorney in your area.

Next Steps
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