When starting a medical marijuana business or seeking help with a cannabis business plan, knowledge is power. We at Masterplans, the leading cannabis business plan company, have put together this comprehensive guide, whether you’re starting a marijuana delivery service, grow operation, nursery, testing lab, or retailer/dispensary. Jump to a section by clicking below, or go straight to our sample cannabis business plan.
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Where is medicinal cannabis legal?
Marijuana industry revenue in 2021
Difference between medicinal and recreational cannabis
Types of medicinal cannabis businesses
Map of U.S. states for state-specific info
How much does it cost to start a dispensary, grow operation, etc.?
How to start a dispensary, grow operation, or other cannabis business
Sample cannabis business plan
Get expert help
Medical marijuana is legal in 35 states plus Washington, D.C., as of July 2021.. Wondering which states have legalized medicinal cannabis? In alphabetical order: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Utah, Vermont, Virginia, Washington, D.C. (technically a district, not a state), Washington state, and West Virginia.
Here’s a quick overview of what’s allowed in each state, in terms of medical marijuana possession, sale, and use:
More states may legalize medical marijuana soon. Mississippi voters overwhelmingly passed Amendment 65 in November 2020 that would create a medical marijuana program, but the Mississippi Supreme Court struck down the law in May 2021. The court’s decision makes it unlikely that a cannabis program can created by voter initiative, and the fate of Mississippi’s medical marijuana program now lies in the hands of the legislature.
Similarly, South Dakota passed Measure 26 in November 2020 to allow a medical marijuana industry in the state. Though the program was due to start in July 2021, the governor and legislative leaders have delayed the implementation of the program, and it is currently tied up in the courts.
In 2020, medical marijuana retail sales were estimated to hit $6.5 billion in revenue. While not as bullish as the adult-use side of the market analysts still forecast solid growth for the medical marijuana industry with sales expected to reach $12.6 billion in 2025. In 2014, there were 1.36 million patients; that number has surged to 3.16 million as of the end of 2020. Part of that growth was due to new programs, specifically Florida and Oklahoma, and with only two states potentially opening in the next year, it is expected that the growth in patients will level off.
Strains of cannabis vary: some treat various physical ailments, some are calming, and some are energizing. Types of cannabis with more CBD are more commonly used to treat medical conditions, and types with more THC are typically used to relax and for their psychoactive effects. However, there is no difference between medical and recreational cannabis. The product is the same; the only difference is how it is licensed, who can legally produce it, and who can legally obtain it. For example, in Arkansas, medical marijuana dispensaries can’t legally sell cannabis-infused brownies or candy, whereas in Connecticut, businesses can sell marijuana brownies but not gummies or beverages, and medical dispensaries in Florida can’t sell smokable product. And all those products are legal in California!
In states where medical marijuana is legal, typically patients must have a physician-issued medical marijuana card to purchase it (specific rules vary by state). Whereas in states where recreational cannabis use is legal, typically anyone of age (21 and over) may use marijuana. Some states have legalized recreational marijuana cultivation and dispensaries, while others have only legalized recreational marijuana consumption, making sale difficult.
Medicinal use of cannabis is legal in many more states than recreational use is. (Recreational use is only legal in nine states, plus Washington, D.C.) However, the tide seems to be shifting toward legalizing recreational use and skipping the medically legalized step altogether. That simplifies access and is how Canada recently legalized cannabis.
Interested in launching a medical cannabis startup, but not sure which type of company is right for you? Here’s a quick overview of several options.
Medical marijuana dispensary: A retail storefront where medical marijuana patients may purchase cannabis. Typically, dispensaries must abide by strict state-mandated protocols for security, video surveillance, and product tracking. (Regulations vary by state.)
Medical marijuana cultivation: Also called a “grow operation,” cultivation businesses grow cannabis plants for wholesale distribution to retailers. Some cultivators also process the plants and manufacture products, such as edibles.
Product manufacturing: These businesses make medical cannabis products to relieve pain and other conditions. Products include CBD oil, edibles, gummies, tinctures, sprays, capsules, topical balm, and even CBD gum. They sell products to dispensaries and/or online.
Delivery service: These companies enable medical marijuana patients to order cannabis products online and then get convenient, confidential at-home delivery. Delivery services provide one-time or recurring delivery. Cannabis delivery is only legal in a few states, however, such as California.
Testing facility: Quality control and safety are major concerns in the marijuana industry, particularly the medical side. Cannabis testing labs analyze products for things like pesticides, THC/CBD potency, contaminants, heavy metals, and terpenes. One benefit of starting a marijuana testing facility is that some states, such as Delaware and Alaska, legally require dispensaries to get their cannabis tested. If you don’t want to open an independent marijuana testing lab, you can become a licensee of an established cannabis testing company. Testing labs use methods like liquid or gas chromatography.
Ancillary business: There are countless possibilities for other cannabis companies. You can start a cannabis consulting firm, law office, marketing or advertising agency, payment platform, dispensary security software company, app, social network, packaging business, or accessory manufacturer. One example of a pioneering medicinal cannabis startup is PotBiotics, which recommends certain cannabis strains to physicians based on EEG brain scans.
||Medical Cannabis Broadly Legalized|
||Recreational and Medical Use Broadly Legalized|
||No Broad Laws Legalizing Cannabis Use|
Your costs will vary, based on the type of medical cannabis company you start, which state you’re located in, and other factors. For example, a grow operation will probably be much more expensive than a marijuana delivery service or an app. And the application fee for a medical marijuana business varies widely by state, from only $150 in Louisiana to $20,000 in New Jersey. Make sure you research your state’s specific requirements. But in general, here are some costs you should plan for:
|“||You saved us thousands of dollars and so much time. Because of that, we were able to raise over $2 million.
Jesse Peters, Owner
Eco Firma Farms
Here are two examples of real Masterplans clients who launched businesses in the medical marijuana industry and their startup funds. In 2020, a medical marijuana cultivation and dispensary client of ours in Arkansas was investing $437,000: $111,000 for expenses (legal, consultants, and deposits for utilities, insurance, and lease), $158,000 for equipment and inventory, and $125,000 for working capital.
Another client was entering the Maine medical cannabis market, with $5 million needed. This included $2 million for lab and kitchen buildout, $1.6 million for five dispensaries, and $1.4 million in working capital. Each dispensary was projected to have annual expenses of about $326,000: $30,000 in annual rent, $8,000 for utilities, $144,000 for payroll and payroll taxes, and $144,000 for selling, general, and administrative expenses.
1. Do some preliminary research and planning
Before launching your medical marijuana company, a little planning and googling will save you a lot of trouble. First, figure out if your market is already saturated with medical cannabis businesses. Your state (or county or city) may only offer a limited number of licenses for each cannabis business type, and it may have already granted all of them. If licenses are still available, then research if your geographic area is already home to many medical marijuana businesses. If so, you may want to choose a different part of town or a different city altogether. If there are no cannabis companies in the spot you want, it might be because a school is located there--some states have rules about how far away you must be from a school.
Even if there are existing cannabis companies in your desired area, competition could be weak, so read online reviews or even interviews to see how your competitors are positioning themselves and what their customers say. Maybe staff is not knowledgeable, there is little product variety, or prices seem too high. Any weaknesses you discover can provide valuable insight into how your company can be better!
Next, research fees to see if you can afford to launch and sustain a medical marijuana company. Check out your state’s Department of Health or health authority website to see what the current fees are, both for the initial licenses you’ll need as well as license renewal fees. (The official site will end in .gov or .us, so look for that.) There may be other miscellaneous fees in addition to the initial licensing fee. For example, in Oregon, new medical marijuana dispensaries must pay a one-time $35 background check fee and an annual $480 cannabis tracking system fee, in addition to a one-time application and registration fee of $4,000. In Pennsylvania, the permit fee for a medical marijuana dispensary is a whopping $30,000 (refundable if you don’t get the permit), in addition to a non-refundable fee of $5,000 and needing to prove you have at least $150,000. You don’t want to go broke before your medical cannabis company even launches!
After that, decide on which type of medical marijuana business you want to start (based on competition and available licenses, as well as your personal strengths). Then choose a name (here are a few ideas). Make a long list of name options, because some will already be taken. Google all name ideas to see what comes up. Is the web domain ending in .com available for your potential business name? Is the Twitter handle still available? Is it trademarked already? Cannabis business owners seem to love marijuana-related puns, but you don’t necessarily have to go that route. The best name will be easy to remember and spell correctly.
Once you’ve done your homework, seek legal council from an intellectual property attorney, who will be able to tell you if anyone else has started filing trademark protection for your company’s name. The last thing you want is to start paying for your logo development, signage, and website, only to find out that someone else was ahead of you. You also need to decide on a business structure: LLC, S-corporation, sole proprietorship, etc. In Arizona and Maine, medical marijuana dispensaries must be nonprofits. However, newly passed legislation in Maine, LD 1539, will enable medical marijuana dispensaries to be for-profit.
2. Develop a business plan
Some states and/or municipalities require you submit a comprehensive business plan. Even if they don’t, you should still create one. A solid business plan will provide a comprehensive look at your company and financial future, helping you make major financial decisions like whether you need outside investment funding. Your business plan will either confirm that your startup is positioned for success or reveal its weaknesses. It’s much cheaper and easier to find this out before you launch than after!
A medical marijuana business plan should include these components:
As you can see, a cannabis business plan should be highly specific to your location and business type, so a business plan template usually isn’t sufficient.
3. Register your business and apply for permits and licenses
Register your business with your state’s secretary of state. (Google [your state name] secretary of state register a business.) If you want to trademark your company name and/or logo, do that on the U.S. Patent and Trademark Office's website, uspto.gov. (It’s slightly more difficult to trademark a slogan, as it must be tied to selling a product and not just informational. Something like “think green” or “natural wellness” is too generic to be copyrighted.)
Now you need permission from your city, county, and/or state. Even in a state where medical marijuana is legal, some cities or counties may not allow it. Your city’s official website should have a page where you can apply for a cannabis business permit. If you’re in California, you also need to get a cannabis tax permit from the California Department of Tax and Fee Administration.
Finally, open a business bank account with one of the nearly 300 banks and nearly 100 credit unions that welcome cannabis businesses.
4. Get funding
The Small Business Administration (SBA) “prohibits banks from issuing SBA-backed loans to any company that has a direct business relationship with a cannabis or hemp business.” So small business loans guaranteed by the SBA are not available, but you have plenty of other options for funding your medicinal cannabis company:
5. Meet employer obligations
If your company will have employees, you have to register for an employer identification number (EIN) with the IRS here. You will also need to pay employment taxes and other business taxes. You might also have to register with your state’s employment department, which will enable you to pay unemployment insurance.
6. Consider tax obligations and hire an accountant
Businesses need to pay federal taxes, state income tax, state payroll taxes and property taxes. You should have addressed taxes properly in your business plan, but now’s a good time to double check and hire an accountant familiar with the cannabis industry.
As you can see, creating a cannabis business plan and launching your startup is complex and can be overwhelming. The experts at Masterplans have worked with hundreds of cannabis entrepreneurs like yourself to develop industry-leading business plans to help you meet regulations and get funding. Click below for a free, confidential consultation and learn how we can help you.