How to Start Selling Weed (Legally!)

Learning how to start selling weed is a lot like starting any other business. You need to understand the laws, write a business plan, getting funding, etc. But what’s unique about starting a marijuana business is that there are still prime opportunities for small business owners because most large companies have avoided it because of federal regulations.

The cannabis industry has been growing rapidly — it’s estimated to be worth nearly $46 billion by 2025, and it’s one a few businesses that’s come through the pandemic on top. A budding marijuana business can be lucrative if you know how to get started.

4 Steps to Selling Weed Legally in 2024

1. Research Your State’s Marijuana Laws

Since California legalized the use of medical marijuana in 1996, nearly three-quarters of U.S. states have since followed to legalize it in some form, from medical, recreational, or decriminalized. Figuring out where your stand stands on the legalization of marijuana is the first step to selling weed legally.

Research if your state limits the number of marijuana businesses that can be open at a time (and what type). For example, Arkansas only allows 40 dispensaries statewide while Virginia allows for 400 retailers. There are varying numbers of licenses for retailers/dispensaries, wholesalers, cultivators, and product manufacturers. Learning about the regulations in your state regarding each type of business will help you with the next step.

2. Decide What Type of Legal Weed Business to Start

Let’s be very clear here, we’re only talking about legal options, so no black market dealings. Still, “legal” gets tricky because marijuana is still illegal on a federal level, no matter how your state sees it.

So, assuming you live in a state where marijuana is legal, here are the four types of business options that may be available in your state:

• Cultivation/Growing: This is the process of breeding, cloning, vegetation, flowering, harvesting, trimming, curing, packaging, and distribution. States that only have only legalized medical marijuana tend to have strict application processes for growers and run the applications through a state governed program.
• Processing/Manufacturing: These types of cannabusinesses specialize in creating products that are infused with marijuana or extracting resin to create to create those products like edibles, skincare, oils, and more.
• Retail/Dispensary: Your focus is purchasing marijuana products from manufacturers or growers and selling them to the public. Your state’s laws on recreational vs. medical marijuana will be an important consideration if you want to open a dispensary.
• Distribution/Delivery: This is the business of transporting marijuana between licensed retailers and patients, caregivers, and/or customers.

As we said in the first step, most states have limits to the number of licenses that are given out to each type of business. That’s why that step so important. Familiarizing yourself with your state’s marijuana laws will save you time as you learn how to start selling weed legally.

3. Set Up Your Business

Learning how to start a marijuana business is really similar to any other business in this step. It requires a lot of work, so make sure you take your time as you go through the following action items:

Write a business plan

To start selling weed, you need a very detailed business plan. Possibly even more detailed than if most types of businesses because marijuana is a strictly regulated business. The regulations are constantly changing too, so be flexible and put in the work. Your cannabusiness plan should include:

• Executive summary: Information about your company, including mission statement, why you’ll be successful, about your product or service, basic information about your company’s leadership, location, financial information, and growth plans
• Company description: A more detailed description of your marijuana business, including a list of the consumers or businesses you plan to serve. Include competitive advantages, about your perfect location (if you have one), and more.
• Market analysis: Prove that you understand the marijuana business, including industry outlook and target market.
• Organization and management: What will the legal structure of your company be: S-Corp or LLC, etc.? Chart out the organizational structure of who’s involved in your marijuana business and about their experience and skills.
• Service or product: Describe the kind of products or services you’ll offer with your weed business. Outline the lifecycle of the product, benefits, any research and development, and copyrights or patents.
• Marketing and sales: What is your marketing starting to start selling weed? Who are your customers, and how will you attract them and retain their business.
• Funding plan: This is especially important if you’ll be asking for funding. The goal of this part is to explain how much funding you’ll need other the next five years and exactly what you’ll use it for.

Register your business name and entity

Decide on a name for your marijuana business, and research before you try to register it to make sure it follows your state’s guidelines and isn’t currently in use. There’s a small fee to reserve your name, and you’ll need to do this before registering your business.

Also decide what type of business entity you’ll register as. This determines the legal structure of your weed business, how you pay taxes, and the type of risk you’re exposed to. You can start an LLC or corporation, and both offer personal liability protection.

Register your cannabis business to obtain permits and licenses

Again, there are four different types of marijuana businesses if you want to learn how to start selling weed: cultivation/growing, processing/manufacturing, retail/dispensary, and distribution/delivery. Each state has its own laws and process regarding how you apply for each type of permit.

Follow your state’s laws exactly to obtain the proper permits and licenses. You may want to contact a lawyer at this point who specializes in marijuana businesses to ensure you’re not overlooking anything. For example, opening a dispensary may have very complex zoning regulations in your state.

Register your business to pay taxes

Taxes are a reality whether you’re learning how to start selling weed or running Facebook ads. Start by applying for an employer identification number (or EIN). You can do that through the IRS’s website here. Approval happens almost immediately, and the process is relatively painless.

You use your EIN at tax time to file taxes and it’s also used to pay employees. Your EIN is also important if you want to set up a business bank account, credit card, or if you apply for funding.

Some states have set up portals to offer tax guidance for anyone who is starting or running a marijuana business, including:

• California
• Colorado
• Illinois
• Washington

4. Get Funding

Learning how to start selling weed, especially legally, will require a significant investment. The reason is because it’s such a highly regulated industry that requires legal help, special licenses, and application fees. This doesn’t even begin to cover business-specific costs, like building out a grow center or purchasing equipment to extract resin, for example.

We outlined writing a business plan in step two, and that will be more important than ever if you’ll apply for funding. You’ll present that plan to potential investors, and they’ll want to know how their money is being spent and your plans for turning a profit.

It’s difficult to estimate how much funding you’ll need because it varies so much on the type of business and which state you’re located in. For example, there’s a $250 dispensary application fee in Washington, while Missouri requires a non-refundable fee of $6,000.

Some states also have capitalization requirements: Arizona requires $150k, Nevada $250k, Michigan $300k, but Missouri and Alaska have no capitalization requirements for dispensaries.

Some creative sellers have found loopholes to expensive permits and lengthy application processes, but it’s not advised.

There are also high federal taxes on marijuana businesses because of the 280E clause that doesn’t allow marijuana businesses to qualify for as many a tax credits and deductions.

Additionally, it’s much more difficult for budding marijuana businesses to find small business loans or traditional forms of funding. Big banks that operate on a federal scale won’t touch the weed business because it’s still illegal federally.

The Final Word on How to Start a Weed Business

Here’s the short version for how to start a marijuana business: you need time and money. There are numerous legal hurdles, there’s time it takes to research everything, and start a weed business is expensive.

More power to you if you’re up to the challenge, but another option is to start investing in cannabis stocks. TradeStation has $0 stock and ETF trades and has an award winning platform if you’re looking for a brokerage to get started with.