Starting a cannabis cultivation business can be very profitable. With proper planning, execution, and hard work, you can enjoy great success. Below you will learn the keys to launching a successful cannabis cultivation business.
Importantly, a critical step in starting a cannabis cultivation business is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.
15 Steps To Start a Cannabis Cultivation Business:
- Choose the Name for Your Cannabis Cultivation Business
- Determine the Type of Cannabis Cultivation Business You Will Launch
- Develop Your Cannabis Cultivation Business Plan
- Choose the Legal Structure for Your Cannabis Cultivation Business
- Secure Startup Funding for Your Cannabis Cultivation Business (If Needed)
- Secure a Location for Your Business
- Register Your Cannabis Cultivation Business with the IRS
- Determine How You Will Handle Financial Transactions
- Get a Business Credit Card
- Get the Required Business Licenses and Permits
- Get Business Insurance for Your Cannabis Cultivation Business
- Buy or Lease the Right Cannabis Cultivation Business Equipment
- Develop Your Cannabis Cultivation Business Marketing Materials
- Purchase and Setup the Software Needed to Run Your Cannabis Cultivation Business
- Open for Business
1. Choose the Name for Your Cannabis Cultivation Business
The first step to starting a cannabis cultivation business is to choose your business name.
This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally, you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your cannabis business:
- Make sure the name is available: Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check to see if a suitable domain name is available.
- Keep it simple: The best names are usually ones that are easy to remember, pronounce and spell.
- Think about marketing: Come up with a name that reflects the desired brand and/or focus of your cannabis business.
2. Determine the Type of Cannabis Cultivation Business You Will Launch
The next step is to determine the type of marijuana business you will launch. The three main types of cannabis cultivation businesses are:
- Indoor Cultivation: Growing marijuana plants in a controlled indoor environment, such as a warehouse or greenhouse, using artificial lighting and climate control systems.
- Outdoor Cultivation: Cultivating cannabis plants in an outdoor setting, relying on natural sunlight and weather conditions.
- Hybrid Cultivation: Combining indoor and outdoor growing techniques to optimize plant growth and quality.
3. Develop Your Cannabis Cultivation Business Plan
One of the most important steps in starting a cannabis business is to develop your cannabis cultivation business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.
Your business plan should include the following sections:
- Executive Summary – This section should summarize your entire business plan so readers can quickly understand the key details of your cannabis cultivation business.
- Company Overview – This section tells the reader about the history of your cannabis cultivation business and what type of cannabis cultivation business you operate. For example, are you an indoor cannabis cultivator, outdoor cannabis cultivator or do you have a hybrid of the two.
- Industry Analysis – Here you will document key information about the cannabis industry. Conduct market research and document how big the industry is and what trends are affecting it.
- Customer Analysis – In this section, you will document who your ideal or target customers are. For example, where are their businesses located? What type of operation do they have: cannabis dispensary, manufacturing, or distribution? What do they find important when purchasing products or services like the ones you will offer?
- Competitive Analysis – Here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
- Marketing Plan – Your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
- Product: Determine and document what products/services you will offer.
- Prices: Document the retail price of your products/services.
- Place: Where will your business be located and how will that location help you increase sales?
- Promotions: What promotional methods will you use to attract customers to your cannabis cultivation business? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
- Operations Plan – Here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
- Management Team – This section details the background of your company’s management team.
- Financial Plan – Finally, the financial plan answers questions including the following:
- What startup costs will you incur?
- How will your cannabis cultivation business make money?
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business?
4. Choose the Legal Structure for Your Cannabis Cultivation Business
Next you need to choose a legal structure for your cannabis cultivation business and register it and your business name with the Secretary of State in each state where you operate your business.
Below are the five most common legal structures:
1) Sole proprietorship
A sole proprietorship is a business entity in which the owner of the cannabis cultivation business and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.
2) Partnerships
A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start a marijuana cultivation business together. The partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.
3) Limited Liability Company (LLC)
A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a cannabis cultivation business include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.
4) C Corporation
A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a cannabis cultivation business is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.
5) S Corporation
An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.
Once you register your cannabis cultivation business, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your business bank account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.
5. Secure Startup Funding for Your Cannabis Cultivation Business (If Needed)
In developing your cannabis cultivation business plan, you might have determined that you need to raise funding to launch your business.
If so, the main sources of funding for a cannabis cultivation business to consider are personal savings, family and friends, credit card financing, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a cannabis cultivation business that they believe has high potential for growth.
6. Secure a Location for Your Business
Having the right space can be important for your cannabis cultivation business, particularly if you’d like to meet clients there.
To find the right space, consider:
- Zoning Laws: Ensure the location complies with local zoning regulations for cannabis businesses.
- Security: Look for a location that can be easily secured to protect your crops and comply with state regulations.
- Climate: If you plan to grow marijuana outdoors, choose a location with a suitable climate for cannabis cultivation.
- Accessibility: Ensure the location is easily accessible for employees and has adequate space for equipment and storage.
- Networking: Tell others about your needs and see if someone in your network has a connection that can help you find the right space.
7. Register Your Cannabis Cultivation Business with the IRS
Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).
In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.
Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
8. Determine How You Will Handle Financial Transactions
It is important to establish a way to transact business for your cannabis cultivation business. The regulations regarding financial services for cannabis cultivators are complex and often restrictive due to the conflicting legal status of cannabis at the federal and state levels. Though the proposed rescheduling of cannabis may ease restrictions, it is likely to have a limited impact in the short term.
You must consider these factors:
- Federal Banking Laws: Banks cannot accept funds from cannabis businesses for fear of criminal liability for “aiding and abetting” a federal crime and money laundering. This is because, on the federal level, cannabis possession and sale are still federal crimes.
- State Legalization: Although cannabis is currently illegal under federal law, twenty-three states have legalized some cannabis use. However, this legalization does not automatically grant cannabis businesses access to traditional banking services.
- Cash-Only Industry: The lack of banking services has led to a largely cash-only industry, which attracts thieves and tax cheats. This situation could be fixed by the Treasury Department if it assured banks that they will not be prosecuted for taking money from legal businesses or if Congress passed a law outlining legal cannabis banking rules.
- FinCEN Guidance: The Financial Crimes Enforcement Network (FinCEN) has released specific guidance for financial institutions regarding the provision of services to hemp- and cannabis-related customers. However, this guidance is in tension with existing federal statutes, and financial institutions must navigate federal anti-money laundering laws to provide services to cannabis businesses.
- BSA Obligations: Financial institutions must comply with their Bank Secrecy Act (BSA) obligations, which include reporting suspicious activity and maintaining customer due diligence. This requires financial institutions to determine whether a customer’s business is engaged in the sale or manufacture of hemp, cannabis, or both.
- Payment Processing: Cannabis payment processing companies offer a range of services, including compliant point of banking solutions, ACH transfers, debit card processing, and cashless ATM (point-of-banking) solutions. These payment methods offer improved security, faster transaction processing, and enhanced compliance with state and federal regulations.
9. Get a Business Credit Card
You should get a business credit card for your cannabis cultivation business to help you separate personal and business expenses.
You can either apply for a business credit card through your bank or apply for one through a credit card company.
When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.
Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing small business loans and getting credit lines for your business in the future.
10. Get the Required Business Licenses and Permits
Every state, county, and city has a different licensing process and permit requirements.
Nearly all states, counties and/or cities have license requirements including:
- General Business License: getting your Articles of Incorporation as discussed above.
- State Cannabis License: Apply for the appropriate cultivation license from your state’s cannabis regulatory agency.
- Sales Tax License or Seller’s Permit: for selling cannabis products.
- Zoning Approval: typically at the city or county level, this provides authorization for construction or use of a building or land for a particular purpose.
- Fire Department Approval: a process by which the local fire department reviews and approves the installation of a fire alarm system.
Depending on the type of cannabis cultivation business you launch, you will have to obtain the necessary state, county and/or city licenses.
11. Get Business Insurance for Your Cannabis Cultivation Business
Other business insurance policies that you should consider for your cannabis cultivation business include:
- General liability insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
- Auto insurance: If a vehicle is used in your business, this type of insurance will cover if a vehicle is damaged or stolen.
- Workers’ compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
- Commercial property insurance: This covers damage to your property caused by fire, theft, or vandalism.
- Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
- Professional liability insurance: This protects your business against claims of professional negligence.
- Crop insurance: This protects against losses due to various events such as fire, windstorm, theft, vandalism, natural disasters, and other events that could impact the ability to harvest and sell your cannabis crop.
Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
12. Buy or Lease the Right Cannabis Cultivation Business Equipment
Invest in high-quality equipment to ensure the success of your cannabis cultivation operation:
- Lighting: Choose efficient lighting systems, such as LED or HPS, to optimize plant growth.
- Climate Control: Install HVAC systems to maintain ideal temperature and humidity levels.
- Irrigation: Implement an automated irrigation system to ensure consistent watering and nutrient delivery.
- Cultivation Supplies: Purchase high-quality growing media, nutrients, and pest control products.
13. Develop Your Cannabis Cultivation Business Marketing Materials
Marketing materials will be required to attract and retain customers to your cannabis cultivation business.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your cannabis cultivation business. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
- Website: Likewise, a professional cannabis cultivation business website provides potential customers with information about the products and/or services you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
- Social Media Accounts: establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media networks will help customers and others find and interact with your cannabis cultivation business.
14. Purchase and Setup the Software Needed to Run Your Cannabis Cultivation Business
Most cannabis cultivation businesses need accounting software and customer relationship management (CRM) software, as well as tracking software and operation management software.
While there are many different software options available, some of the most popular programs for cannabis companies include:
- Seed-to-Sale Tracking: Comply with state regulations by using a seed-to-sale tracking system like METRC or BioTrack.
- Inventory Management: Manage your inventory efficiently with software like Leaf Logix or Flourish.
- Environmental Monitoring: Monitor and control your grow environment with tools like Trolmaster or Growlink.
- Accounting: Keep accurate financial records using cannabis-specific accounting software like 365 Cannabis or Dope CFO.
Research the software that best suits your needs, purchase it, and set it up.
15. Open for Business
You are now ready to open your cannabis cultivation business. If you follow the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.
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Starting a Cannabis Cultivation Business FAQs
Is it hard to start a cannabis cultivation business?
There is no one-size-fits-all answer to this question, as the ease or difficulty of starting a cannabis cultivation business will vary depending on your skills, experience, and resources.
However, if you follow the steps above, you should be able to start your cannabis cultivation business without too much difficulty.
How can I start a cannabis cultivation business with no experience?
The best way to start a cannabis cultivation business with no experience is to start small. You can offer your products to friends and family members, or to small manufacturers. Once you have a few clients, you can then start marketing your business more aggressively.
What type of cannabis cultivation business is most profitable?
The profitability of a cannabis cultivation business will vary depending on the specific products and services offered. However, some of the most profitable types of cannabis cultivation businesses include companies with a strong presence in multiple states, diversified product offerings, and a focus on both medical and recreational cannabis.
How much does it cost to start a cannabis cultivation business?
There is no set cost to start a cannabis cultivation business. The amount of money you'll need to get started will vary depending on the products you offer, the size of your business, and other factors. However, you'll likely need to invest in some basic equipment and supplies, such as lighting, irrigation, climate control, and cultivation supplies. The median startup costs for cannabis cultivators can range from $10 per square foot for outdoor grows to $75 per square foot for indoor grows. Greenhouse operations fall in between, with costs around $42 per square foot
What are the ongoing expenses for a cannabis cultivation business?
The ongoing expenses for a cannabis cultivation business can vary depending on the type of products you offer. Generally, you will need to invest in marketing and advertising to attract clients, as well as cultivation supplies and equipment. You may also need to pay for membership fees to professional organizations or networking groups. The biggest expenses are typically taxes and compliance fees, input costs, and property lease fees.
How does a cannabis cultivation business make money?
A cannabis cultivation business makes money by charging clients a fee for its products. The pricing ranges for cannabis can vary widely, depending on the quality, potency, and the different strains.
Is owning a cannabis cultivation business profitable?
Yes, owning a cannabis cultivation business can be very profitable.
The profitability of a cannabis cultivation business will vary depending on the specific operation, geographical location, and other factors. However, there are a few things you can do to increase the chances of your cannabis cultivation business being profitable.
Some of the key things you can do to make your cannabis cultivation business more profitable include:
- Narrowing your focus to a specific niche market. This will allow you to become an expert in a specific area, and clients will be more likely to trust your advice and recommendations.
- Taking time to understand the needs of your target market. Ask yourself, "What are they trying to achieve? What problems do they face? How can I help them overcome these challenges?" By understanding these key questions, you will be able to identify different client problems you can solve with your cannabis cultivation service.
- Optimizing your website for SEO to increase online visibility. This will allow you to attract the right kind of client to your business, who are actively searching for a consultant in your niche market.
- Signing up for Google AdWords or Facebook Advertising if appropriate, to target potential clients on their own platforms.
- If appropriate, attend trade shows and networking events to connect with potential clients at these events.
- Networking on social media channels so you can get in touch with potential clients or even find jobs through word-of-mouth referrals from your existing network of contacts.
- Creating a unique selling proposition. Be clear about what you can do that other cultivators in your niche market cannot, and communicate this to potential clients.
- Treating each client relationship like a partnership, so they are more likely to recommend you to their connections or return for additional products in future.
- Keeping your costs low by using cloud-based software and automating tasks.
- Targeting a growing niche market that you can expand into in the future.
- Testing out different strategies with a limited budget, so you can see which methods work best before investing heavily in these areas of your business.
- Building references from clients who are willing to recommend you to their connections. This is more valuable than testimonials on your website, as it builds social proof in the eyes of potential clients that you offer great value for money.
- Investing in training in order to keep up with cannabis industry trends, and increase your knowledge about your niche market.
- Providing outstanding client service
Why do cannabis cultivation businesses fail?
One of the main reasons that cannabis cultivation businesses fail is a lack of planning. This can include not having a detailed business plan, not doing research on the marijuana industry, and not targeting the right customers.
Another reason is a lack of marketing and sales skills. This can include not creating a sales process and not have a clear and strong value proposition.
The last main reason is a lack of financial management skills. This can include not having a realistic budget, not tracking expenses, and not investing in the business.
Who are key players in the cannabis cultivation market?
The cannabis cultivation market is made up of a variety of different players, including small businesses, large-scale marijuana cultivation, and even individuals.
Some of the key players in the market include:
- Ultra Health
- Mammoth Farms
- Palo Verde Center
- Copperstate Farms
- Los Sueños Farms
- Cookies Fam Genetics
- Belushi's Farm
- Glass House Farms
- Flower One
However, there are many other players in your specific target market, and it is important to research the market to identify the key players that may have the most direct influence on the success of your business.
How much should I charge for the products of my cannabis cultivation?
The pricing ranges for cannabis can vary widely, depending on the quality, potency, and type of cannabis. For example, high-quality, indoor-grown cannabis can sell for $1,300 per pound, while lower-quality, outdoor-grown cannabis can sell for $319 per pound.
The best way to determine the right fee for your cannabis cultivation services is to research the rates of similar businesses in your industry, and to also consider the value that you will be providing to the client.
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