With an estimated $3.1 billion industry worth, experts consider New York one of the most lucrative states to launch a Cannabis business. The state’s affluence, culture, and population contribute to this designation.
While the rapidly growing industry has promising profit potential, it is wise to calculate costs before starting your venture, particularly as a newbie. Educate yourself about factors including financial cost, business location, industry competition, workforce, and licensing.
Additionally, unlike other types of businesses, the cannabis industry is sensitive. While almost legalized for sale in New York, cannabis has yet to be legalized at the federal level.
Understanding the industry’s operations and laws can give you an edge. Here are some tips to help you launch your cannabis business and thrive in New York State.
Establish Cannabis Business Line
Deciding which line of business you want to specialize in is the first decision to make. Do you want to operate a retail dispensary, cultivate, process the product, provide delivery, more than one of these activities? Are you considering a large-scale business or micro-business? Narrowing down your options and deciding on your line of business will help you determine your niche in the industry.
Develop a Business Plan
Successful business owners develop a good business plan. Without a well-structured plan, businesses are more likely to fail. This is increasingly true for the new and fast-growing Cannabis industry. Determine how you intend to get funding, penetrate the market, and manage the daily operations.
Your business plan should clearly state how your business will navigate different stages of development, growth, maturity, and, if need be, succession. It should also define the scale you desire for each stage and how you intend to see it through.
You might decide to incorporate business partners or seek funds from private investors. Your business plan should contain your capital expansion plan and state each party’s roles and how to share dividends.
Research Financial Matters
Finance is paramount in the early stage, making your financial planning necessary. Consider your business capital and how you intend to fund the business’s regular operations.
Run a five-year financial projection, incorporating your operating cost, marginal cost, gross and net income. Oh, and please don’t forget about the taxes! A financial forecast will aid fundraising. Fortunately, the private sector is interested in investing in the cannabis industry, which helps bolster the lack of investment from traditional financial institutions.
As previously stated, unfortunately cannabis is an illegal substance at the federal level. Therefore, understanding federal laws concerning the substance is necessary if you plan to conduct interstate business.
Stay up to date with New York local laws on cannabis business and register and document your business entity and its name in the necessary offices.
Another great way to stay up to date is to join the New York Cannabis Growers and Processors Association.
Obtain Recommended Licensing & Insurance
Whichever line of the Cannabis industry you venture into will require licensing and insurance. In NYS, to secure a dispensary permit in New York State, you will need insurance for the business (fire, harm, and burglary), general risk, and product liability.
Additionally, plan to obtain insurance to cover product liability and the general risk of your business. Different licenses available for cannabis businesses include:
- Adult-Use Retail Dispensary License
- Adult-Use Distributor License
- Nursery License
- Adult-Use Cultivator License
- Adult-Use Processor License
- Delivery License
- Adult-Use Cooperative License
- Adult-use on-site consumption license
- Microbusiness license
Due to the nature of the cannabis industry and its non-legal status on the federal level, marginal tax rates are higher. It is imperative to understand IRC Section 280E and its impact on cannabis-related business.
Conduct Market Research
It is wise to conduct a market analysis, taking note of the location of your business or where you intend siting it. Other things you need to consider are your target customers, how you intend to reach them, and the intended extent of market coverage.
Research Market Competition
Every business has competitors. To be successful in this business, especially as a starter, you need to understand your competitors, their areas of strength, and their loopholes. Arming yourself with the necessary knowledge will give you a vantage point.
The strength of your business team will help define how you scale your business. It is critical to place the right people in the right positions. Understand each team member’s area of expertise, along with strengths and weaknesses, and you can cultivate a thriving work environment.
Consider Alternative Energy
Production, Electricals, and Lighting: Estimates show cannabis businesses in the United States will consume 162% more energy in 2022. Consider leveraging solar or other alternative energy since it is becoming increasingly affordable, especially on larger scales.
Establishing a successful cannabis business is not the same as establishing a conventional business. While obstacles like financing, market penetration, customer service analysis, and handling of the daily operations are expected with any business, you must also stay up to date on limitations federal and state laws present to prevent your cannabis operations from struggling.
About Bowers & Company CPAs
Bowers & Company CPAs has formed a Cannabis and Hemp branch to help new and existing businesses understand this complicated, growing industry. Our professionals can help business owners navigate tax implications, industry regulations and operating procedures. Our team members will provide counsel and support to existing cannabis businesses and start-ups in tax planning, licensing, operating procedures, general business consulting and more.
Since the sale of cannabis is still illegal at the federal level, business cannot take certain deductions or credits when filing taxes. That means cannabis entrepreneurs must pay taxes on their gross margin and cannot deduct other common business expenses such as sales payroll and rent to reduce their liability. Bowers & Company CPAs can help business owners maximize after tax cash through careful planning.
Bowers & Company CPAs aims to offer helpful information to our clients and friends. Learn more about how we can help should your business need Cannabis and Hemp Services.
Disclaimer: To ensure compliance with requirements imposed by the Department of Treasury, we inform you any U.S. federal tax advice contained in this document or video is not intended for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.