How to Start a Cannabis Drinks Business
California Lays Out a Very Easy 10- Steps Process to Bring Your Cannabis Drinks to Potential Consumers.
Once you have your idea for a cannabis drinks business, it’s time to take the legal steps required to bring that drink to market. The good news is that the path to market is very clearly laid out by the relevant state authorities where you plan to do business.
For example, California lays out a very easy 10-step process required to bring your new cannabis drink to potential consumers. The California Secretary of State should be your starting point. It is where you will file all organizational documents and then follow up with necessary licenses. With that in mind, here is a brief synopsis of the 10-step process.
Step 1: Choose your entity type and business name
You probably already have your business name, so the only hard part here is choosing the appropriate type of business entity. You have several choices – corporation, limited liability corporation (LLC), limited partnership (LP), limited liability partnership (LLP) and Cannabis Cooperative Association (CCA). The choice of an entity will determine how you are taxed, your ability to transfer assets, your personal liability, and the types of licenses that you can obtain. The most common business entity type for a cannabis drinks business is a corporation.
Step 2: Register your business with the Secretary of State
You will need to file your organizational documents and pay any fees to the Secretary of State. These documents will include basic details, such as who the head of the business entity is, where it is located, and the type of business entity. This is a very standard step and is exactly the same as if you were launching any other business.
Step 3 (optional): Register any “doing business as” (D/B/A) names
For marketing purposes, you might want to create what is known as a fictitious business name when selling cannabis products. If you plan to do so, then you will need to register this name with the California Secretary of State. This is more common than you might think – choosing the “doing business as” option gives any business entity more room to be creative and to create a unique brand image in the marketplace.
Step 4: Obtain any local licenses, permits or authorizations
The first three steps involved the state, but this step involves the particular cities and counties where you will be selling your cannabis drinks. For example, if you plan to sell in Los Angeles, then you would need to look into the specific licenses, permits or authorizations required by Orange County (where Los Angeles is located) as well as any licenses, permits or authorizations required by the city of Los Angeles itself.
Step 5: Obtain the necessary permits from the California Department of Tax and Fee Administration
Here, you will need to focus on two specific permits – a seller’s permit (which gives you the ability to sell in retail locations) and a cannabis tax permit. Some people assume that the seller’s permit is only required if you have a retail storefront; however, California clearly stipulates that this permit is needed if you are involved in any aspect of cannabis cultivation, processing, manufacture, retail or distribution. Thus, even if you are just providing the ingredients for a cannabis drink, you would need a seller’s permit.
Step 6: Obtain required state licenses
Within California, the place to go for specific licenses related to cannabis products is the California Department of Public Health’s Manufactured Cannabis Safety Branch (MCSB).
Step 7: Obtain your Employer ID Number (EIN)
This EIN will be used on all payroll taxes, tax forms and any documents requiring wage withholding. Thus, if you plan to have employees on your payroll, you will need an EIN before you can start paying them.
Step 8: Understand your tax obligations
Every state and municipality has a different tax environment, and it’s up to you to track and monitor any changes in the tax code that might impact you. Two important type of taxes to keep in mind include property taxes and payroll taxes. Especially with all the changes coming out of Washington, D.C. involving taxes and healthcare, this is an important area to monitor.
Step 9: Keep up with ongoing business registration requirements
In the United States, registration is not a “one and done” affair. In other words, you will need to register on a regular basis. Within California, for example, you need to register your business within 90 days of its formation, and then annually for as long as it is in existence.
Step 10: Register any trademarks or service marks
At some point, you will need to think about ways you can protect your company’s intellectual property. This includes trademarks and service marks. Since the cannabis market is still so wide open, and there are so many competing brands and names, this is more important than you might think. What if your cannabis drinks business turns into a huge success? If you have not protected it with a trademark, a rival competitor could start using elements of your branding – such as a similar name or a similar logo – and there would not be anything legally you could do to stop them.
You can think of these 10 steps as a “legal checklist” for bringing your cannabis drinks business to market. Of course, that assumes that you already have a great product idea in mind and are just waiting on legal approval from the state before you can start selling it. If you still have not settled on a product to sell, you should also take the following steps:
• Perform a quick check of the market to make sure nobody else is using the business name you plan to use;
• Study the various types of cannabis drinks already on the market (e.g. infused drinks, cola drinks, tea drinks, coffee drinks, sports quenchers, fruit drinks);
• Do a brief market survey to make sure that demand exists for your product;
• Decide on the proper price point for your product.
The goal here is to develop a product that is unique and can stand out in the marketplace, as well as one that consumers will be lining up to buy! From there, all that’s required to do is to follow the brief 10-step checklist above, and you will be ready to launch your cannabis drinks business.