Cannabis industry has grown rapidly in the last several years, bringing in billions of dollars in sales and creating a lot of jobs in many states in the U.S. and around the world. But working in this field comes with its own set of legal problems. New businesses that enter the dispensary market often make mistakes that might cost them money and hurt their business’s long-term health.
This blog post will talk about the most common legal blunders that new businesses in the cannabis sector make and how to avoid them. Entrepreneurs may better deal with the complicated cannabis laws by knowing about these problems. This will help them follow state and federal rules and set their business up for success.
1. Failing to Understand Federal vs. State Regulations
The complicated world of law
One of the most common legal blunders entrepreneurs make is not knowing the distinction between state and federal laws. Cannabis is still prohibited at the federal level under the Controlled Substances Act (CSA), even if several states have made it legal in some way (for medical or recreational use). This makes the laws for businesses hard to understand and often even conflicting.
There are a lot of differences in state laws
Every state has its own rules around growing, selling, and distributing cannabis. California, for instance, has a well-established and complicated set of rules, whereas Texas and Idaho have stringent regulations against cannabis. A startup in one state may have to deal with various rules and regulations than one in another state.
Mistake: A common mistake is not making sure that business activities like sales, packaging, and marketing follow the rules of the state where the business is located.
Solution: Dispensary business owners should hire a lawyer who knows a lot about cannabis legislation and make sure they follow all federal and state rules. It’s important to keep up with changes in legislation at the state level because many states modify their rules often.
2. Not Securing Proper Licensing
Getting through the licensing process
It is very important to get the right licenses and permits before starting a dispensary business. Entrepreneurs need to get different licenses depending on what they do, such as growing, making, distributing, or selling cannabis. There are different costs, restrictions, and steps for each sort of license.
Types of Licenses
A cannabis startup usually needs more than one license, such as:
- Cultivation License: For growing cannabis.
- Distribution License: For transporting cannabis products.
- Retail License: For operating a dispensary.
- Manufacturing License: For processing and producing cannabis products.
- Testing License: For lab testing cannabis products to ensure quality and safety.
Mistake: Many new businesses make the mistake of trying to run their business without all the essential permits. This could be because they don’t completely understand the legal requirements or because they want to save time or money.
Solution: Take the time to learn everything you need to know about your state’s licensing rules and how your business works. The process of applying might take a long time, cost a lot of money, and be very competitive, but it is vital to keep your business safe from legal problems in the future.
You may also like: Do You Need a Lawyer to Start a Cannabis Business? Here’s Why You Should
3. Ignoring Tax Compliance
Cannabis businesses have to pay a lot of taxes
Cannabis businesses have tax problems that are different from those of regular enterprises. One big problem is the federal tax code, especially Section 280E of the Internal Revenue Code, which says that cannabis enterprises can’t deduct normal company costs like rent, payroll, and utilities from their taxes. This means that startups have to pay a lot more in taxes than businesses in other fields, thus tax preparation is a very important aspect of their business plan.
Taxes and Fees in the State
Dispensary firms have to deal with a lot of state-level taxes and fees on top of federal tax difficulties. Cannabis products usually have high sales taxes in states where it’s legal. Businesses may also have to pay extra costs for licenses and compliance, which may add up rapidly.
Mistake: A common mistake is not saving enough money to pay the high taxes or not correctly accounting for Section 280E when figuring out costs.
Solution: Hire an accountant who knows a lot about cannabis taxes. They can help make sure that your firm is following the rules and doing everything it can to lower its tax bill. To maintain your business financially healthy, you need to set up tax reserves and plan ahead for these special problems.
4. Overlooking Intellectual Property Protection
Keeping your brand and products safe
Cannabis companies sometimes forget about protecting their intellectual property (IP), like patents, trademarks, and trade secrets. There is a lot of competition in the cannabis business, and as the market increases, so does the chance that other companies may steal your branding, product compositions, and business plans.
Trademarks in the Cannabis Business
Getting trademarks for their brand is one problem that startups face. Because cannabis is illegal at the federal level, the U.S. Patent and Trademark Office (USPTO) usually doesn’t give federal trademark protection to enterprises that deal with cannabis. You can still get trademark protection in states where it’s legal, though.
Mistake: A lot of dispensary firms don’t trademark their brand or product names, which means that competitors can use names that are similar to theirs or imitate their items.
Solution: Make protecting your intellectual property a top priority, even if you can’t get government protection. Look into registering your trademark at the state level and think about getting other types of protection, such patents or trade secrets, for your unique procedures and compositions. Strong IP protections will help you stand out in a growing and competitive market.
5. Neglecting Employment and Labor Law
Problems with cannabis employment
Cannabis companies have to deal with special problems when it comes to employment law. Its workers, for instance, have to follow the same drug testing rules as workers in other fields. But because marijuana is illegal at the federal level, firms need to be careful when making rules for hiring, terminating, and drug testing employees.
Compensation and safety for workers
Cannabis firms have to deal with more than just employment issues; they also have to deal with the fine points of safety and worker’s compensation laws. Growing and making cannabis might include dangerous materials and procedures, so it’s important to make sure your workplace follows all Occupational Safety and Health Administration (OSHA) rules.
Mistake: Some firms don’t make complete employee handbooks, drug testing protocols, or worker’s compensation plans that follow both state and federal rules.
Solution: Make sure your policies are clear and follow local labor regulations. This includes guidelines for drug testing, employment, and worker’s compensation. Update employee contracts and handbooks on a regular basis to keep up with changes in local labor laws and rules that apply just to cannabis.
Conclusion
It can be quite satisfying to start a cannabis business, but it can also be very complicated from a legal point of view. Dispensary entrepreneurs don’t have to worry about the usual legal problems that often get in the way of new businesses, thanks to the skilled legal advice of Micci J. Weiss Law Firm.
You can avoid expensive mistakes, remain up to date with changing rules, and make sure your business runs efficiently and legally. You can relax and focus on building your business because they know all the rules about cannabis and will take care of all your legal obligations.