Now that recreational cannabis is legal, here's how to start your own pot business

This summer, Minnesota's recreational marijuana law went into effect, legalizing the possession and use of marijuana for Minnesotans 21 and older and opening up a host of business opportunities in a new statewide industry.

Equipment manufacturers. Growers. Deliverers. Analysts that test cannabis plants and materials. Even event coordinators. All will have a role in the cannabis market ecosystem and a chance to make money off an industry expected to reach $1.5 billion in annual sales by the end of the decade, per cannabis law firm Vicente LLP's analysis.

If you're interested in working in this new field, here's expert advice on the state's law, business formation, insurance and everything else you should do to launch your own cannabis-related business.

That newly created Office of Cannabis Management (OCM) will license and oversee recreational cannabis businesses and will also fold in the pre-existing medical cannabis and hemp-derived markets in Minnesota. The OCM has not yet published license applications, expecting to make them available in early 2025.

And because the office is still searching for a new leader — the person Gov. Tim Walz appointed resigned after her first day amid a scandal — it will need time to write rules and issue licenses for growers, processors and retailers. That means it could take until mid-2025 for marijuana retailers outside of tribal dispensaries to open in Minnesota.

But there's still plenty you can do now.

Choose now which license you'll need to obtain for your business.

There are 16 different licenses for a cannabis business, said Jen Randolph Reise, an attorney and head of business and cannabis law at North Star Law Group. That's more than any other state in the U.S., said Tanner Berris, president of Minnesota Cannabis College, a Brooklyn Center nonprofit founded in 2020 to help prepare the state for the adult-use cannabis market in Minnesota.

"The license that you have will really determine what business you're able to run," Berris said.

License types include wholesale, transporting, medical processor and retailer. Annual application fees vary from $250 to $10,000, with the initial license usually costing at least the same total, if not double.

There are also ancillary business models to choose that do not require adult-use licenses. Those are any non-plant touching businesses, such as consulting, legal counsel and selling equipment used for growing plants, Reise said.

"So many entrepreneurs come to me with ideas about the business that they want to apply for licensing, or they want to create post licensing, and it's super important that we make sure that it's a set of activities that they are able to do under [the cannabis bill]," Reise said.

Those who need help understanding what activities fall under which license types should seek counseling or advisors, Reise and Berris said. Minnesota Cannabis College, for example, has free tutorials online.

On the application, you will need to explain in detail the business' core team, who has equity and if any of the parties involved qualify as social-equity applicants. A social-equity applicant, for instance, is someone previously convicted for a cannabis-related crime. Anyone applying as a social-equity applicant earns a boost in the process, which makes it more likely the office OKs the business, Berris said.

"In every business, knowing who's on your team is important," Berris said. "But especially when going through that licensure process, it's going to be critical and could make the difference between getting a license or not getting one."

People don't have to own a greenhouse, warehouse, fleet or store when filling out an application, but they should begin searching for those assets now, Reise said. Details in the application, however, are just as crucial.

"It is building that really detailed picture and description of this business plan that you are then going to present to the Office of Cannabis Management, because this application is basically your opportunity to make an argument that you will be a compliant and successful cannabis business," she said.

Once the business founders settle on what kind of license they need, they should research revenue expectations and expenses, including taxes, Reise said. Section 280E of the Internal Revenue Service code, for instance, says that governments tax cannabis businesses on their gross profit rather than their net profit, which makes it hard to make money, she said.

A financial advisor who can help determine if your business idea makes financial sense and is worth the investment, Reise said.

Other actions on a cannabis entrepreneur's to-do list should include creating a limited-liability company, gathering quotes for insurance coverage and setting up a website or app, because it takes Google a while to rank websites to show up in its search engine, Reise said.

Rushing into the adult-use business could be overwhelming for some, so focusing on low potency, hemp-derived sales and related business could be a way to build brand awareness and market share, Berris said. The application fee and initial license fee to be a low-potency retailer is $250 for each, per location.

In addition to general and product-liability insurance, people starting a cannabis-related business should consider buying insurance for crops, equipment, loss of property, protection of goods while in transit, theft or fraud, workers' compensation and inventory, said Cory Lake, the owner of Minnetonka-based Lake Group Insurance who has focused on cannabis-related insurance since 2018.

Most farmers markets ask for a certificate of insurance to sell, and if you are planning to deliver cannabis, you'll need insurance for that, too, Lake said.

People should start fielding insurance quotes now to calculate the costs into their monthly expense, Lake said. They should also brace themselves for the price tag, because cannabis-related insurance will likely be more expensive when compared with other industries, Lake said.

For a small, main street-type business, general insurance can be $1,500 a year, he said. For a cannabis business, it's $3,000 to $3,500.

Insurance companies base premiums on metrics around losses and lawsuits, and "cannabis doesn't have that yet," Lake said. Minnesota is the 23rd state to legalize adult-use cannabis, and reports of theft at dispensaries or fires at cannabis flower groves are low, he added.

"Premiums are also high because nobody wants to be the first involved in a lawsuit," Lake said. "An accident or a product-liability case, the first of those that happens is going to be a big deal, probably very expensive, and I'm sure it will have a national ripple effect."

Types of cannabis business licenses:

License type; Application/Initial license fees

Retail; $2,500; $2,500

Delivery; $250; $500

Manufacturer; $10,000; $10,000

Wholesaler; $5,000; $5,000

Cultivator; $10,000;$20,000

Transporter; $250; $500

Testing facility; $5,000; $5,000

Event organizer; $750; $750

Mezzobusiness (cultivate up to 15,000 square feet indoor, 1 acre outdoor and up to three retail locations); $5,000; $5,000

Microbusiness (cultivate up to 5,000 square feet indoor, 0.5 acre outdoor and one retail location); $500; $0

Hemp manufacturer; $250; $1,000

Hemp retailer; $250 (per location); $250 (per location)

Medical cannabis cultivator; $250; $0

Medical cannabis processor; $250; $0

Medical retailer; $250; $0

Source: Minnesota Cannabis College