10 steps to starting a marijuana business in California

The state is accepting applications for temporary licenses to operate a cannabis business in California.

The first applications came into the Bureau of Cannabis Control on Friday and thousands more are expected to follow between now and the end of the year, as the state prepares to issue the licenses to legal cannabis enterprises on Jan. 1.

But for a business to be legal under state law, would-be operators need to take a number of steps to comply with rules for registration, taxation and more. These steps are required of every size and type of cannabis business, from cultivators to sellers. And they’re required for new businesses and for businesses emerging from the legal shadows of California’s massive gray market.

The Secretary of State’s office wants business owners to take these 10 steps:

1) Choose a business type and name: Along with naming the business, owners will need to decide what type of entity it will be. Is it a sole proprietorship, owned by just one person? A general partnership? A corporation or limited liability company? Each designation comes with its own advantages and disadvantages, from how the business is taxed to who’s liable for debts. Learn more about each option here.

2) Register the business with the Secretary of State: Sole proprietorships don’t have to do this. General partnerships aren’t required to either, though they can. Every other business type must register with the Secretary of State, paying fees of up to $150 and providing basic information such as names and contact information. Cannabis businesses that have been operating as nonprofits also must register to become corporations, companies or cooperatives. Learn more and register here.

3) Register a fictitious business name if necessary: If a business wants or needs to operate under a different name than what’s registered with the state, owners need to file that fictitious business name. That process is handled by the county where the business is located, so check with the local county clerk/recorder for more information.

4) Get proof of local permission to operate: Before any cannabis business can get a license to operate from the state, they must first show that they have permission from their local government. If the business is in a city, owners will need a copy of a license, permit or other written authorization from city officials showing the business is legal under local law. If the business is outside of an incorporated city, that responsibility falls to the county.

5) Get a seller’s permit and, if necessary, a cannabis tax permit: Anyone who wants to sell cannabis products in California needs a seller’s permit from the California Department of Tax and Fee Administration. Learn more about those permits and apply for one here. Cannabis distributors need to also get cannabis tax permits. The link above walks distributors through that process.

6) Get a state license: As of Jan. 1, all cannabis businesses will need a license from the state to legally operate. Applications for temporary licenses, good for four months, are in the works while state agencies finalize complex annual license applications. Retailers, distributors, lab testers, microbusinesses and event organizers can apply now for licenses through the Department of Consumer Affair’s Bureau of Cannabis Control. Cultivators will soon be able to apply for licenses through the Department of Food and Agriculture’s CalCannabis division. And manufacturers, who use raw cannabis to make edibles and concentrates, can apply for licenses with the Department of Public Health’s Manufactured Cannabis Safety Branch. The agencies will begin issuing temporary licenses on Jan. 1 and full licenses sometime in early 2018.

7) Meet employer obligations: Any cannabis business that will have employees needs to register for a federal Employer Identification Number. They’ll need to cover payroll taxes. Most will also likely need to register with the Employment Development Department, which comes with requirements for paying unemployment insurance, reporting new workers and more.

8) Consider tax obligations: Businesses need to pay federal taxes, state income tax, state payroll taxes and property taxes, plus follow step five above to register for proper tax permits.

9) Maintain business registration: Businesses need to file Statements of Information with the Secretary of State within 90 days of registering, then update those statements annually or every two years, depending on the business type. Get more information and file paperwork here.

10) Register trademarks and service marks if desired: Cannabis businesses may want to register their trademarks and/or service marks — such as logos and slogans — with the state to distinguish them from other companies and products. The Secretary of State will let businesses register for trademarks or service marks on a first-come basis starting Jan. 1. Learn more and apply here.

For more information on the process, visit the Secretary of State’s new cannabis portal cannabizfile.sos.ca.gov. Or check out the California Cannabis Portal at cannabis.ca.gov.

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