This week brought legalized recreational marijuana to a number of new states, including California and Nevada. With non-medical adult use of pot already legal in Washington and Oregon, this creates a geographically contiguous bloc of four states where marijuana and THC-infused products could be sold. Any enterprising pot entrepreneur would drool over the idea of being able to produce, ship, and sell to all of these people but creating a legal, multi-state weed empire is not easy.
The New York Times recently took a look at some companies that have attempted to negotiate the hurdles involved in building a marijuana business that has its eye on the national scene. Here are some of the biggest takeaways:
1. Multi-State, Not Interstate
You might look at the large shared borders between these states and all the roads connecting them and think “Well, I’ll just grow all my marijuana in one large farm in California and then ship it to Seattle, Reno, Portland…” but that just can’t happen right now.
While recreational marijuana will soon be legal in each of these states, shipping marijuana across state lines is a legal no-no.
To get around this, a company with a good brand can try to license its products to a company that is in the state they want to reach. That means giving up a good deal of control over the brand and having to share money with the local producer.
There are also state regulations that may require the owner of a marijuana business to actually reside in the state. One company — a maker of THC-infused beverages — tells the Times it works around this requirement by working with a locally owned company that deals with anything that actually involves growing or processing the marijuana. The beverage company likens it to Coca-Cola’s network of regional bottling operations.
2. It’ll Cost You
Even though half the country has legalized at least the medical use of marijuana, the plant not only remains an illegal drug in the eyes of the federal government, but a Schedule I controlled substance on par with heroin.
This puts a huge financial and security burden on legitimate marijuana businesses in states where sales are allowed.
Not only do these companies have to deal in cash — no credit cards allowed — but they also can’t deduct business expenses from their federal taxes.
This is a problem, as any company looking to expand across state lines by opening up a separate facility in each state will likely have to invest a lot of money to get that site up and running. The previously mentioned THC beverage company says each manufacturing facility takes about $2 million out of its coffers.
3. Rules, Rules, Rules
Recreational marijuana use is nothing new, but state legislators and regulators are just fumbling their way through this process, trying to draft laws that protect consumers, address public safety and health concerns, while not making it too restrictive for businesses who want to enter this industry.
If you’re only making and/or selling products in one state, complying with all the relevant rules and regulations can be a tough order. Now imagine trying to keep track of all these requirements on a multi-state level.
The THC beverage company tells the Times that one way it’s dealt with requirements is to abide by the strictest state’s rule in the belief that this should pass muster elsewhere. For example, the company says Colorado’s packaging requirements — not just for safety, but for labeling and for rules on not marketing to minors — are the harshest, and so “If it is safe enough for Colorado, it will work for the other states.”