Preventing Your Cannabis Business from Going up in Smoke

In 2018, the cannabis industry grew to $10.4 billion, and it is poised to get even bigger in 2019. Those numbers should make any entrepreneur salivate, and if you’re one of the folks who jumped on the cannabis bandwagon, you want to be sure that your investment tracks with that phenomenal growth.

The truth is that the cannabis industry is a field with a great deal of risk. Part of that risk is regulatory, and part is logistical. If you are a cannabis grower or retailer, you want to protect yourself against the costly mistakes in either area that could make your business, and your investment, go up in smoke.

Legal Confusion

Cannabis is currently in a legal grey area. According to Brookings, certain provisions of the 1970 Controlled Substances Act were overturned with the passage of the 2018 Farm Bill, which led to the pseudo-legalization of hemp and CBD. Hemp no longer has any restriction on its cultivation, production, or distribution, so long as it has a THC content lower than 0.3 percent.

And CBD is no longer a Schedule I drug in certain situations: namely, if it is derived from hemp grown according to the aforementioned regulations. These changes have completely transformed the playing field for people interested in uses for industrial hemp and therapeutic CBD, taking their business out of the shadows.

That said, when it comes to recreational marijuana use, the states and the federal government are on very different pages. Many states have now permitted recreational marijuana; that is, parts of the cannabis plant with a THC content above 0.3 percent. For the feds, though, this is still a no-go. This is especially problematic for cannabis business owners, especially cultivators.

As an example: as would be expected, marijuana growing laws in Colorado are leading the way on cultivation. The Colorado Constitution permits all adults over 21 to cultivate up to six marijuana plants for recreational and/or medical use, and they can grow more plants if the business owner has a commercial license from the Colorado Marijuana Enforcement Division.

But for the federal government, a single cannabis plant is grounds for upwards of three months in prison. Without sound legal advice and protection, the court fees alone could sink your business, not to mention the possible loss of licenses that come with a felony arrest.

Handling Money

In addition to the legal complications, there are also logistical concerns that should worry anybody who owns a cannabis business. Banking is especially difficult. Any contact with money from a marijuana business is federally considered money laundering, according to the American Bankers Association. The cannabis business tends to be cash-heavy, so if business owners do not have a way to bank those cash reserves, they can become targets for thieves.

Insurance companies are also wary of insuring cannabis businesses. If a business is neither banked nor insured, this creates a double problem, where an accident can wipe out thousands of dollars in earning with no way to recoup.

To prevent these costly mistakes, a business owner should look into alternative banking options, such as local credit unions. Because credit unions are state-chartered, they abide by different regulations than national banks. Specialty insurance groups have also sprung up to cover cannabis businesses. These include insurance for recreational businesses, and separate, medical insurance plans to cover doctors and manufacturers that specialize in medical marijuana and CBD.

Like any small business owner, your business should be insured to safeguard your investment against possible future disasters. Once again, legal review of the potential risks and benefits of individual insurance agencies is likely the best protection. Whatever you buy, you don’t want to be left high and dry.