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Setting Up a Cannabis Business in Colorado

Posted by Ryan M. Newburn | Jul 26, 2021 | 0 Comments

On November 6, 2012, Colorado voters passed Amendment 64, legalizing the use and regulation of recreational marijuana. Two years later, Colorado started issuing licenses, and since then, the marijuana business in Colorado has boomed. Sales have increased every year since the market opened in 2014, and they show no signs of stopping. Even the economic slowdown COVID-19 pandemic caused could not slow the industry down. In fact, marijuana sales in 2020 increased 25% to $2.19 billion when compared to 2019. If you're looking to get involved in this lucrative industry, we have some helpful information for you below; keep reading to learn more!

Types of Cannabis Businesses

There are eight types of cannabis business licenses available in Colorado; four recreational licenses and four are medicinal licenses. A business can hold both a recreational license and a medical license, but will have to apply for each one separately.

Dispensary 

Dispensaries are divided into two types, a retail or recreational dispensary, where customers at least assuming they at least 21 years old, and having a valid form of government ID like a driver's license or a passport, can purchase marijuana and a medical dispensary, where customers require medical marijuana card to make purchases. While medical cards can technically be acquired by individuals over 18 but below 21, it is important to note that businesses selling both medical and recreational marijuana at a single location cannot sell to anyone younger than 21 at that location.

Marijuana Cultivation Facility

These businesses grow and cultivate marijuana for sale to marijuana stores or a product manufacturer but cannot sell directly to consumers. A cultivation license allows such businesses to cultivate, prepare and package marijuana. Operating one of these businesses requires significant horticultural knowledge and typically requires material capital investments.

Marijuana Product Manufacturer

Manufacturers are allowed to purchase marijuana and incorporate it into new products, like edibles and oil. These products are then sold to dispensaries who sell them to consumers. Marijuana product manufacturing requires a separate license and is subject to additional regulations including regular testing of product.

Marijuana Transporter

Businesses (or individuals) can be separately licensed to transport marijuana from one business to another, like from a Cultivation Facility to a Products Manufacturer.In addition, Colorado has recently began issuing retail marijuana delivery licenses pursuant to which delivery directly to homes and businesses will be permitted. 

Getting Started

Choosing a Name

Like all businesses, a cannabis-focused enterprise needs to first pick and name and incorporate with the Colorado Secretary of State. Cannabis companies can use any form of entity incorporate available in Colorado including corporations, limited liability companies, or limited liability partnerships. The choice of entity type could have significant legal and tax implications so we recommend speaking with one of Newburn Law's experienced business lawyers prior to taking this step. 

A consideration unique to licensed marijuana businesses in Colorado is that the Colorado Marijuana Enforcement Division (“MED”) must be kept up to date on any changes made to the trade name or any DBA (doing business as) a business may undertake.

Initial Steps

Before submitting any applications to the MED, a prospective cannabis business should have already:

  • established a business entity with the Colorado Secretary of State;
  • applied for (and received) a Federal Taxpayer ID;
  • entered into relevant corporate governance documents;
  • created an organizational chart setting forth ownership percentages;
  • if applicable, be prepared to provide proof of possession of the real estate where the business will operate, including:
    • facility diagrams with plans for the licensed premise;
    • security and surveillance; and
    • a copy of the local license application. 

How to Start Growing Cannabis Legally

Adults 21 and older are permitted to grow up to six cannabis plants for their own personal use in Colorado. Growing cannabis commercially, on the other hand, requires either a Medical or Recreational Marijuana Cultivation Facility license as well as a license from a local licensing authority. The first step is to complete the MED Regulated Marijuana Business License Application.

Fees for this type of application vary based on whether the application is for medical or recreational cannabis cultivation and the number of plants grown.

After a completed MED Regulated Marijuana Business License Application is submitted, and the required fees paid, the state has 45 to 90 days to respond. If the state approves the application, it will be forwarded to the local governments listed therein. The specific local government's response times vary but can be as long as six months.

How to Start a Cannabis Extraction Business

Cannabis extracts are part of the fastest-growing segments of the legal marijuana market. Getting started requires either a Medical or Recreational Marijuana Products Manufacturer license as well as a license from a local licensing authority. The first step to complete the MED Regulated Marijuana Business License Application.

The fee for a medical license is $2,500. The fee for a recreational license is $6,500.

As is the case with Marijuana Cultivation Facility licenses, the state has 45 to 90 days to respond. If the state approves the application, it will be forwarded to the local governments listed therein. Response times may vary from municipality to municipality.

How to Open a Medical Cannabis Dispensary

Unlike the recreational marijuana market, which has been around for less than a decade, medical marijuana has been legal since 2000. Despite being older, operating a medical marijuana dispensary is still a vibrant business opportunity. Getting started requires a Medical Marijuana Store license as well as a license from a local licensing authority. First, you need to complete the MED Regulated Marijuana Business License Application.

As is the case with Marijuana Cultivation Facility licenses, the state has 45 to 90 days to respond. If the state approves the application, it will be forwarded to the local governments listed therein. Response times may vary from municipality to municipality..

How to Open a Recreational Cannabis Dispensary

Sales in the recreational segment of the marijuana market have grown every year since inception. Cumulatively, recreational sales have accounted for $10 billion in only seven years. Getting started first requires the same MED Regulated Marijuana Business License Application.

Again, the state has 45 to 90 days to respond to an application and, if approved, the application is forwarded to the local governments listed therein.

Recreational Delivery Services

The bill authorizing recreational marijuana delivery services went into effect in January 2021. However, as is the case with most, if not all, marijuana legislation in Colorado, local governments were given wide discretion on how to implement it. Denver, for example, has made recreational delivery licenses available only to Social Equity Applicants until 2024.

Fees

To get started in the cannabis industry, a business is going to need a substantial amount of capital. To apply for the Regulated Marijuana Business License, for example, a business will already need to possess the property where the business will be located, which could be a costly endeavor. In addition, it will also need to pay several fees to state and local governments, among them are:

  • Business Entity fee: $50 – This fee is paid to the Colorado Department of State to register your business organization, be it a corporation, LLC, or Limited Partnership
  • Marijuana Occupational License Application Fee: $100 – This fee is paid to MED when submitting your application for a Marijuana Occupational License
  • Regulated Marijuana Business License Application Fees: Depends – This fee is paid to MED when submitting your Regulated Marijuana Business License application. The fees vary based on the license you seek:
  • Medical Marijuana Store License: $7,000
  • Medical Marijuana Products Manufacturer License: $2,500
  • Medical Marijuana Cultivation Facility Class 1 License (up to 500 plants): $2,500. Fees increase as the number of plants does.
  • Medical Marijuana Transporter License: $5,400
  • Retail Marijuana Store License: $7,000
  • Retail Marijuana Products Manufacturer License: $6,500
  • Retail Marijuana Cultivation Facility Tier 1 License (up to 1,800 plants): $6,500. Fees increase as the number of plants does
  • Retail Marijuana Transporter License: $5,400

These are just the initial license fees. Each license needs to be renewed annually.

Local Regulations and Your Marijuana Business

While possession and cultivation of marijuana are legal at the state level in Colorado, counties, and localities are given substantial discretion on how to implement marijuana legislation. Each town and county can decide to ban recreational marijuana businesses if they so choose. As of April 2017, 272 of Colorado's municipalities had decided to prohibit the sale of recreational marijuana within their jurisdiction.

Even if counties and municipalities decide to opt-in, they are still given discretion on how to implement marijuana policies. For example, while the state allows marijuana stores to be open until midnight, Denver requires theirs to close by 10 pm. Similarly, Colorado allowed recreational marijuana delivery services to apply for licenses starting January 2, 2021; but Denver has restricted access to these licenses to Social Equity Applicants until 2024.

If you are considering entering this potentially lucrative space, contact the experienced cannabis lawyers at Newburn Law to learn more about what you need to know to start a cannabis business.

About the Author

Ryan M. Newburn

Ryan Newburn is a business and legal expert trusted by Executive Teams and Boards of Directors to apply sound business principals to solve legal and financial problems. Ryan's practice focuses on mergers and acquisitions, financings, corporate formations and corporate governance in a broad range of industries including energy, distribution services, healthcare, medical devices, and technology. Leveraging his formal business training and years of practical experience, including as an executive at public and private companies, Ryan has advised hundreds of companies in dozens of industries of unique legal and financial issues.

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