Want to start a Marijuana business in San Diego?
Want to start a marijuana business? Now that Proposition 64 was passed in California entrepreneurs will be chomping at the bit to start a marijuana business. While prop 64 was passed on November 8th, 2016 it will still take some time to take effect. Here are some things California entrepreneurs looking to dive into the cannabis/marijuana business need to know.
In order to have a successful marijuana business, you will need to do it by the book. Here are an outline of some steps that you should consider following.
Step 1. Decide on a Name for your San Diego Marijuana Business
Landing on a catchy, unique business name can make or break your business. A good business name will help with marketing and brand recognition. It may be a good idea to describe the type of marijuana product or service that you are selling. The name you choose must take into consideration all legal formalities. Before you decide on a name you should:
- Pick a name that is memorable and unique so that it is easier to market
- Hire an attorney to conduct a comprehensive state and federal trademark search so that you will not have any legal trouble down the road
- Do not use terms that will make your company a credit risk
- Check with your attorney to make sure that the name you choose is in compliance with any local, state and federal regulations relating to marijuana.
File a FBN (Fictitious Business Name)
If you plan on using a business name that does not include your last name and the service that you offer you must file for a fictitious business name. Filing for a fictitious business name can be done at your local county office. For example, if you name your business “Bryant’s Buds Nursery” and you are a nursery, filing a fictitious business name will not be necessary. If you choose to do business under a name like “Dreamboats Fantasy Factory”, you will need to file a fictitious business name.
You are also required to file a FBN when one of the owner’s names is omitted. Lastly, California requires that Corporations, LLC’s and Limited Partnerships all include their entity designation in their official business name. For example “Mcdonalds” may actually be “McDonalds Inc.”, but for marketing purposes, they decided it would be better to drop the Inc. from the name. If you decide to drop the business designation from your name you are required to file a FBN.
Prior to registering your business name, it is a good idea to check whether your name has already been taken. You can do this online or hire a third party to run the check for you. To register for a fictitious business name you will need to file an application, pay a fee of $42 (as of 11/9/16) and then publish your name for 30days.
The same is true in cases where some relevant names are omitted. Although “Jones and Associates” does identify the owner, you’d have to register this one as fictitious. Furthermore, a corporation doing business under an appellation that differs in any respect from its entry in the company’s articles of incorporation must register the outlier in the same way.
Step 2. Choosing a business address to start a marijuana business
If you go out and enter into a lease for your business choosing a business address will be easy. If you work from you home you may want to consider finding a virtual business address or virtual office where you can register your business. Many of the applications that you will be filing for your business will require a hard adreess and will not accept a PO Box. The location of your physical address will dictate what local licenses you will be required to have so it is important to choose a good location. Also, if you decide to change it down the road it will be cumbersome to update all of your business listings and licenses. If you have an internet or home based business you can use your home address, just keep in mind that this may be public records.
Step 3. Forming a Cannabis/ Marijuana Business Entity
There are several options when deciding on the best entity for your marijuana start up. They are:
The Sole proprietorship.
A sole proprietorship is recommended when you are just starting your business and do not have any capital or anything to lose. It is the most inexpensive way to start a business but leaves you open to personal liability for all of your business debts, liability, and any lawsuits. As soon as your business becomes profitable (or if you are concerned about losing personal assets) it is a good idea to form a new entity.
A general partnership is when two or more business owners come together to form a business. The key characteristic of a general partnership is that all partners share in the profits and losses of the business. The downside to a general partnership is that all partners have full personal liability (similar to a sole proprietorship). California does not require a written partnership agreement to determine that a partnership exists, so be careful when doing businesses with someone else and work with an attorney to protect yourself.
An LLC is a mix between a partnership and a corporation. The great thing about LLC’s is that they are flexible in how they are set up, yet they still provide the members with protection from personal liability. In addition, there is flexibility on how an LLC decided to be taxed. California does not allow certain professions (Lawyers, Doctors, Accountants, etc.) to operate as an LLC. With that said, it has yet to be determined whether there will be any restrictions on marijuana businesses.
A California Corporation is designed to be a separate entity than its owners. This gives the maximum amount of liability protection for its owners (shareholders). With that said, you loose the flexibility in management and profit sharing. A California corporation may elect to be taxed as either a Subchapter S, or Subchapter C. By default if a corporation does not make a tax election, it will be taxed as a Subchapter C Corporation.
Step 5. Obtain a Tax Id number (Employer Identification Number- EIN)
The next step for starting a business is filing for a tax ID number. A tax ID number (or EIN) is used for the government to track taxes of businesses and helps separate the business from its owners. Currently, there is no indication as to whether a conflict of state and federal laws will have any impact on obtaining an EIN for marijuana businesses in California.
Step 6. Register with the Bureau of Marijuana Control (formerly The Bureau of Medical Cannabis Regulation )
Once proposition 64 is fully effective business owners will need to make sure their marijuana business is fully compliant with the Bureau of Marijuana Control. The Bureau of Marijuana Control is responsible for licensing and regulating marijuana businesses. It is also important to understand that local counties have been given the power and authority to restrict where marijuana businesses may operate. Some local governments may even enact a complete ban on the sale of recreational marijuana
Step 7. Comply with all local and state licensing requirements before you start a marijuana business
Once your business is in compliance with the regulations set out by the Bureau of Marijuana Control, then business owners should comply with other local and state licensing requirements. Here is a link where you can see what licenses are required for your recreational marijuana business. Cannabis Business owners will need to have a general business license (or tax certificate) from the city in which their business is located. If your San Diego marijuana business is going to sell a product then the business should apply for a resale license. Here is a list of cities that are incorporated in San Diego:
- Chula Vista
- Del Mar
- El Cajon
- Imperial Beach
- La Mesa
- Lemon Grove
- National City
- San Diego
- San Marcos
- Solana Beach
San Diego Cannabis entrepreneurs must apply for a business license within 15 days from their start-up date. The cost to apply for a business license in San Diego is $52 and can be done online. It is important that business owners apply for the business tax license under their business name and not under their own name.
Step 7. How will Marijuana be taxed for businesses in California?
Taxation is a dense subject that is constantly changing and should be monitored. This is especially true when you decide to start a marijuana business in California. Under proposition 64 there will be two new excise taxes on the sale of marijuana. An excise tax is a tax that is imposed on the sale of specific types of goods. Traditionally they have been used on alcohol, tobacco, motor fuel, and fishing/hunting equipment. Proposition 64 will look to charge 1) a $9.25 per ounce cultivation tax for flowers and 2) a $2.75 per ounce tax for leaves. There will be exceptions for certain types of medical marijuana sales. The second excise tax charged will be a 15% tax on the retail price that is charged for the sale of marijuana. In addition to the two excise taxes, local governments may impose additional taxes on marijuana as well.
Other than the excise tax, marijuana business owners will need to follow all regular business tax policies. Theses include a franchise tax, registering with the State Board of Equalization if you plan on selling a product, and employment taxes.
Start a marijuana Business from your home
Many people looking to start a marijuana business may decide to do so from their home. If you fall into this category it is wise to obtain business insurance to protect your personal assets. In addition, you should talk to an experienced CPA who will help you benefit from tax deductions. These deductions can include your rent, internet, telephone, and office supplies.
Start a Marijuana Business in California today!!
If starting a recreational marijuana business in Calfornia excited you then now is the time to act! While it is still uncertain as to how proposition 64 will unfold you can begin planning for your marijuana business venture. Keep in mind, prior to proposiong 64 being enacted, marijuana is still illegal and you should still follow all current state and federal laws. If you have any questions or would like to brainstorm on a business idea feel free to reach out to one of our experienced business attorneys at Odgers Law Group.