If starting a business is hard, starting a cannabis business in the state of California can be even more daunting. With new regulations, a plethora of license and permit requirements, and a brand new set of tax guidelines to adhere to, establishing a cannabis business is no easy feat. We’re here to help make that process a little clearer for any entrepreneurs hoping to make their mark on the California cannabis industry. Here are ten steps to take to get started right away.
Step 1: Select your entity type and business name
This might be the most important first step for getting your business off the ground and ensuring its long-term success. The business structure and entity type you choose – whether a nonprofit, for-profit, collective, or something else – has repercussions on how you are taxed, your ability to transfer assets and ownership interests, how you will manage and run the business, as well as your persona liability. Read about some of the different business structures in our guide for understanding nonprofit and for-profit cannabusinesses.
Step 2: Register with the California Secretary of State
Depending on your business entity, your next step will be to register with the California Secretary of State. Find the correct forms with instructions and according fee information at bizfile.sos.ca.gov. Here’s a quick snapshot of which entities are required to register:
Step 3: Register a Fictitious Business Name (If Necessary)
Your business may choose to operate under a name other than it’s legal name that you’ve registered with the California Secretary of State. If that’s the case, you should file with the county clerk/recorder where the business is located. Check the county’s website for information on requirements, forms and fees, or reach out to our experts if you have additional questions.
Step 4: Get Your Local Permits and Licenses
It’s not sufficient to file documents with the California Secretary of State before operating as a canna-business.California has a dual licensing system, meaning you are responsible for also obtaining a city, county, or city and county license, permit, or other authorization. Check with the municipality and county where you will be operating as a cannabis business to determine what the process is for obtaining the proper authorizations. Our local experts can also assist in this process.
Step 5: Get a Seller’s Permit and Cannabis Tax Permit from the CDTFA (If Necessary)
Do you sell cannabis or cannabis products? Then you need to register with the California Department of Tax and Fee Administration (CDTFA) for a seller’s permit. If you are a cannabis cultivator, processor, manufacturer, retailer, microbusiness, or distributor making sales, then you have to get a seller’s permit prior to applying for a license from the California Department of Food and Agriculture, the California Department of Consumer Affairs, or the California Department of Public Health. Note that if you are a distributor, you will need to register with the CDTFA for a cannabis tax permit to report and pay cannabis taxes to the CDTFA. Check our guides for cultivators and manufacturers, distributors, and retailers for more details.
Step 6: Obtain Required State License(s)
Depending on your role in the cannabis industry (retailer, manufacturer, distributor, etc.), you must apply for a specific license before engaging in cannabis-related activities. Specific information for cultivators and manufacturers, distributors, and retailers can be found in our guides.
Step 7: Understand your Employer Responsibilities
Like any business, if you plan to hire some staff, you need to register as an employer and obtain a federal Employer Identification Number. Now is also the time to start considering your business’s payroll taxes, wage withholding requirements, matching employer withholding requirements and employee employment eligibility requirements, along with requirements for State Disability (workers’ compensation) Insurance, Unemployment Insurance, and equal employment opportunity.
Step 8: Determine your Tax Obligations
There’s nothing quite as jarring as being surprised by a big bill come tax time. While you set up your business, take a moment to do a little research on what your upcoming tax responsibilities will be. Try these resources, and if you have any questions, reach out to our experts.
Step 9: Anticipate Ongoing Business Registration Requirements
This seems like a lot of licensing, registration, and compliance, but even after you get started, there is still more to come. Every corporation and LLC is required to file a Statement of Information with the CA Secretary of State within the first 90 days of registering and then again annually or biannually, depending on your entity type.
Step 10: Register your Trademarks
Last but not least, make sure to register your trademark or service mark. You may start this process after your cannabis service or product is lawfully in use, that is, your licenses have been approved and you’ve started operations within California. Visit the California Secretary of State’s Trademark and Service Mark page to learn more about this process.