The 3 Toughest States To Start A Cannabis Business

Scott McGovern
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Starting a cannabis business varies greatly from state to state. More than half of Americans have access to legal cannabis in some form, but state-by-state legalization means that starting a cannabis business in Oregon isn’t the same as in Massachusetts.

Today legislation, fees, and delays make it a challenge for businesses to succeed, but don’t mistake tough regulations for a lack of opportunity. High fees and strict licensing requirements mean less competition.

Here’s what you need to know about the toughest states to start a cannabis business.

You Cannot Start A Cannabis Business In Most Places

There are many states where you cannot start a cannabis business in the first place.

For example, you cannot even buy medical marijuana in Idaho, Nebraska, Kansas, South Dakota, Tennessee, and Virginia, to name a few.

In others, the market is too regulated or small for businesses to succeed.

Medical CBD is legal in Mississippi, but you can only buy it from one of two government-run operations. Other states (Wisconsin and North Carolina, for example) have strict guidelines on who and how you can gain access to cannabis. Vermont and Maine have legalized recreational use cannabis, but do not have systems for cannabis retail set in place yet.

The following three states pose unique challenges to those looking to enter the cannabis market, and I’ll outline what makes each one so difficult.

Massachusetts: Local Bans and Delays

With Massachusetts legalization in 2018, the Bay State became the first east coast state to legalize recreational marijuana sales. But that legalization was only the first hurdle.

For starters, would-be entrepreneurs are very limited in where they can open a business in Massachusetts. Like California, Massachusetts allows local governments to decide whether or not they will allow cannabis retail. From a cannabis business’ perspective, this means either not being able to conduct business or navigating both state and local laws.

Right now, 80 counties and towns have banned the sale of recreational cannabis and 110 have prohibitively strict regulations. That leaves about half the state open to cannabis sales.

Additionally, there have been significant Massachusetts licensing delays. Though Massachusetts voted in favor of legalization in 2016, it took until late June and early July 2018 for the Massachusetts Cannabis Control Commission to issue the first production and dispensary licenses.

For small businesses, this has made it difficult to compete. The longer a state delays licensing and the first day of sales, the more rent businesses have to pay in one of the country’s most competitive real estate markets without making a single sale.

Additionally, licensing fees are expensive. A cultivator’s annual fees range from under $2,000 for the smallest available application to $25,000 for largest businesses.

Cannabis dispensaries pay $1,500 per application and $30,000 to submit their Management and Operations Profile.

This doesn’t mean that Massachusetts isn’t a blossoming marijuana market, the Massachusetts marijuana market is valued at $1.8 billion, but it does limit who can participate.

Ohio: Some Of The Highest Fees In The Country

Ohio legalized medical marijuana in 2016 and planned for fully operational dispensaries in September of 2018. But by February of 2019, only four of the state’s 56 licensed dispensaries were open for business.

Obtaining a license is also highly competitive. Out of 650 dispensary licensing applications, only 56 were chosen. The first Ohio medical marijuana dispensary license was issued in December of 2018.

And all these applicants had to pay some of the highest fees in the country. To submit an application, cannabis businesses in Ohio must pay a non-refundable $20,000 application fee.

On top of that, large grower applications that are accepted must pay a first time fee of $180,000, plus an annual licensing renewal fee is $200,000. For smaller cannabis businesses, annual fees are $20,000.

Dispensaries fees are also steep. If your dispensary application is accepted in Ohio, you have to pay $70,000 per year to maintain it, according to the Ohio Medical Marijuana program.

Not only was licensing postponed, but Ohio’s medical marijuana patient registry was delayed, too. It wasn’t until early December 2018 that patients could begin registering with the government. This means that the state’s medical marijuana market is new and small.

New York: Fees And A Surprisingly Small Client Base

With support from New York Governor Cuomo and a Democratic House majority, the Empire State could soon become the largest recreational use market in the country--just not yet.

As it stands, New York is one of the toughest states to start a cannabis business. Though the state has a population of 20 million, there are only 100,000 certified medical cannabis patients according to the New York health department.

It's also incredibly difficult to open a medical cannabis business. For starters, most dispensaries were licensed at the very beginning of the program in 2015, giving them a massive jump on the competition.

Additionally, a dispensary license in New York state costs a $10,000 application fee and comes with a registration fee of $200,000. This does not factor in that New York City, the state’s largest urban center, has the highest rents in the country and New York state has restrictive laws on where you can open a dispensary.

Even if you get a cannabis business up and running, it may be hard to stay in business. There are only 1,700 medical practitioners who give out medical marijuana licenses in New York for a population of 20 million people.

New York cannabis legalization will create a multi-billion dollar market according to the State Comptroller. But, for the time being, establishing a legal medical cannabis business is extremely difficult.

Tough Laws Often Mean Big Opportunities

Oregon, Washington, and Colorado have some of the most comprehensive weed laws because they were early to legalization. However, this also means that their markets are some of the most saturated.

In other words, the states with the toughest marijuana laws hold some of the biggest opportunities. If cannabis businesses can support the financial and legal burdens of starting out, they could capitalize on emerging East Coast and Midwest markets.

It isn’t a coincidence that some of the biggest, most profitable cannabis businesses come from more restrictive markets. Green Thumb Industries Inc (OTC: GTBIF) and Columbia Care are two good examples: The former recently went public and the latter is planning its IPO. Both succeeded in new and highly regulated markets.

In other words, prospective cannabis entrepreneurs should not overlook tough markets, despite how intimidating they may appear.

Scott McGovern is the founder of SEO firm Growth Nuts and Blocklr, a cryptocurrency media company. He is also known for starting Green Rush Daily, a popular cannabis media platform acquired by High Times, where he later served as Executive Vice President.

Image by Javier Hasse.

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© 2019 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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