The Business of Cannabis: Emergence of an Industry

The legalization of medical and recreational cannabis in many states has led to the emergence of a new and vibrant industry, which by all indications is only at its infancy. While the manufacture and distribution of cannabis is still prohibited federally, currently a total of 29 states have legalized medical marijuana, and eight states have also legalized recreational marijuana. The trend of state legalization is only expected to continue as polls indicate that 60% of Americans now support legalization.


Additionally, legalization of cannabis has resulted in an undeniable financial benefit for the states that have chosen to legalize. Such states are seeing substantial tax revenues from cannabis sales. For example, Oregon reported more than $60 million in state tax revenue from cannabis sales last year alone. Across the entire country, legal marijuana sales totaled $6.7 billion in 2016, and this number is predicted to reach $50 billion annually within a decade.


With California voting to legalize recreational marijuana usage in November 2016, many are jumping at the opportunity to become a part of this newly-legal, budding industry. In fact, the cannabis industry is expected to be worth $6 billion by 2020, in California alone, and accordingly to certain sources, Los Angeles is considered to be the largest cannabis market in the world.


Thus, opportunities are abundant, as more states are legalizing recreational marijuana usage and the social stigma attached to cannabis is vanishing. Indeed, many industries are beginning to expand their business operations and offerings to cater to this emerging and evolving market, including without limitation finance, accounting, legal, real estate, agriculture and others.


In California, the state legislature is preparing to roll out a number of new regulations. The state has a self-imposed deadline of January 1, 2018, to begin issuing licenses for recreational marijuana, and all regulations must be in place prior to this date. Currently, the California State Assembly and Senate have bills pending which encompass everything from advertising regulations to taxation structures for recreational marijuana. One of the primary tasks for the state legislature will be reconciling current medical marijuana legislation with new recreational usage.


The state already has several key agencies in place to oversee the cannabis industry. The Bureau of Medical Cannabis Regulation, a part of California’s Department of Consumer Affairs, was created to oversee testing labs, transporters, distributors, dispensaries and microbusinesses. Additionally, CalCannabis, a state agency within the California Department of Food and Agriculture, was created to issue licenses to marijuana cultivators, create a system to track marijuana from farm to dispensary, and to evaluate marijuana’s potential environmental effects.


And lastly, the Office of Medical Cannabis Regulation, a part of the California Department of Public Health, is tasked with licensing companies who manufacture cannabis products, including edibles. Most recently, Governor Jerry Brown’s administration proposed a plan that effectively merges existing medical marijuana legislation with new recreational marijuana legislation. The plan will need a two-thirds majority vote to pass, and has already been met with backlash by some groups who see the plan as too favorable to the recreational cannabis industry.


Ultimately, only time will tell what the final structure for medical and recreational marijuana in California will be, as January 1, 2018, is quickly approaching. One thing is for sure, the legislature will need to produce an organized and comprehensive structure to accommodate the enormous industry expected to take hold in California.


Business owners looking to transition into and comply with the incoming regulatory framework as well as new entrants looking to enter into the market should consult with experienced legal counsel to ensure compliance with the laws and establishment of effective business and intellectual property operations and strategies.


KHS assists clients in many aspects of the cannabis industry including without limitation business entity selection, formation and licensing; corporate offerings; joint ventures; intellectual property protection, enforcement and licensing; real estate consultation. The firm also provides comprehensive litigation services ranging from breach of contract, trademark and trade secret infringement, unfair business practices and more. KHS also has established relationships with affiliate firms with greater expertise on criminal and tax matters.