Making Sense of the Cannabis Industry

Many factors determine the cost of opening a cannabis business.

FREMONT, CA: The Cannabis industry is still young and growing. The US cannabis market generated about USD 10.8 billion in 2021 and will grow 14.9 percent annually from 2022 to 2030, according to Grand View Research.

Industry players still have ample opportunity to launch, grow and succeed in the cannabis space. This is largely due to the increasing acceptance of cannabis in the US and worldwide. Many states in the US have legalized recreational and medicinal cannabis, and more countries to follow suit in the coming years. This creates a big opportunity for entrepreneurs and investors to capitalize on the emerging cannabis industry.

The industry is nascent, providing investors ample opportunities to maximize its potential.

Regulatory landscape: The cannabis industry is still very uncertain. Aside from federal prohibitions, or perhaps because of them, different state frameworks have resulted in a fragmented industry across various states. Companies find expanding difficult due to vast differences in licensing and reporting. Because the industry is not federally recognized, many things are affected. Each state has its regulations. They are crafting programs specifically for their environment.

Fragmented policy: The lack of federal policy has created an experimental period where states borrow what works from one another and try to scrap what does not. It has resulted in a situation in which states compete to develop the best policies across various fields. This competition has helped spur innovation and creative solutions to problems the federal government still needs to address. While the federal prohibition creates much confusion and problems, this trial-and-error period has been positive for the industry's evolution.

Fewer deductions allowed: In the cannabis industry, taxation challenges differ from those other industries face due to cannabis' federal status. One is the Internal Revenue Service's Section 280E, which does not allow cannabis companies to deduct ordinary business expenses from their tax bills.

Infrastructure: It is necessary to test the potency and genetics of cannabis flowers, harvest the oils, and conduct ongoing research to understand their specific medical applications. Additionally, vape purveyors, edibles creators, and glass blowers are in high demand.

Licensing and permitting: Businesses that deal with plants must obtain licenses and permits. Applicants must outline policies and procedures, provide an overview of their organization's members and prove that what they say is accurate. These processes vary by state and can be quite arduous. It has become an essential skill set for consultants to balance a level of detail in applications of limited length.