How to Start a Marijuana Business in California

Thinking about starting an LLC in California? We’ve got all the details you need.

Begin by selecting a unique business name, appointing a registered agent, and filing your Articles of Organization with the California State Corporation Commission, which includes a $100 processing fee.

You can do this independently, consult with a business attorney for specialized legal guidance, or join the other 75% of our readers and hire a specialized California LLC formation service (recommended).

Zenbusiness (Starting at $0 Plus State Fees)

Northwest ($39 + State Fees)

Licenses/Permits You’ll Need

The primary licenses you’ve probably heard of by now are the Type 9 and Type 6 licenses, which are crucial for operating a dispensary in California, but each license caters to specific activities. Let’s explore them in detail, along with other potentially relevant licenses:

State-Level Licenses

The state-level licenses you need to start a marijuana business in California include:

Type 9 License in California (Retail): This license allows you to sell cannabis products directly to consumers through a storefront or delivery service. It covers activities like displaying, offering for sale, selling, and delivering cannabis goods.

Key requirements:

Background checks for owners and key personnel.
Detailed business plan and financial projections.
Proof of secure storage and handling procedures.
Local government approval.

Type 6 License in California (Distributor): This license permits you to transport and distribute cannabis products between licensed businesses within California. This includes transferring between cultivators, processors, retailers, and distributors themselves.

Key requirements:

Secure vehicles and procedures.
Track and record all cannabis deliveries accurately.
Pay applicable cannabis taxes and comply with reporting requirements.

Additional Licenses (Depending on Your Activities)

Here are some additional licenses you may need:

Type 1 (Cultivation): Allows you to grow marijuana plants for commercial purposes. Requires strict security measures, environmental compliance, and waste disposal protocols.
Type 2 (Manufacturing): Permits processing and manufacturing cannabis products like edibles, concentrates, and topicals. Adherence to food safety and quality control standards is crucial.
Type 3 (Testing): Authorizes independent labs to test cannabis products for potency, contaminants, and compliance with regulations. Requires specialized equipment and expertise.
Type 4 (Microprocessor): Catered to small-scale, craft-oriented businesses engaging in limited processing activities.
Type 5 (Delivery): Allows delivering cannabis products directly to consumers at their designated locations. Specific vehicle and safety protocols apply.

Local-Level Licenses

There may also be some local-level licenses you’ll need:

Local Business License: Mandatory from the city or county where your dispensary operates. Fees and requirements vary by location.
Zoning Permits: Ensure your chosen location complies with local zoning regulations for cannabis businesses. These can be complex and involve public hearings.
Other Local Permits: May be required for specific activities like signage, security measures, and environmental compliance. Check with your local authorities for details.

Do You Need a License to Make Edibles in California?

Yes, you need licenses to make edibles in California. Manufacturing cannabis edibles requires specific licenses, such as a mobile dispensary license. Here’s what you need to know:

License Requirements:

Type 6 (Distributor) License: While primarily needed for transporting and distributing cannabis goods, this license is also mandatory for manufacturing any cannabis products, including edibles.
Type 2 (Manufacturing) License: This license covers the manufacturing process, ensuring adherence to safety, quality control, and food safety regulations for cannabis products.

Some other licenses you’ll need:

Seller’s Permit: Needed to collect and remit sales taxes on your edible products.
Cannabis Tax Permit: Required to report and pay specific cannabis taxes, applicable to manufacturers as well.
Local Business License: Mandatory from your city or county.
Zoning permits: Ensure your chosen location complies with local zoning regulations for cannabis businesses.
Other local permits: May be required for specific activities like signage, security measures, and environmental compliance in your area.

Taxes Imposed on Marijuana Businesses in California

In California, marijuana businesses face several unique tax considerations beyond standard business taxes (income, state use, property, etc.). Here’s a breakdown of two key cannabis-specific taxes:

Cannabis Excise Tax

This is a 15% tax imposed on the retail sale price of all cannabis and cannabis products in California. It applies to medical and recreational sales and is paid by the retailer to the distributor.

Revenue generated from this tax goes towards various initiatives, including:

Regulation and enforcement of cannabis laws
Public education and awareness campaigns about cannabis
Research on the impacts of cannabis
Revenues for local governments where cannabis businesses operate

Retailers must report and pay the excise tax to the California Department of Tax and Fee Administration (CDTFA) on a monthly basis.

Cultivation Tax

This tax is levied on harvested cannabis that enters the commercial market. The rate is currently suspended through 2024, meaning no cultivation tax is currently being collected. We recommend that you keep yourself up to date, as the suspension may be lifted in the future.

When in effect, the cultivation tax was based on per square foot of canopy cover used for cultivating cannabis. The exact rate varied depending on the type of cultivation (indoor, outdoor, mixed-light) and was adjusted annually for inflation. Similar to the excise tax, revenue generated from cultivation tax supported initiatives like regulation, public education, research, and local government funding.

Starting any business can be a daunting yet rewarding journey. Whether you are starting a marijuana business in California online or offline, the steps outlined below will help you get started:

Step 1: Choosing a Business Entity and Type

Choosing the right business entity and type for your marijuana business in California is crucial, as it impacts your legal and financial standing. The following should help you decide the right one for you:

Sole Proprietorship

Simplest and least expensive structure, but no liability protection for personal assets.
Not recommended for marijuana businesses due to high risks and legal complexities.

General Partnership (GP)

Two or more owners share profits and losses.
No formal filing required, but unlimited liability for all partners.
Not ideal for marijuana businesses due to shared liability risks.

Limited Partnership (LP)

Two types of partners: general partners with full liability and limited partners with limited liability and limited control.
More complex structure, may not be suitable for smaller businesses.
Can be an option for some marijuana businesses, but consult a lawyer for suitability.

Limited Liability Company (LLC)

More simple and less expensive to set up and maintain compared to corporations.
More flexible management structure, allowing for different ownership percentages and voting rights.
May face difficulty raising capital through issuing stock.

Corporation

Established structure with clear shareholder rights and governance procedures.
Easier to raise capital by issuing different classes of stock.
More complex and expensive to set up and maintain compared to LLCs.

If you’re not sure which type of business you want to run, we highly recommend that you consult a legal professional.

Step 2: Reserve a Business Name

Once you have decided on the structure, it’s time to reserve a name for your business.

1. Check Name Availability

Before reserving a name, check its availability with the help of the California Secretary of State’s Business Search
This search helps you confirm if the name has already been taken by another business entity.

2. Choose a Reservation Method

Online: The most convenient option is to submit a Name Reservation Request online through the CA Secretary of State’s Business Filings portal.
Mail: You can also download and mail the completed Name Reservation Request form to the Secretary of State.
In Person: Visit the Secretary of State’s Sacramento office to submit the form in person (additional fees apply).

3. Complete the Name Reservation Request

Include your desired business name and up to two alternatives.
Provide your contact information and business entity type (likely LLC or corporation).
Pay the $10 filing fee online or include a check with your mailed application.

4. Processing and Approval

The Secretary of State usually processes applications within 5-8 business days.
You’ll receive a notification if your chosen name is approved and reserved.

5. Reservation Period

Your name reservation will be valid for 60 days.
During this period, you can file for your chosen business entity using the reserved name.

When starting the reservation process, remember that reserving a name doesn’t guarantee registration or exclusive use. You still need to file for your business entity to secure the name officially. Some local jurisdictions may also have additional naming requirements for marijuana businesses. Ensure your chosen name complies with California’s business naming regulations.

Step 3: Specify a Registered Agent Situated in California

You may have heard that a registered agent is necessary for you to open a dispensary in California, but what does that mean? Who can be that agent for your business? Let’s break it down:

What Is a Registered Agent?

A registered agent is an individual or entity responsible for receiving legal documents on behalf of your business. These documents would include:

Service of process: This informs your business of a lawsuit or legal action against it.
Annual reports: Required filings to maintain your business entity’s status.
Government notices: Official communications from state or local authorities.

Why Is It Mandatory in California?

A registered agent ensures that legal documents reach your business and that you’re properly notified of legal actions. They also provide a reliable point of contact for authorities and the public while upholding transparency and accountability within the business.

Who Can Be a Registered Agent in California?

Yourself: If you meet certain criteria like being a resident of California and available during business hours at your business address.
Another individual: Someone who meets the same criteria as above and is not an owner or employee of your business.
Registered agent service: A professional company specializing in providing this service for a fee.

For Marijuana Businesses

While you can act as your own registered agent, we recommend that you use a licensed commercial registered agent’s service because they have:

Specialized knowledge of cannabis regulations: They can ensure compliance with legal notices specific to the industry. Alternatively, you may also study and learn these in detail, though that comes with its own risks.
Guaranteed availability and reliability: They maintain dedicated office hours and ensure timely delivery of documents.
Experience navigating complex legal processes: They can be valuable if your business faces legal challenges, which is especially crucial for a business in the cannabis industry.

Don’t forget that to run a business, you need to: register a business entity (LLC is the most suitable option, more details here), obtain an EIN (you can apply online here), open a business bank account (more details here), understand accounting and taxes (more details here), and register a domain and create a website (this is optional, you can do it here).

Alternatively, you can delegate all of this to a registered agent starting from $0 + State Fees and get everything done in 1 day. This can save you time and ensure everything is done correctly, leaving you to focus on growing your business.

Apply Online

Step 4: Register With the California SOC

Once you’ve secured your desired business name through the CA Secretary of State (SOS), follow these steps to register it. These are generalized steps, so they should be applicable to more or less any type of business entity you choose:

1. Business Entity Formation

LLC: File Articles of Organization and create an Operating Agreement.
Corporation: File Articles of Incorporation, hold meetings, and issue stock certificates.
Sole Proprietorship: No formal filing required, but register your business name if desired.
Partnership: File a Statement of Partnership with the CA SOS (optional).

2. Federal and State Registrations

Obtain an Employer Identification Number (EIN) from the IRS if you have employees.
Register for California Business Tax with the CA Department of Tax and Fee Administration (CDTFA).
Obtain other state and local licenses specific to your business activities and location.

3. Compliance and Legal Expertise

Research and adhere to all state and local marijuana business regulations.
Consult with a lawyer specializing in cannabis law for tailored guidance and compliance assurance.

Step 5: Secure All Required Permits and Licenses

There’s a lot to consider when it comes to identifying and securing the licenses and permits your dispensary will need. The first thing you have to do is identify your business activities. Determine your business model (retail, cultivation, manufacturing, etc.) since this directly impacts the licenses and permits you’ll need.

The next step is to research state and local requirements. State-level requirements include:

Visit the California Department of Cannabis Control (DCC) website.
Review their licensing page and search for your specific business type.
Each license type has detailed information on requirements, application processes, and fees.

Local-level requirements include:

Contact your city or county clerk’s office for specific local licensing requirements.
These may involve zoning permits, signage permits, security clearances, and environmental compliance permits.

Understand License and Permit Overlap

Some licenses, like Type 6 (Distributor), cover specific activities across different business types – ensure you don’t have duplicate licensing needs within different categories.

Gather Necessary Documents and Information

Each license application requires specific documents and information outlined on the licensing agency websites. This can include background checks, business plans, security plans, financial statements, and more.

Submit Applications and Pay Fees

Similarly, each license application has its own submission process and fees. Be mindful of deadlines and processing times, as some licenses can take months to receive.

Secure Additional Insurance and Requirements

Many licenses require specific insurance coverage and compliance with regulations, such as track-and-trace systems. Make sure to research and fulfill these requirements before final approval.

Ongoing Compliance and Renewal

Unlike IDs, licenses and permits typically require annual renewal and ongoing compliance with regulations. Stay updated on changes and maintain accurate records for inspections and audits.

How Much Is a Distribution License in California?

Unfortunately, there’s no single, simple answer to how much a distribution license costs in California. The cost can vary significantly, but here’s what you can generally expect to pay:

Application Fee: All license applications in California require a non-refundable $1,000 initial fee.
License Fee: This is the yearly fee associated with holding the license itself. For a Type 6 Distribution license, the base fee is currently $5,000, but it can increase based on your business’s gross annual revenue (GAR):

If your GAR is under $1 million, the fee remains at $5,000.
If your GAR is between $1 million and $25 million, the fee increases to $25,000.
If your GAR is over $25 million, the fee becomes $50,000.

Is It Hard to Open a Dispensary in California?

Opening a weed dispensary in California is not an easy process as it requires a lot of time and effort. While the potential rewards can be high, the complexity, regulations, and costs present significant hurdles.

Getting multiple licenses, meeting state and local requirements, and navigating the ever-changing compliance issues demand thorough research, meticulous planning, and legal expertise.

Add to that the competitive market and financial investment needed, and it becomes clear this venture requires serious dedication and preparation.

How Much Does a Dispensary Owner Make a Year in California?

Determining the exact yearly income of a dispensary owner in California is tricky, as it depends on numerous factors. While some sources quote averages like $250,000-$500,000, reality is often different because of the following factors:

Revenue vs. Profit: Confusing revenue with profit leads to inaccurate estimations. Dispensaries have overhead costs like rent, employee salaries, inventory, and taxes, significantly impacting profit margins.

Location & Competition: Location plays a huge role. A dispensary in a densely populated area with high foot traffic could see greater profits compared to one in a less competitive market.

Business Model & Efficiency: Operating efficiently, managing costs effectively, and offering unique products or services can significantly boost profitability.

Market Fluctuations: Cannabis market trends and product prices can shift, impacting profits over time.

What Sells the Most at Dispensaries?

While there’s no one-size-fits-all answer, flower (dried cannabis buds) remains the strongest-selling category in most California dispensaries, accounting for roughly 50-60% of total sales. However, consumer preferences are changing, and other product categories are experiencing significant growth. Here are the top-selling products:

Flower: Still dominates due to familiarity, traditional use methods, and diverse strain options.
Concentrates: Gaining popularity for their potent effects and various formats (wax, shatter, live resin).
Edibles: Getting increasingly popular, especially as consumers seek discreet and controlled dosing experiences.
Pre-rolls: Convenient option for novice or time-pressed users, and sales are rising.
Topicals: Growing interest in CBD-infused creams, lotions, and patches for pain relief and wellness.

All of this doesn’t happen in a vacuum – whether these products will be the best sellers in your dispensary depends on the following:

Location: Customer demographics and preferences vary across California. Research your target market’s trends.
Product Quality & Sourcing: High-quality products from reputable sources attract and retain customers.
Pricing Strategy: Balancing competitiveness with profitability is crucial.

Ready to Start a Marijuana Business in California?

That’s all there is to know about starting a marijuana business in California. It’s not an easy process, but if you stick to it and stay committed to your vision, nothing will stand in the way of your success. The first thing you have to do is decide how you want to structure your business. Then, you need to reserve a name for your company. Make sure it’s something that’s unique and helps your business stand out.

After that, you have to hire a registered agent service company that will ensure that you’re always up-to-date on any legal documents that are sent your way. Once you have registered your name with the California Secretary of State and obtained all the necessary licenses and permits, you are ready to officially start your marijuana business in California.