Buying a Cannabis Business – Part 1

Buying any business is a daunting proposition. Buying a cannabis business adds several layers of complexity on top of that. This series of posts will explore these complexities and help you to sort through your options.

The first task is deciding what kind of business you want and where to buy it. Fortunately, I have the where question solved for you: You want to buy it in Colorado.

Colorado easily has the most mature, developed cannabis industry anywhere on the planet, bar none. Yes, there are good programs being set up in other states (I especially like Oregon’s program), and it’s good to “get in on the ground floor,” but, believe me, everyone is on the ground floor. The difference is that in Colorado, the regulatory structure, while at times onerous or overbearing (and even preposterous), provides you with good legal security (at least at the state level), supports retail prices and provides a framework whereby you can get some sense of what the future holds for the business you’re about to buy.

Consider, in contrast, California, which has long had marijuana and therefore has a developed industry. California has no state regulator apparatus. That means that someday there probably will be one, and when that day comes you will be making some adjustments to your business practices–if you survive at all. For example, many companies in California deliver marijuana as their primary or only function. I believe that these businesses stand a good chance of being outlawed. Who wants to buy a company only to have it prohibited soon thereafter? You can’t pivot in that situation; you’re simply out of luck.

In Colorado, this is not a worry. What’s more likely here, where the regulatory agency (MED) has strict rules and regulations in place, is that services and products previously forbidden may become permitted at some point. Colorado is working from strict regulation towards looser regulations–the opposite of what will likely happen California. Colorado is your “where.”

What kind of business to buy is your next consideration. The answer to this question, thankfully, has more to do with your own preferences and proclivities. There are only a few kinds of licenses in Colorado that businesses operate under. On the medical side, they are:

  • Medical Marijuana Center
  • Medical Marijuana–Infused Products Manufacturer
  • Affiliated Business

On the retail (“adult use” or “recreational”) side they are:

  • Retail Marijuana Store
  • Retail Marijuana Cultivation
  • Retail Marijuana Test Facility
  • Retail Marijuana Products Manufacturer
  • Retail/Medical Marijuana Combined Use
  • Affiliated Business

All marijuana centers are further subdivided according to plant or patient volume, with three possible tiers–small, medium and large (called type 1, 2, or 3). It is possible to make money with any of these types of businesses (and it is possible to lose your shirt with any of them, too, but, you’re hopefully aware of this fact of doing business).

Right now, if you own a medical marijuana center you must also own a cultivation center. In other words, you must be vertically integrated. If you own a medical cultivation, you must own either a marijuana center or a manufacturing center. Recreational and test facilities can be stand-alone, and affiliated business are often-overlooked, but also often profitable and operating with a lower level of scrutiny. These types of businesses service the marijuana industry itself, and there are some clever ones out there. An affiliated business license is needed only if you plan to handle the plant in the course of your business.

That’s all for now; I will post the second part in the series, as I usually do: when I feel like it. Until then, be prosperous and stay safe!

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