Best States to Open a Cannabis Business

Businesses seeking to operate within the cannabis industry have come up against legal compliance issues with each state. From taxation laws and regulations, to licensing processes and banking options, these complexities present a daunting process for entrepreneurs in this space. Here’s what you need to know if you’re starting your own business in marijuana-friendly states.,

The “best state to open a dispensary 2022” is a question that has been asked before. The answer, as of now, is not known.

Interested in becoming the next marijuana millionaire? Getting a piece of the fast expanding pot pie early is a wise decision. Retail sales of marijuana increased to $9.7 billion in 2018 from $6.6 billion in 2017, according to Marijuana Business Daily, and are expected to quadruple by 2022. Individual firms are also hitting new revenue records; in 2018, MedMen Enterprises, the country’s largest cannabis-only company, had a market capitalization of $2 billion, a new high.

But it isn’t all sunshine and rainbows. Those intending to launch a cannabis company require law school-level understanding of state legislation to ensure they’re legally compliant in a sector filled with gray areas and red tape. The rules governing cannabis enterprises, as well as taxation, license availability, market demand, and community support, differ drastically per state.

With so much on your plate, it’s critical to start your cannabis company in a state where success is not just conceivable, but likely. That’s why we put up this comprehensive list of the most weed-friendly states in 2019.

In 2019, the best states for starting a cannabis business are:

In this ever-changing, young business, there’s a lot to consider, but we compiled our ranking based on a few crucial factors. Of course, we started with states that have legalized marijuana for medicinal and/or recreational use. Then we looked at how many cannabis company licenses each state provides and how many are still available. We also considered application fees, marijuana’s average cost per gram, taxes, and market sizes.

Here are the criteria we utilized to come up with our final ranking:

• Legal Environment (30%) – We looked at states that have authorized medicinal and/or recreational marijuana, as well as the sorts of marijuana enterprises that are permitted. Growers/cultivators, manufacturers/processors, and dispensaries/retail outlets are among them.
• Ease of Market Entry (25%) – We wanted to know how many licenses are still available to new firms in places where cannabis is legal, and whether it is presently feasible to apply for a cannabis company license.
• Costs of Market Entry (20%) – Each state has its own set of application, registration, cannabis insurance, and capital requirements. All of this may cost anything from $250 to over $1 million. On our list, the lesser the admission fee, the better the ranking.
• Tax Climate (15%) – Each state has its own tax law, and many of them apply to cannabis enterprises. We evaluated sales tax (varying from 0% to 10%) and excise tax as part of our rating (ranging from 0 percent to 37 percent ). We also evaluated income tax, since pot sales may be taxed as income in several states.
• Market Potential (ten percent) – It’s impossible to estimate the number of marijuana users in each state when only national data is available. As a result, we used state population as a barometer of market potential—the larger the customer base, the greater the prospective sales. We also took into account the average price per gram, which ranges from $6 to over $10 per gram; these prices are a gauge of market saturation as well as prospective earnings.

The top 10 best states to start a cannabis company are shown below, with a table at the bottom of the page listing all states where cannabis is legal.

1. Oregon

Bend, Oregon is a city in Oregon.

Around Oregon, there’s always been a buzz. In coffee, microbrews, and now cannabis, the pioneering state is the nation’s leader. Unlike its weed-strewn neighbor to the south, California, Oregon is a cost-effective place to establish and maintain a cannabis company. Applications for every sort of cannabis company are now available, which means you may apply for a cannabis business license right now for the nation’s lowest application price of $250. Except for Washington, this is far lower than any other state on our list. Although Oregon has one of the lowest cannabis sales prices in the US at $6.65 per gram, it also has no excise tax on medicinal marijuana, a lower than average excise tax of 3% on recreational marijuana, and no sales tax.

2. Colorado

Colorado’s Arches National Park

It’s easy to get high on life in Colorado, and with a lower than average application fee of $4,500 available to all cannabis business types, it is a state that’s ripe for weed innovation. Colorado’s price per gram, however, is very low at $7.14, suggesting that the state may be oversaturated and undercut by intense competition. Colorado was the first state to legalize recreational marijuana in 2013, so it’s not surprising. However, pot entrepreneurs should be encouraged: demand for cannabis in all forms increased to $1.56 billion in 2018. To summarize, Colorado still has a lot of ganja potential.

3. Michigan

Detroit is a city in the state of Michigan.

Previously known as the “auto capital of the world,” Michigan is now the third-best state in the country for starting a cannabis company. Applying to open a cannabis company will set you back $6,000, which is somewhat more than the national average of $5,000. However, it ranks third on our list owing to its significant profit potential, which is boosted by a minor 3% excise tax and a higher-than-average sales price of $9.74/gram. It also boasts the second-largest population among our top ten cities, providing a fertile ground for budding cannabis businesses.

4. Alaska

Alaska

Alaska, one of the country’s wildest states, is also the fourth-best place to launch a cannabis company. The typical cost of getting started is $5,000, and applications are accessible for all sorts of cannabis businesses, including medicinal and recreational marijuana sales. Their average sales price, at $10.82/gram, is greater than the national average, owing to higher tax rates—growers pay $50/ounce in excise taxes. On the plus side, the state has neither an income tax nor a sales tax.

5. California

Huntington Beach is located in the state of California.

Cannabis has a long history in California. With a lengthy history of approved medicinal and recreational usage, it ranks fifth on our list in terms of market potential. A $5,000 bond is required for all cannabis company applications, and applications are accepted in all categories. The big catch here is the consumer base; with a population of over 39 million people and $2.75 billion in cannabis sales, California has a large potential market (as of 2018). Despite a 15% excise tax and a sales tax on recreational usage, this tax-heavy state has a plethora of cannabis-related business options.

6. Massachusetts

Boston is a city in Massachusetts.

In Boston, baked beans aren’t the only food on the menu. Massachusetts maintains its revolutionary heritage in the twenty-first century by ranking sixth on our list of best states for starting a cannabis company. Massachusetts has a $40,000 retailer license cost, which is very modest when compared to states like Illinois, which requires a $200,000 cultivator licensing fee, and Hawaii, which charges $100,000 per dispensary facility. Their 10.75 percent excise tax is mitigated by a $10.18 average per gram sales price, which is among the highest in the country. In 2018, Massachusetts’ cannabis firms brought in $106 million in sales, an amazing statistic that demonstrates there’s still room for expansion.

7. Washington

Seattle is located in the state of Washington.

If applications for cannabis companies were now available, Washington, the weed-obsessed state, would rank higher. Washington will be a goldmine for marijuana firms once they reopen and it is feasible to seek for a cannabis license again. Why? With a $250 application fee, they have the lowest cost of entrance in the country—the same as Oregon, which is ranked first on our list. On the other side, they have the highest excise tax rate on both medicinal and recreational cannabis, at 37 percent, and fierce competition has kept costs low, at $6.81 per gram. Applicants are still eager to acquire a footing in Washington, and with such a low bar to entrance, it’s easy to understand why.

8. Vermont

Vermont’s Burlington

Ben & Jerry’s might be what first comes to mind when many think of Vermont, but this crunchy and progressive state makes our list for its cannabis-friendly business culture. Application fees are only $2,500 for dispensaries, cultivation operations, and manufacturing businesses, but they currently have a very limited number of licenses available and all of them are spoken for. If any open up, it would be wise to apply, as Vermont has a high average per gram sales price of $10.78, and does not currently have excise or sales taxes on either medical or recreational marijuana.

9. Nevada

Las Vegas is a city in Nevada.

Nevada, located in the United States’ Wild West, is ninth on our list of the best states for cannabis companies. Despite the fact that the expenses of operating a cannabis company are on the average, with a $5,000 application fee, applications are now closed. Nevada likewise has a 15% wholesale marijuana excise tax and a 10% retail marijuana excise tax for both recreational and medicinal marijuana. The good news is that cannabis is exempt from income tax, which helps to balance the excise taxes.

10. Maine

Ogunquit is a town in Maine.

Maine, the self-proclaimed “vacationland,” may soon be known for more than lobster and idyllic New England summers. Those who are familiar with Maine as a nanny state (i.e., tax-heavy) will not be shocked to learn that running a cannabis company here isn’t cheap. While the application price is just $300, it is calculated on the basis of each patient served, with a maximum of five patients per farmer. In addition, there is a $335 excise tax per pound of flower and mature plants. Dispensaries must pay a $15,000 application fee and a 21.5 percent excise tax. Maine is ranked No. 10 on our list because of its hefty fees and taxes.

With a list of all 50 states, there is a data chart.

Overall barriers to company success were used to calculate ranking on our list; hence, the lower the total score, the higher the ranking.

To view all of the data used in our research, go here.

Methodology

We gathered data in five main statistic categories to discover the top states for starting a cannabis business: legal environment, ease of market entrance, prices, tax climate, and market potential. The data was then examined and weighted according to the relevance of each category.

It’s crucial to emphasize that marijuana usage in each state would ideally be a major criteria in our ranking, but there isn’t much data on this. As a result, we elected to consider state population as a proxy for market potential.

30 percent of the legal environment

First and foremost, we investigated which states have made marijuana legal for both recreational and medicinal purposes. States were then categorized according to their legal status, with those that allow both medicinal and recreational use at the top of the list. We also looked at the sorts of cannabis companies that are permitted to operate lawfully in the state. The higher the rating, the more business is authorized.

• Types of Legal Cannabis – There are three types of legal cannabis: recreational, medicinal, and CBD oil. All three were taken into account while determining our rating.
• Allowed Cannabis Business Types – Growers/cultivators, manufacturers/processors, and dispensaries/retail are the three basic categories of cannabis businesses. The legality of each of these business categories is regulated by state legislation.

Easy to enter the market: 25%

There are two types of licenses in each state: available and open. The entire number of cannabis firms that may be awarded a license to operate in the state is known as available licenses, while open licenses are those that have yet to be claimed by a company. The states were classified by the categories of legal cannabis and then ranked by which had licenses available and open right now.

• Number of Available Licenses — Even in places where marijuana is legal, the overall number of licenses issued varies significantly; this was a major factor in our ranking.
• Application Status — We also looked at how many of the states that have open licenses are presently accepting new cannabis company applications.

Costs of entering the market: 20%

The cost of registering and applying for a cannabis company varies substantially. Fees for application, registration, and licensing, as well as needed capital, may range from a few hundred dollars to over a million dollars.

• Application Fees – Application fees vary from $250 to $60,000, and they do not ensure that your application will be granted.
• Fees for Registration and Licensing — After your application is granted, several states charge a cost for registration or licensing. This cost might vary from $10,000 to $125,000, depending on the circumstances.
• Required Available Capital — It’s not typical, but a few jurisdictions require a company to have a particular amount of cash on hand in order to get a license. The required capital ranges from $150,000 to $1,000,000.

15 percent tax climate

The states with the lowest tax rates are the ideal for starting a cannabis company since they assist to ensure a solid profit margin. We looked at the excise tax and sales tax rates in each state to see which ones left companies with the most money after taxes.

• Excise Tax — This is a state-imposed tax that companies must pay on marijuana cultivation, distribution, and sale. It changes depending on the condition and the intended application (i.e., recreational or medical). The excise tax rate varies between 0% and 37%.
• Sales tax – While sales tax affects the customer more directly, it may also effect the sales price and, as a result, profit margins. The rate of sales tax varies between 0% and 10%.
• Income Tax – Another thing to consider for aspiring cannabis enterprises is whether or not cannabis earnings is considered taxable income. Some states have no income tax, which was a plus for many of the states on our list.

10 percent market opportunity

We looked at market potential in each state based on population, revenue, and average price per gram, which was more difficult to estimate. While these are essential characteristics, the dearth of accessible data makes it impossible to measure marijuana usage. We only assigned this category a ten percent weighting due to a lack of information on utilization.

• While there is presently little to no credible statistics on marijuana usage by state, a recent Marist poll found that 14 percent of adults in the United States use marijuana on a regular basis. Using it as a starting point for all states, we hypothesized that the bigger a state’s population, the greater the potential for cannabis sales. [http://maristpoll.marist.edu/wp-content/misc/Yahoo% 20News/20170417 Summary% 20Yahoo% 20News-Marist% 20Poll Weed% 20and% 20The% 20American% 20Family Marist% 20Poll Weed% 20and% 20The% 20American% 20Family Marist% 20Poll Weed% .pdf]
• Though data on cannabis companies per capita isn’t accessible as a measure of competitiveness, we compared the average price per gram of cannabis, yearly state income from cannabis sales, and population size to obtain a sense of market saturation.

Conclusion: The Best States to Start a Marijuana Business

Finding the ideal state in which to start a cannabis company will keep you out of the weeds, or lost in a labyrinth of taxes, laws, and application costs. In an ideal world, marijuana usage would be allowed in a state with open applications, cheap taxes, high sales prices, and a big market. It’s crucial to remember that cannabis is still in its infancy in the United States, with legislation changing all the time. Green business, on the other hand, is unquestionably expanding.

The “best location for dispensary” is a question that is asked often. There are many factors to consider when opening a cannabis business, including the state in which it will be located.

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