3 Hidden Costs Cannabis Manufacturers Must Consider
Jul 22, 2020 12:34
The cannabis industry has seen an explosion of growth over the past few years, but it does have more costs than many typical startups. While many see the cannabis business as a modern-day gold rush, the startup and operating costs can often come as a shock to those who start manufacturing without doing the research. Some of these extra costs come from legal concerns, and others are inherent for businesses who deal with high value items. Learn what you might have to shell out for additional fees when you read on here.
1.Capital & Licensing Requirements
Like many highly controlled industries, the cannabis business does have annual applications and licensing fees. Depending on the state, applications can vary between $135 to $8,655 while yearly licensing ranges from $2,420 to $77,905. You’ll have to review the costs for your individual state to confirm your annual dues. If you’re approved, you’ll still have to pay the usual state and local permits to get your business up and running.
After applications and licensing are complete, you also need to consider the tax rate — which is very different from other goods. In California, for example, the state assesses the value of each individual part of the plant and demands taxes based on their assessment, even if you sold for less. Many counties and municipalities have additional taxes and fees, and some areas also apply a land use tax — even if the field is left unsown.
Like with many other businesses, providing proof of capital and assets is par for the course, but with cannabis the amount you have to show is much higher than you might think. Many states require holdings of two million dollars, with $500,000 liquid and available in your bank account.
When it comes to surprise costs, waste disposal is one that can come with jail time if not performed correctly. Everything from plant debris and ethanol waste to packaging leftovers must be disposed of properly. In fact, several cannabis businesses have already been indicted, charged, and fined with improper waste disposal. In some states, you could be looking at tens of thousands of dollars as well as six months in jail. Much of the effluence from cannabis manufacturing is hazardous, so many prosecutors and judges seek the maximum sentence in regards to waste disposal.
While you may have to pay a third party company to ensure you follow all local waste regulations, it’s still more affordable than the fees imposed by your state, the attorney and court costs, and any jail time you incur. Many of these companies specialize in hazardous material disposal and destruction as well as training your employees on proper procedures.
If you’re a manufacturer that also has a retail space for your products, the costs here have skyrocketed far above what you can expect for a normal brick and mortar store. While any other boutique can expect to spend between $50,000 and $150,000 to open, you’re looking at a minimum of $250,000 for a cannabis outlet — not to mention the costs for security personnel, camera setup, weapon detectors for some states, and alarm and warning systems. As a cash only business, your store needs much higher levels of protection than average.
Many cannabis business owners have hopes that as the industry grows, some costs will come down. For now, prepare yourself for the fees you’ll have to pay to start and run a cannabis processing and manufacturing facility.
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