Are you looking to become the next marijuana millionaire It’s a smart decision to get a piece of the rapidly expanding pot market. Marijuana Business Daily reports that the industry’s retail sales grew to $9.7 billion in 2018, up from $6.6 billion in 2017. This figure is expected to increase by 20% by 2022. Individual businesses are setting new standards for cannabis revenue. MedMen Enterprises, the nation’s largest cannabis-only company, reached a market cap record of $2 billion in 2018.
It’s not all good times. To be legally compliant in a complex industry like cannabis, people who want to start a business must have mastered the state regulations at law school. There are many laws that apply to cannabis businesses. They vary from one state to the next.
There are so many things to consider when starting a cannabis business. It is important that you choose a state where success is possible. This is why we compiled this list of 2019’s most favorable states for cannabis businesses.
Best States for Opening a Cannabis Business in 2019
Although there is a lot to take into account in this rapidly changing, young industry, we compiled our list using a few key metrics. We first looked at legalized recreational and medical marijuana. We then looked at the number of licenses that each state has for cannabis businesses and whether they are still available. We also examined application costs, average price per gram of marijuana, taxes, as well as market sizes.
These are the metrics that we used to determine our definitive ranking.
- Legal Environment (30%) We first looked at states that have legalized recreational and medical marijuana. But we also considered what types of businesses are permitted. These include growers/cultivators, manufacturers/processors, and dispensaries/retail shops.
- Ease to Market Entry (25%) We wanted to find out how many licenses were still available for new businesses in states where cannabis has been legalized.
- Market Entry Prices (20%) – Every state has its own application, registration, Cannabis Insurance, as well as capital requirements. All of these costs can vary from $250 to more than $1 million. Our ranking is determined by the lowest entry cost.
- Tax Climate (15%) Each state has its own tax codes and many of them affect cannabis businesses. We also considered excise and sales tax, which range from 0% up to 40%. Income tax was also taken into consideration, since some states may tax weed sales as income.
- Market Opportunity (10%) It is difficult to estimate the number of consumers in each state’s marijuana market using only national data. We used state population to determine market opportunity. The higher the number of potential buyers, the greater the chance for sales. We also looked at the average price per kilogram, which can vary widely from $6/gram up to more than $10/gram. These prices are indicative of market saturation as well as a measure for potential profits.
Here is our definitive list – the 10 best states for starting a cannabis business. There is also a table at end that ranks all states where cannabis has been legalized.
- 1 1. Oregon
- 2 2. Colorado
- 3 3. Michigan
- 4 4. Alaska
- 5 5. California
- 6 6. Massachusetts
- 7 7. Washington
- 8 8. Vermont
- 9 9. Nevada
- 10 10. Maine
- 11 Data Chart with a List of All 50 States
- 12 Methodology
- 13 Bottom Line: Best States to Open a Marijuana Business
Oregon has always been buzzing. Oregon is a pioneer in the fields of microbrews and coffee. Oregon, unlike California, which is weed-clogged, is affordable for starting and running a cannabis business. All types of cannabis businesses are eligible for applications. This means that it is possible to apply for a license for any type of cannabis business, with a $250 application fee. This is significantly lower than any state on our list except Washington. Oregon has the lowest marijuana sales price at $6.65/gram. However, there is no excise or sales tax.
Colorado is an easy place to get high. With a $4,500 application fee available to all types of cannabis businesses, it’s a state that’s ready for innovation in weed. The price per gram in Colorado is $7.14. This suggests that there might be over-saturation or strong competition. It’s not surprising, considering Colorado was the first state in 2013 to legalize recreational cannabis. However, weedpreneurs need to take heart: 2018 state revenue soared to $1.56 Billion due to the increased demand for cannabis. The bottom line is that Colorado still offers a huge ganja market.
Michigan was once considered the automobile capital of the globe, but is now the third best state to open a marijuana business. The average national cost to open a cannabis business is $6,000, which is just above the $5,000 average. It is a strong No. It is ranked No. 3 due to its high profit potential. This is in large part due the small 3% excise taxes and the higher than average sale price of $9.74/gram. It also has the second largest population of our top 10, making it a great market for new cannabis suppliers.
Alaska, one of the most wild states in the nation, is also fourth best for starting a marijuana business. There is an average cost of starting a cannabis business. The application fee is $5,000. All types of cannabis businesses are welcome. This includes both recreational and medical marijuana sales. Their average sales price is higher than the national average at $10.82/gram. This is due in large part to higher taxes–growers pay $50/ounce excise tax. The state does not have an income tax nor a sales tax.
California is not unfamiliar with cannabis. It has a long history of legalizing medical and recreational cannabis. We rank it fifth for its market potential. All cannabis business types are eligible for a $5,000 bond. Business applications can be made only by applying for a business application. However, the real draw is the customer base. California boasts a large market with over 39 million people and the highest national cannabis revenue at $2.75 Billion (as of 2018). This tax-rich state is still rich in cannabis business opportunities, despite a 15% excise and a recreational sales tax.
Boston bakes more than just beans. Massachusetts continues to be a beacon of innovation in 21st-century America, and it is now at the sixth position on our list for starting a cannabis business. Massachusetts has a $40,000 retailer licensing fee. This is higher than the $200,000 required for Illinois and Hawaii, which both require a license fee of $200,000 per cultivator. The 10.75% excise taxes are offset by a $10.18 average per-gram sales price. Massachusetts’ 2018 cannabis industry revenue was $106 million. This is a remarkable figure that still shows the potential for growth.
If applications for cannabis business licenses were open, Washington would be ranked higher. Washington will become a major hub for cannabis businesses once they reopen. Why? The lowest entry cost in the country is $250. This fee is the same as Oregon’s $250 application fee. However, they have the highest excise taxes at 37% for both recreational and medical cannabis. This has led to low sales prices of $6.81 per gram. The Evergreen state is a magnet for applicants who are keen to establish a foothold. With a low barrier to entry, it’s easy to see why.
While Ben & Jerry’s may be the first thing that comes to mind when people think about Vermont, this state is known for its cannabis-friendly culture and crunchy and progressive nature. The application fees for dispensaries, cultivation businesses and manufacturing companies are $2,500. However, there are currently only a few licenses and they are all taken. It would be a good idea to apply for any available licenses, since Vermont has a high average per-gram sales price at $10.78 and doesn’t have sales or excise taxes on medical marijuana or recreational marijuana.
Nevada, nestled in the Wild West of the United States, is our ninth-ranked state for cannabis businesses. Although the average cost of starting a cannabis company is $5,000, applications are currently closed. Nevada has a 15% excise duty on wholesale marijuana, and a 10% excise rate on retail for recreational and medicinal cannabis. There is no income tax on cannabis which helps to offset the excise tax.
Maine, self-described “vacationland”, may soon be associated with more than lobster and beautiful New England summers. It’s not easy to start a marijuana business in Maine, even if you’re familiar with the state as a tax-heavy nanny state. The application fee for medical cannabis is $300. However, the cost of each patient is determined based on the number of patients served. There is a limit of five patients per cultivator. An excise tax of 335 dollars per pound for mature and flower plants is also required. The $15,000 application fee for dispensaries is required and they also have to pay a 21.5% tax. It’s not surprising that Maine is No. 10 our list.
Data Chart with a List of All 50 States
The overall impediments to business success were used to rank our list. Therefore, the lower the score, the higher the ranking.
|LEGAL ENVIRONMENT||EASE OF MARKET ENTRY||MARKET COSTS AND TAXES||MARKET OPPORTUNITY|
|19- TIED W/RI||North Dakota||0.93||0.45||0.8||0.3||2.48|
|19- TIED W/ND||Rhode Island||0.93||0.6||0.6||0.35||2.48|
|28- TIED W/HI||Arkansas||0.93||0.75||0.76||0.35||2.79|
|28- TIED W/AR||Hawaii||0.93||0.75||0.76||0.35||2.79|
|37- TIED W/IN AND WI||Alabama||1.2||1.2||1.12||0.5||4.02|
|37 – TIED W/AL & Wi||Indiana||1.2||1.2||1.12||0.5||4.02|
|37- TIED WITH AL & IN||Wisconsin||1.2||1.2||1.12||0.5||4.02|
|40- TIED W/WY||South Dakota||1.2||1.2||1.12||0.6||4.12|
|40- TIED W/SD||Wyoming||1.2||1.2||1.12||0.6||4.12|
|41 – TIED W/SC & TN||Kentucky||1.33||1.2||1.12||0.5||4.15|
|41 – TIED W/KY & TN||South Carolina||1.33||1.2||1.12||0.5||4.15|
|41- TIED W/KY/SC||Tennessee||1.33||1.2||1.12||0.5||4.15|
|42 – TIED W/KS||Idaho||1.33||1.2||1.12||0.55||4.20|
|42 – TIED W/ID||Kansas||1.33||1.2||1.12||0.55||4.20|
Click here To view all data in our study, click here
We collected data across five broad metric categories: legal environment, ease of entry, cost, tax climate and market opportunity. The data was then analyzed, and each category was weighted.
Important to note is that although marijuana use in each state would be a central metric for our ranking, very little data is available. We decided to measure market opportunity using state population.
We first looked at the states that have legalized marijuana for medical and recreational use. The legal categories that the states fell under were then used to group them. This placed those who allow recreational and legal medical use at the top. We also looked at what type of cannabis businesses were legally permitted to operate in the state. The higher the ranking, the more businesses are allowed.
- Types Of Legal Cannabis – Legal marijuana can be classified into three types: medical, recreational, and CBD oil. In our ranking, all three were taken into consideration.
- Types of Cannabis Businesses Allowed – There are three main types of cannabis business types: growers/cultivators, manufacturers/processors, and dispensaries/retail. Each state has its own laws that regulate which business type is allowed.
25 % Ease of Market Entry
There are two types of licenses in each state: open and available. Open licenses refer to the number of licensed cannabis businesses in the state. Available licenses indicate the total number of licenses that are available. Unclaimed licenses refer to the licenses that are not yet claimed by a business. The states were grouped according to the type of legal cannabis they have.
- The Number of Available Licenses – Even though cannabis is legal in many states, there are many licenses that have been granted. This was an important factor in our ranking.
- Application Status We also considered how many states currently have available licenses that are accepting new cannabis business applications.
Market Entry Costs: 20 %
There are many costs involved in registering a cannabis company. You will need to pay application fees, licensing and registration fees, as well as required capital.
- Application Fees These fees can range from $250-$60,000 and don’t guarantee that your application will be approved.
- Registration/Licensing Fees – If your application is approved, many states then charge a registration or licensing fee. This fee can range from $10,000 to $125,000 depending on the state.
- Minimum Capital Requirements – Although it’s rare, there are some states that require businesses to have certain capital in order for them to obtain their license. The capital requirements vary from $150,000 to $1,000,000.
Tax Climate: 15%
Lower tax rates are better for cannabis businesses. They help to protect a healthy profit margin. To find the states that offer the best tax rates for cannabis businesses, we looked at both their sales and excise taxes rates.
- Excise tax –This state-imposed tax that businesses must pay for the production, distribution and sale of marijuana. It can vary by state and by intended use (recreational or medical). The excise tax rates vary from 0% to 37%.
- Sales tax – Although sales tax has a greater impact on the purchaser, it can also have an effect on the sales price and profit margins. Sales tax rates can range from 0% up to 10%.
- Income tax – A factor prospective cannabis businesses should consider is whether the income from cannabis is considered taxable income. Some states don’t have income taxes, which was a positive factor for many states on our list.
Market Opportunity 10%
Although it is difficult to quantify, we evaluated the market potential in each state using data such as population, revenue and average price per kilogram. Despite these important factors, it’s still difficult to quantify marijuana usage due to a lack of data. We gave this category a 10% weight due to the insufficient information.
- Potential Market Size and Population Size – Although there is not much information available on the use of marijuana in each state, a Marist survey has shown that 14% use it regularly. We used this baseline as a benchmark for all states and concluded that the greater the state’s population, it would be, the more likely that cannabis sales will occur. [http://maristpoll.marist.edu/wp-content/misc/Yahoo%20News/20170417_Summary%20Yahoo%20News-Marist%20Poll_Weed%20and%20The%20American%20Family.pdf]
- Competitive Landscape –We compared the average price pergram of cannabis and annual state revenue from sales to gain insights into market saturation.
Bottom Line: Best States to Open a Marijuana Business
You can avoid being caught up in the maze of regulations and taxes by finding the best state for opening a cannabis business. You want to live in a state that allows marijuana use, has low taxes, offers high prices, and has a large market. It is important to remember that marijuana laws are constantly changing and cannabis is still very much in its infancy. However, it’s clear that the green biz is on the rise.