The Colorado cannabis industry is booming.
State-wide cannabis sales topped out at more than $1.7 billion in 2019 alone. The industry has generated more than $7.7 billion in the past five years, and it shows no signs of slowing down.
As more and more would-be “cannapreneurs” enter the space, many aspiring founders are looking into how to start a marijuana growing business in Colorado.
Cultivation is an especially competitive niche within the broader cannabis industry, for two main reasons. First off, licenses for cultivation are limited in several municipalities (for instance, Denver has instituted a lottery system). Secondly, the rigorous and expensive application process tends to weed out a lot of aspiring cannabis cultivators.
Currently, the Colorado Department of Revenue’s Marijuana Enforcement Division lists somewhere around 460 licensed medical marijuana cultivators and approximately 680 licensed retail marijuana cultivators in the state. Many more would-be cultivators are clamoring to get licenses and start growing so they can capture a big slice of the ballooning cannabis pie.
While fierce competition can make it challenging to enter the marijuana growing space, those fortunate enough to survive the licensing process will enjoy plenty of perks thanks to that very competitiveness. Because cultivation licenses are limited, cultivators can often control pricing and sell large volumes of product.
If you’re more intrigued than scared, then you might just have the audacity needed to start your own grow operation! Here’s a thorough overview of how to start a marijuana growing business in Colorado — consider this article your testing ground for what lies ahead. If you can make it through this piece, then you might just have what it takes to survive the licensing process and enjoy success as a cannabis cultivator.
Prior to Licensing
You might be excited to start buying seeds and growing some plants, but there’s a long road ahead before you get to the actual “growing” part of starting a marijuana growing business. Much of the work of starting up your business will happen up front — before you even press seeds into soil.
That’s because there’s a lot of bureaucratic red tape surrounding the cannabis industry, and you’ll need to make your way through it all (read: obtain proper licensing) before you can fully invest in your grow operation.
Here’s an overview of the primary steps you’ll want to follow in order to maximize your chances of successfully obtaining a license.
Know the risks (and consult an attorney).
Even though cannabis is legal in a growing number of states and countries, it’s still illegal at the federal level in the United States. This means starting a cannabis growing business comes with some unique risks — even in a legal state like Colorado.
For instance, there are federal minimum sentencing laws for cultivating more than 99 or 999 cannabis plants, and there have been instances of the Drug Enforcement Agency (DEA) removing all cannabis from a business or sending asset forfeiture letters to landlords who rent to dispensaries or grow operations.
Clearly, plenty of growers maintain cultivation businesses in legal states without facing federal prosecution. Nevertheless, the cannabis industry does operate within a legal gray area these days, and it’s important to know what kind of risks that entails. Some people will be more or less comfortable starting up a business that comes with those risks.
To minimize your own risks, it’s a good idea to consult an attorney with experience in the cannabis space who can provide consultation during future phases of your start up.
Decide: medical or recreational?
As you start investigating the world of Colorado cannabis cultivation, you’ll face an important question: Do you want to operate in the medical or recreational space?
Be aware that medical growers in Colorado are required to own and operate their own dispensary in order to obtain cultivation approval. Recreational growers don’t face the same requirement. This is just one example of the different regulations you’ll face depending on how you choose, and those regulations will affect everything from the licensing process to your business plan, target customers, and projected costs and income.
You might have personal or business-related reasons for wanting to enter the medical or recreational space. No matter your preference, this is an important decision that will shape the arc of your business moving forward.
Prepare yourself financially.
Even before you start investing in infrastructure and seeds for your grow operation, you’ll face a lot of up-front expenses.
Simply applying for a state license will cost thousands of dollars. Expect to pay around $4,000 for a new application fee and possibly several thousand dollars more to complete the application process — for instance, a marijuana transporter license application will cost another $4,900, and a local license application will probably cost around $2,500.
This will be the beginning of a long and costly startup process, and you’ll need to be prepared to fork over cash at every stage. If your license is approved, growing 1,000 plants in a 7,700-square-foot facility (for example) could cost around $800,000 or more to get off the ground. Additionally, cannabis businesses pay higher taxes than regular businesses, because they’re not eligible for the same federal tax credits.
Before you get too far along in the process, it’s important to know where all that money will come from. You might consider looking into cannabis startup incubators or seeking investor funding through another channel.
Research your desired location.
As with any business, it’s important to scout your desired location before putting down roots (in this case, literally!). At a minimum, you’ll want to research:
- The laws in your desired municipality. Local regulations vary across Colorado. For instance, the Boulder County Marijuana Licensing Authority generally accepts applications on a rolling basis; you can learn about its processes here. In Denver, growing operations are subject to a lottery process; an overview of Denver application requirements can be found here.
- Available growing spaces for rent or sale, and the infrastructure contained therein. Be aware that in Colorado, producers must grow cannabis in a secured, enclosed location. You’ll need to find a space that meets the legal requirements and that offers enough room to scale your operation over time. Also make sure the location(s) is zoned properly and that there’s adequate ventilation, light, temperature control, and so on.
- Competitors in your area. Is there high enough demand to support a new operation in your intended location? Do you have unique skills or resources that could help you stand out from the pack? Be diligent about your research at this stage to increase your chances of success later on.
Consider hiring a consultant.
By now, you might be starting to grasp just how complicated this process can be!
If you have the funds available (and you should, because you’ve already prepared yourself financially), then it’s incredibly helpful to hire a consultant who can guide you through the application, licensing, and startup process.
If possible, seek out a consultant who’s worked in your desired municipality. They’ll be able to advise you about laws and other considerations that are specific to your location.
Assemble your team.
At first glance, you might be wondering why this step would come before the licensing process. After all, why bother putting together a team if you don’t even know whether your business will get off the ground?
Here’s why: Per the legal folks at Robinson & Henry, your team will constitute an important point of consideration during the application process — and they can make or break it.
To increase the chances of getting your application approved, everyone on your team should meet these minimum criteria:
- Everyone involved must have a clean record and must be prepared to pass a criminal background check. Team members must not have any convictions involving controlled substances for at least 10 years, and any felony convictions must have been discharged for a minimum of five years.
- Everyone on your team must be at least 21 years old.
- Your founding members must have resided in Colorado for at least two years. (The law here is a little gray, so this is a great time to consult an attorney if you don’t meet this requirement!)
- Your team should have demonstrable industry experience, and it should be well-rounded — meaning you’ll want to show that you’ve planned for all relevant positions, including horticulturalists, accountants, legal counsel, business managers, and so on.
Draft a business plan.
Of course, it’s challenging to draft a detailed business plan when so many details are still, well, completely up in the air. But it’s important to try!
Colorado review boards aren’t shy about rejecting applications that don’t appear to be well thought through, so it’s important to do this thinking before you submit your application.
At a minimum, your plan twill need to demonstrate that you’ve considered:
- State and local laws
- Ownership structure
- Business costs
- Production processes
- Sales projections
- Customer acquisition strategies (e.g. marketing plans)
- Your company’s unique value proposition
- Testing protocols
- Suppliers
- Legal counsel
- Security and traceability
- Compliance
- Site plan review
- Employee training
- Transportation logistics
- Waste removal
Again, it’s smart to work with a consultant and/or attorney during this stage of the process.
Register your business.
This is one of the rare times that you don’t have to think much about cannabis-specific factors and can simply follow general guidelines for registering a business. To that end:
- Decide on a business entity, such as an LLC or a corporation. It’s definitely a good idea to consult an attorney while making this decision.
- Select a name for your company, confirm that the name is available using these simple tools, and pay the relevant fee to secure your company name.
- Apply for an Employer Identification Number (EIN), aka a business tax ID.
Apply for licensing.
Alright, here’s where the rubber really meets the road!
As noted above, you’ll need to apply for licenses at both the state and local level. Local requirements will depend on your desired location, so you’ll need to research them separately.
Here’s some basic info about the licensing process at the state level:
- State licensing is overseen by the Colorado Department of Revenue’s Marijuana Enforcement Division (MED). The Division is headquartered in Lakewood, CO and also has offices in Colorado Springs, the Denver Metro Area, and Grand Junction.
- You can learn more about MED Compliance and research forms and application processes here. Again, make sure you cross-reference state laws with the laws in your desired municipality.
- Once you’ve completed and submitted all the necessary paperwork, you’ll schedule an appointment with MED. Be sure that all of the business’s part-owners are present, bring copies of all documentation, and bring along personal identification.
If your application is approved, then all of the owners will need to be fingerprinted. And then you get to pay all the licensing fees!
After Licensing
Whew! If you’ve made it to this point, you’re probably ready for a vacation. But in some ways, the work is just beginning.
The good news is that the next steps will involve less paperwork and more concrete steps toward turning your marijuana growing business into a reality.
Outfit your grow site.
You already identified a grow site earlier in this process. Now’s the time to outfit the site to your exact specifications.
If you’ve put together a rock star team, then they’ll have strong preferences about the appropriate setup. Here are some of the most important factors your team should consider while setting up the operation:
- Electricity. This will be your facility’s primary expense, so it’s important to think carefully about this aspect of your infrastructure. So many elements of your operation will rely on electricity, from artificial lighting to dehumidification, fans and other temperature control equipment, ventilation, irrigation control systems, and more. One of the primary considerations here is whether you want to use LED or HPS (High Pressure Sodium) lights. It’s also worth investigating opportunities to utilize solar power.
- Going green. If the cannabis industry doesn’t want to be rocked by climate change, then it needs to do its part to minimize energy consumption and greenhouse gas emissions. To that end, consider recycling water, collecting rainwater, utilizing organic soils, investing in solar or wind power, and so on. These practices are good for the planet and your company’s bottom line.
- Space. If you’re growing plants in pots, plan for each plant to be grown in a 5- or 10- gallon pot at a minimum. (Cannabis roots like to spread out.) Knowing this and your grow site’s dimensions will help you determine how many plants you can grow at one time.
Keep investing in your team.
As you outfit your operation and watch your budget evolve, you’ll get a better sense for whether you have the need and/or capacity to bring on more team members.
Whenever you acquire new team members, make sure you send each employee through the proper licensing process.
Colorado has two types of employee licenses for the cannabis space:
- Key Employee licensing designates an employee who makes operational or management decisions
- Support Employee licensing is required for employees who work for the company but don’t make operational decisions
Refine your cultivation plan.
You already developed some cultivation plans while drafting your business plan prior to the licensing process. Now, it’s time to refine that plan so you can execute it with efficiency and precision.
Here are some pointers for doing just that:
- Select your plant starters. You can kickstart the actual growing process from clones or from one of several types of seeds. Clones typically allow for a faster growing process, but they’re also more prone to developing mold or diseases. When it comes to seeds, you can choose from regular seeds (which are the most reliable but which will include non-flowering male plants), feminized seeds (so you don’t waste time or resources on tending male plants, which aren’t useful in this context), or auto-flowering seeds (which flower on their own, without you having to adjust their light cycles). If you’ve assembled the right team, they’ll have an informed opinion about which option you should pursue.
- Select a growing medium. Cannabis can be grown in soil or hydroponically. Hydroponic systems tend to be more affordable, but they’re also not as well suited to a commercial-scale operation. If you opt for soil, keep in mind that growing 100 plants in 10-gallon pots will cost around $1,500 for organic soil and around $1,000 for the pots.
- Make sure you have the necessary equipment not only for the growing process, but for the stages that come after it: harvesting, drying, trimming, curing, packaging, and distribution.
- Plant for safety testing. Because people will be ingesting your products, you have a legal and moral responsibility to make sure your cannabis is as safe as possible. A key element of that safety plan is testing your products before distribution. Bonus points for sending your products to a third-party tester so there’s no risk of bias.
Plan for ongoing compliance (including security).
Security and compliance are lumped under the same category here, because they often go hand in hand.
For example, in order to be compliant with Colorado state laws, grow operations must create detailed security plans, including maps of the exact location and number of security cameras located within the operation. That’s just one of the many rules required of marijuana growing businesses.
Effective January 1, 2020, MED has released its comprehensive Regulated Marijuana Rules. The document is nearly 400 pages long, so we won’t outline the whole thing here! But suffice it to say, it’s your responsibility to be aware of all the rules contained in those pages and execute a plan to comply with them.
Security will be an important component of that, which is why we’ve highlighted it here. But it’s not the only way in which you’ll need to make sure your grow operation is and continues to be compliant.
Starting a Marijuana Growing Business in Colorado: The Bottom Line
As you can see, starting a marijuana growing business in Colorado is not for the faint of heart. But that’s not to say it isn’t a worthwhile endeavor!
This just means you’ll need to put in the legwork necessary to develop a solid business plan, solicit financial support, obtain proper licensing, cultivate a great team, and apply sound horticultural knowledge to the actual growing process.
If you’re feeling a little overwhelmed, it helps to take a long view. While cannabis cultivation is far from a low-risk hustle or a “get rich quick” scheme, there are plenty of highly successful companies that prove this can be a great space to enter if you’re equipped to do it right and you’re patient enough to clear some red tape.
So put in your research, surround yourself with a knowledgeable team, and buckle up for a long but rewarding ride on your path to commercial cannabis cultivation!