September 6, 2023 12:00 pm ETEstimated Read Time: 4 Minutes
The sweeping cannabis legalization across U.S. states has inspired new business opportunities and national economic growth. These developments birthed a meaningful conversation to ensure gains from this fast-evolving industry are distributed equitably. This quest brought about the cannabis social equity founders, visionary entrepreneurs with a mission to correct the age-long injustices against cannabis and its users while championing the progress of the complex, ever-evolving baby industry.
However, these pioneers face a bunch of challenges. This article discusses three of the most prevalent hurdles cannabis social equity investors face.
Cannabis Equity Founders Consider High Entry Cost
It may take up to $500,000 to start up a cannabis dispensary in a state like New York, which makes funding a common problem among cannabis social equity initiatives.
Worse is, since the US federal laws still prohibit cannabis activities, these businesses are ineligible for credit facilities from financial houses and other investment tools, leaving potential investors with fewer funding options.
So, despite legal advancements in the cannabis industry, these entrepreneurs, often from marginalized communities disproportionately impacted by the war on drugs, face limited access to financial resources.
The high upfront costs of licensing, compliance, and operations add a layer of complexity to the lingering stigma around cannabis, lifting the bar against social equity startups.
Additionally, the competitive nature of the industry makes it harder for these struggling entrepreneurs to compete with well-funded corporations.
To address this capital bottleneck, there’s a need for targeted financial support through grants, low-interest loans, and collaborative efforts to ensure equitable participation and reduce the wealth gap within the evolving cannabis community.
Individual investors should discuss with an attorney vast in cannabis business laws for legal funding advice. While this may mean extra cost for your business, a good lawyer, savvy in cannabis business law, can help social equity investors explore more legal funding options.
Cannabis Equity Pioneers Address Taxes
Tax issues in the cannabis industry can be complex. Navigating federal and state taxes toughens the already harrowing financial journey of marijuana businesses.
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Also, too often, state and local excise taxes are designed to favor the bigger players, leaving small to medium-sized businesses in a bind.
In 2022, a group of Colorado cannabis businesses pleaded for a tax holiday to alleviate the strain distribution left on smaller operations, including social equity investors. In most states, there’s always a huge difference between wholesale prices set by regulators and actual market prices.
In the open letter to the Colorado Marijuana Enforcement Division (MED), the coalition explains that when the cannabis market slows down, growers still have to pay high taxes, even with less income. For instance, if a business sells cannabis for the usual price of less than $991 per pound, it spends over 15% on taxes, covering up the taxes for growers who sell at higher rates.
While it can be smooth sailing for larger cannabis businesses since there are no additional taxes on goods transferred from their grow farms to their retail shops, smaller players may have to settle contracts at rates different from actual market prices. This way, these small setups have to sell their products for less than their bigger competitors and may also be subject to a heavier tax burden.
Social equity founders understand the importance of starting their operations right. The slightest mistakes on basics like contracts or taxes can cause huge sustainability problems, which might lead to loss of money, employees, and even the business license.
In New York, for example, although social equity players get high priority for operation licenses, they face more hurdles than others in an industry that’s already hard to get into.
Competitors are always waiting to take over the operations of social equity founders who fall out of business. It is crucial to begin on the right foot and explore all available resources when starting a cannabis business.
Many states have special provisions to encourage social equity founders, such as advisory groups and grants. You can find meetings and conferences that focus on helping social equity investors in the cannabis world and other big events that feature experts on discussions that promote cannabis social equity programs.
And remember, making friends with other founders and companies within the industry is super valuable in the close and supportive industry. They can be trusted shoulders to lean on as you navigate the complicated and fast-changing world of cannabis.
Destiny Obasohan is a staunch advocate for cannabis legalization and education. He's committed to providing accurate and insightful information to help readers make informed decisions about cannabis use. When not writing, he’s exploring new strains, attending industry events, connecting with fellow cannabis enthusiasts, or teaching his Lhasa Apso some new tricks.
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