Starting a grow shop in California is a lot like starting any other kind of retail business. You need to obtain the necessary permits. More specifically, you need a seller’s permit to start a growers’ supply shop in California. Keep reading to learn more about the ins and outs of getting your business going.
- What are the laws in California for growing marijuana?
- How do I form a business in California?
- How do I open a storefront in California?
- How do I start an online store in California?
- Where do I find growing equipment and supplies to sell?
- How much does it cost to start a grower’s supply?
What are the laws in California for growing marijuana?
California has now legalized the use, possession, and home growing of recreational marijuana. That means that, in California, a person can possess up to an ounce of marijuana without any penalty, and can even grow up to six plants in his or her own home.
That doesn’t mean that marijuana laws don’t exist, however. People possessing more than an ounce of marijuana would face a misdemeanor charge, as would anyone trying to illegally sell marijuana. Anyone who decides six plants isn’t enough and is caught growing seven or more in their home would also get a misdemeanor and up to 6 months in jail (plus a $500 fine).
It’s important to not only know what you can and cannot do but what your customers can and cannot do legally. Commercial growers and home growers have completely different rights and responsibilities. If you have a customer asking you about home growing a large operation without it being detected, for example, it’s better not to answer. Don’t get caught advising a customer to do something illegal.
Download my free marijuana grow guide and start growing high quality strains
What you can and cannot sell in California
Most supplies and equipment are fully legal to sell without a special license. After all, marijuana growing is not much different than a regular garden. Specialized stores sell everything you’ll need, from soil and nutrients to CO2 supplements and grow lights. The only thing you should do is to search for is a supplier that can cover all of your needs.
As long as the number of plants is kept to six or fewer, it is legal to grow marijuana in your private home in the state of California. Growers must be 21 years of age or older, and not be participating in the California medical marijuana program.
Medical marijuana patients have some different rules. They are certainly allowed to grow their own marijuana at home, but for them, there are no specific limits. So, if you want to grow more than six plants at a time, your best bet is getting registered as a medical marijuana patient.
Commercial grower requirements in California
Commercial marijuana growers in the state of California need to apply and go through an expensive, extensive application process. They will also need to be free of any criminal record, plus verify the zoning in the location they would like to grow. A growing operation in California could be a good partnership with a growing retailer.
How do I form a business in California?
You’ll need to decide what kind of business entity you’re planning to undertake. Different businesses types have their own pros and cons. There are four prevalent forms of organization. Let’s look at them one by one.
- Sole proprietor – A sole proprietorship is a business owned by only one person (proprietor). It is by far the easiest and least costly among all types of ownership. However, there is a major downside: unlimited liability. This means that creditors of said business can go after the personal assets of the owner if the business is unable to repay them. As a result, sole proprietorship is often selected by small business entities.
- Limited partnership – Generally, a partnership is a business owned by two or more persons who contribute resources into the entity. The income of the company is then freely divided among the partners. A limited partnership (LP) means that partners are liable only to their investments in the company, meaning that owners can protect their personal assets if the company flops.
- LLC – In the USA, Limited liability companies (LLCs) are not considered corporations per se, as they are not incorporated. They are hybrid forms of business that combine characteristics of both a corporation and a partnership. However, owners enjoy limited liability like in a corporation and they can choose to be taxed as a sole proprietorship, partnership, or a corporation.
- Corporation – A corporation is a business form with is its own unique legal entity. Ownership in a stock corporation is represented by shares of stock, and the stockholders have a say in the company depending on the percentage of share ownership. Additionally, stockholders enjoy limited liability, but they also have limited involvement in the day to day operations. Corporations are controlled by the board of directors that is elected by the stockholders.
To be compliant with federal authorities, business entities need to have a federal tax ID or Employment Identification Number (EIN). In a sole proprietorship, owners can use their Social Security Number (SSN) instead of EIN. For other business types, an EIN is mandatory.
You can apply for an EIN online via the IRS website. There you will find other useful resources that will help you get started with your business.
State requirements for starting a business in California
To start a business in California, you will have to go through the California Department of Tax and Fee Administration. Find your nearby office to do it in person or register online.
You will have to give the following information when applying for your seller’s permit:
- Date of birth
- ID information (driver’s license, state ID, passport, etc.)
- Incorporation date, corporate number, and FEIN number (corporations and LLCs only)
- Bank information for the bank of your account
- Suppliers’ addresses and names
- Name of person maintaining your account
- Personal references (names and addresses)
- Estimated monthly sales average, taxable sales estimate
- Email address
- Other information
Local requirements for starting a business in California
Legal requirements for starting a cannabis business in the USA vary greatly from county to county and from city to city.
When you decide the location of your business, set up an appointment with your city clerk to discuss local ordinances. Maintaining a friendly public profile and an organized structure will help your business, especially in its first few months
Payroll requirements in California
Generally, businesses must report wages, tips and other compensation paid to an employee by filing the required form(s) to the IRS. Companies are also required to report taxes by filing Forms 940, 941 and 944 on paper or through e-file. Businesses which withhold federal income tax or social security and Medicare taxes must file Form 941, Employer’s Quarterly Federal Tax Return each quarter. This includes withholding on sick pay and supplemental unemployment benefits.
You will have to register for a new California employer payroll tax account number to get started. You can do so online by enrolling yourself as a new employer. Every time you hire someone new, that new hire needs to be reported to the NER (New Employee Registry). You can also do that online.
How do I open a storefront in California?
Some readers may opt to stick with online sales. If you’re planning to open an actual “brick and mortar” storefront, you’ll have a lot more to do. Depending on the type of your cannabis business, you’ll need to consider size, licensing requirements and more importantly, manage your finances efficiently.
State requirements for opening a storefront in California
In California, opening a storefront means that you are officially “engaged in business” in the state. Anyone who has a store, sales representative, or is receiving rental payments from a property within the state is engaged in business. Anyone engaged in business in California needs to apply for a seller’s permit through the CDTFA office.
Local requirements for opening a storefront in California
Location is the most important decision you’ll have to make.
If you’re planning on opening a storefront or warehouse, you need to look at local zoning and licensing requirements, building permits, etc.
Always consult local government agencies before you start. Get in touch with the people who can help you comply with the requirements. You’ll find that making allies rather than enemies of your local government agencies can be invaluable to your businesses.
How do I start an online store in California?
If you are planning to keep your business online, start with a website. Your website will become the face of your business! Don’t underestimate it.
The online version of your storefront is how you are going to attract many customers. Additionally, it is how you can best represent your “brand” to your customers. If you’ve got a marketing bone in your body, this is where you can shine.
Be sure your website is simple and attention-grabbing, giving the customer easy access to the information they would be looking for.
Warehouse vs. Dropshipping
When it comes time to deliver your products you’ll need to decide on the process. You can either stock and ship products in your own warehouse, or you can use drop shipping. Running a warehouse greatly increases complexity, bureaucracy, startup costs, logistics, legal requirements, and liability, as you are responsible for purchasing, transporting, storing and selling your products. Warehouse costs can be quite high, so many retailers start out with a drop shipping business model and expand later.
Drop shipping is a form of e-commerce in which the retailer is only responsible for the marketing and, sometimes, the customer service. The actual product is stocked and shipped by the manufacturer.
State rules for online sales
If your business is located within the state of California, any sales you make online are taxable. You will still need to apply for a permit as well as report and pay taxes, just as you would with any other kind of retail business being run in California.
Online stores can be as easy or complicated as you want to make them. It can be as simple as having customers mail a check, or as complicated as creating a merchant credit card account and payment gateway. The more you plan to invest in your company, the more robust a system you’ll want.
If you’re going to be working with a web developer—and we highly recommend you do—then you should discuss your options with more than one developer to get a sense of the advantages and disadvantages of each.
If you’re not working with a developer, you’ve got some serious homework to do.
Below are some of the top platforms for online sales:
- Shopify – Creating an online store with Shopify is simple and intuitive, even for people with minimal experience or no coding knowledge. Of course, ease of use comes at a price: monthly plans range from $29 to $179 depending on your specific needs. On lower tier subscriptions, Shopify takes a small cut of your sales.
- WordPress/WooCommerce – WooCommerce is essentially a “free” WordPress plugin, so it comes with all the advantages and weaknesses you get with WordPress as a web builder. While there are no costs to install basic WooCommerce, there are costs if you opt to completely integrate all aspects of WooCommerce. Any serious business should buy a license and technical support.
- Ebay – Tried and tested, eBay is easy to use and has been around for ages. The only requirements to open a store on eBay are to register and have a verified PayPal account. After that, you will be taken through a step-by-step process that will guide you through the platform.
- Amazon – The e-commerce behemoth offers a service for businesses who are interested in reaching more customers. Through Amazon’s Marketplace service you can sell products on the Amazon’s website. Although the service is not free, there are significant benefits in using it. For example, you can sell under the Amazon brand while they also take care of payment processing. If you wish, you can even have them deal with the fulfillment of orders through their shipping centers.
Where do I find growing equipment and supplies to sell?
Now that you have a store, you are going to need products to sell it! You can either sell supplies or equipment or both. To make money selling supplies you’ll need frequent ongoing sales. While focusing on equipment is more expensive, and you will rely on big orders to make a profit. Equipment also requires a lot more hand-holding and technical support.
There are four ways you can acquire the products and equipment: making it, manufacturing it, buying it wholesale, or dropshipping. Making it, in this case, is likely unrealistic, but if you happen to be a maker of grow lights, for example, then it would make sense. Otherwise, manufacturing makes more sense. To do this, you’d partner with a manufacturer. Manufacturing makes the most sense for businesses who want to form their own new product — again, this likely doesn’t make sense for you unless you have a brand-new product idea.
That leaves us with wholesale and drop shipping. Buying wholesale is simple — you are purchasing the products from manufacturers to sell it for a greater price in your store. The product designs already exist, so it’s a pretty safe way to go. This is also easier to get going faster.
Dropshipping is a different type of product acquisition. Instead of selling products that you already own, it involves selling products that you have not yet purchased. A customer orders a product from you, and you, in turn, order it from the supplier or partner. Then they ship the product directly to the customer “from” you. You’re still paying cheaper prices for the product, and whatever the customer pays goes to you. This allows for a greater selection of products, but the profit margins won’t be quite as high. Nonetheless, it is the least expensive way to get your business going right away.
Where to find equipment and supplies to sell
There are a lot of directories online that have valuable information about companies in the industry.
- Marijuana Business Daily Business Directory
With a little bit of Googling, you can find many more suppliers for your company. Remember that manufacturers are usually not that good at marketing so a little bit of imaginative research and diligence will get you far.
Where to find distributors
Consider joining an industry association and attending expos to connect with insiders.
Find out what similar companies are selling and contact the makers of those products directly.
The website for the National Association of Wholesaler-Distributors lists more than 100-member associations, so that’s a nice place to start.
Unlike super-specialized marijuana businesses, growing supplies are very easy to find on the web because they’ve been around forever. Some of the directories and wholesalers you can check out are:
- DL Wholesale
The wholesalers and distributors you will find will differ depending on the products you want to sell. Although there are places that offer all-in-one solutions, it pays to be knowledgeable about the equipment and supplies you sell.
How much does it cost to start a grower’s supply?
How much you invest in your business is up to you. You can start big, or you can start small. If you start small, prepare to be in it for the long haul and build a family business.
On the other hand, If you have money to invest or investors you might be able to build up and retire in 5 years.
Some of the expenses involved:
- Company setup (Corporation/LLC) – If you form your LLC yourself, you will just pay the state filing fees. The average in the US is about $136. If you hire a lawyer, it will cost you between $1,000 and $1,500. There are also online incorporation websites that will cost you anywhere between $100 and $900
- Office/warehouse space – The expenses related to the operation of an office/warehouse are largely dependent on where you are located. The average warehouse business/office costs between $10,000 and $50,000 to set up.
- Employees – Again, the costs for employees may differ dramatically from area to area. Every state has different legislation regarding employees, so be sure to check up with local authorities to determine the costs.
- Consultants – Costs of consulting services vary greatly. If you want to hire an independent consultant, the cost is entirely up to them. Firms are generally more expensive but offer a complete service packages.
Download the Free Harvesting Guide to learn more about when and how to harvest your Marijuana plants.