The Control, Regulate and Tax Adult Use of Marijuana Act (AUMA) earned approval on November 8, 2016, legalizing adult recreational use of marijuana on January 1, 2018. The legalization of cannabis means that many people are now excited to try and open businesses that will produce and sell various marijuana products to their customers.
The California Secretary of State supports businesses throughout the state by registering all business entities and processing millions of filings and records requests each year. The Secretary of State’s office will be the first stop for many people seeking to establish cannabis-related businesses, but filing organizational documents alone will not provide a business with the necessary licenses to conduct commercial cannabis-related activities and there are many additional steps that must be taken.
Choose Your Entity Type and Business Name
The first step in creating a cannabis-related business is deciding which kind of entity you want to operate. The Secretary of State notes that possible business structures include:
- Corporation
- Limited Liability Company
- Limited Partnership
- General Partnership
- Limited Liability Partnership
- Sole Proprietorship
Register the Business with the Secretary of State
Certain types of business entities must be registered with the California Secretary of State, and they must file organizational documents with the Secretary of State and pay all appropriate fees. Corporations, limited liability companies (LLCs), limited partnerships (LPs), and limited liability partnerships (LLPs) must register, general partnerships are not required to register but can do so if they so desire, and sole proprietorships are not required to register.
Register a Business Name
There may be situations in which a business decides to conduct business under a name other than its legal name, and some may be required to do business under a different name to obtain business licenses and permits. Any fictitious business name will be filed with a county clerk or recorder where the business is located.
Obtain Necessary License, Permit, or Authorization
Filing organizational documents with the California Secretary of State alone will not provide a business with the necessary licenses to conduct cannabis-related activities. California has a dual licensing system and cannabis businesses will be required to obtain a city, county, or city and county license, permit, or other authorization, before a business can apply for a state license.
A person needs to check with their local city and county in which the cannabis-related activities will take place to determine what steps their business will need to take to obtain a required license, permit, or other authorization for cannabis-related activities.
Obtain a Seller’s Permit and Cannabis Tax Permit from the California Department of Tax and Fee Administration
Any person selling cannabis or cannabis products must register with the California Department of Tax and Fee Administration (CDTFA) for a seller’s permit. Cannabis cultivators, processors, manufacturers, retailers, microbusinesses, and distributors making sales must obtain and maintain a seller’s permit as a prerequisite for applying for a license with the Department of Cannabis Control.
Distributors of cannabis and cannabis products also need to register with the CDTFA for a cannabis tax permit to report and pay two new cannabis taxes to the CDTFA. A cannabis tax permit will be in addition to a seller’s permit.
Obtain Required State License
If cannabis-related activities that a business will be engaged in require a state license, a person must apply for and obtain any required state license(s) before conducting cannabis-related activities. The Department of Cannabis Control is the state agency charged with licensing cannabis-related activities.
Employer Responsibilities
When a person intends to have employees for their business, they must register their business as an employer and obtain a federal Employer Identification Number (EIN). Employers have various obligations to consider, such as payroll taxes, wage withholding requirements, matching employer withholding requirements and employee employment eligibility requirements, as well as requirements for State Disability (workers’ compensation) Insurance, Unemployment Insurance, workplace safety and health regulations and equal employment opportunity.
Tax Information
Numerous agencies administer many taxes for businesses in California and should be consulted to determine any obligations that a business could have. These agencies include the Internal Revenue Service (IRS), Franchise Tax Board (FTB), Employment Development Department (EDD), California Department of Tax and Fee Administration (CDTFA), and California State Board of Equalization (BOE).
Ongoing Business Registration Requirements
All corporations and LLCs are required to file a Statement of Information with the California Secretary of State within the first 90 days of registering and annually thereafter for California stock corporations and foreign corporations. It will be every two years for California nonprofit corporations and all LLCs based on the calendar month of the entity’s registration date.
Trademarks and Service Marks
When a service or product becomes lawfully used in commerce within California, a person could want to register their trademark or service mark with the California Secretary of State’s office.
Contact Our Mountain View Startup & Small Business Attorney
Did you need help creating a cannabis-related business in California? Do not wait to get help from Kalia Law P.C.
Our firm understands how complicated and challenging these scenarios can be for people but we help our clients navigate the entire process. You can call (650) 701-7617 or contact our Mountain View startup & small business attorney online to arrange a free consultation.
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