Adult-Use Cannabis Is Now Legal in Minnesota: Here Are Some Business and Financial Tips for Hopeful Operators 

June 14, 2023

On May 30, Minnesota joined 22 other U.S. states in legalizing adult-use cannabis. 

Building off of a strict medical cannabis program with only two operators and 15 dispensaries, hopeful cannabis business owners will have the opportunity to enter an uncapped license market to provide adult-use cannabis to adults aged 21 and older. 

By 2027, annual cannabis sales are expected to exceed $500 million

While Minnesota’s adult-use cannabis market is full of opportunity, the still-federally illegal industry is also up against immense challenges such as strict regulation, banking and payments restrictions, an ever-evolving market landscape, as well as limited access to capital.

In addition to establishing sound operational and legal practices–cannabis businesses in Minnesota’s newly legal adult-use market must keep in mind these financial considerations to succeed in both the short term and long term. 

1. Create a Comprehensive Business Plan 

Before entering any business venture, it’s crucial to have a business plan that outlines your company’s strategic direction, target market, product offerings, marketing and sales strategies, operations, compliance, financial projections, competitive analysis, risk assessment, management team, and exit strategy. 

Not only will this plan serve as the rubric to your business–but it will also convince potential investors or partners why they should work with you. 

2. Secure Capitalization to Help You Fund Your Business Adequately

Cannabis is a capital-intensive business. It takes significant capital to fund a cannabis business’s licensing, equipment, personnel, marketing, tax obligations, and other expenses. Again, because cannabis is a federally illegal industry, raising capital can be significantly challenging, as traditional financing opportunities may not be available. While equity financing opportunities in cannabis have declined in recent years, debt financing is on the rise

3. Consult with Accounting and Legal Professionals 

Your accountant and attorney are two partners that should be on speed-dial as a cannabis business–as there are seemingly endless complexities and nuances to this industry. Additionally, it is important to work with accounting and legal professionals who are experienced in the cannabis industry to ensure you’re operating compliantly. These professionals will also help provide valuable guidance as it relates to regulatory compliance, tax planning, financial reporting, cash flow, due diligence, and more. 

4. Develop a Realistic and Flexible Budget 

A sound budget for a cannabis business includes the following: 

Start-Up Costs

These will be the expenses required to launch your operation, from permits, consulting fees, licensing, real estate, equipment purchases, and more. 

Operational Expenses

Expenses relating to operations cover all the costs necessary to keep your business going, from utilities to rent or mortgage payments, insurance, salaries, inventory, logistics and others. 

Compliance Expenses

Fees, inspections, lab testing, compliance consulting and many other items can fit into this bucket of your budget. Falling short in this area could mean risking losing your license, so it is critical to make sure you’re budgeting appropriately in this area. 

Staffing Costs

Employee benefits, ongoing training, contract needs, and other personnel items fall into your staffing costs outside of your salary expenses, so it is important to keep these in mind to make sure you’re offering your team all they require. 

Marketing Expenses 

Raising awareness and building brand equity for your company is imperative to attract customers to your company and boost sales. Set aside a portion of your budget for marketing agencies, sponsorships, website development and other promotional activities. 

Contingency Funds 

As a cannabis business owner, you are guaranteed to experience a setback or an unexpected cost. Having a “safety net” will allow you the peace of mind to maintain stability and minimize your risk. 

Establishing proper revenue projections, as well as a financial analysis structure, will help you understand how you may or may not be reaching your goals, and adjust accordingly. 

5. Understand Tax Implications 

The cannabis industry is heavily taxed at the federal, state, and local level. Therefore, it’s important to understand how taxation works within the industry and how to maintain the financial health of your business. Here are some important tax considerations for cannabis business owners: 

Internal Revenue Code Section 280E

Cannabis businesses have a higher tax liability than businesses in traditional industries because of this tax application. Other than the cost of goods sold (COGS), cannabis businesses are not permitted to deduct other ordinary business expenses. 

State and Local Taxes 

Depending on where they operate, cannabis businesses are also subject to state and local taxes. In addition, if your company operates in multiple jurisdictions, you will need to understand each of their tax rates to ensure you’re appropriately paying what you owe. 

At this point, we know that in Minnesota, sales will be taxed at 10%. 

Increased Risk of Tax Audits

Because the industry is still illegal at a federal level, cannabis businesses are increasingly subject to tax audits from the Internal Revenue Service (IRS). A certified public accountant (CPA) with experience in cannabis can help make sure your business is prepared in the event of an audit. 

6. Stay Up to Date on Industry Trends 

The business of cannabis moves quickly, which means that it is imperative to stay up to date on market dynamics, the regulatory landscape, emerging technologies, consumer insights, and more so that you can properly compete and adapt within this exciting and challenging industry. By regularly checking in with your legal and accounting team, networking with industry professionals, attending conferences, and reading trade publications–you will be well-informed to make decisions that make the most sense for your business from a financial perspective. 

CJBS Is Your Financial and Tax Partner in the Cannabis Industry 

At CJBS, we pride ourselves on being the Cannabis CPAs Who Care. 

As your partner for innovative cannabis tax and advisory solutions, we tailor our products and services to meet your unique business’s needs. 

Whether you’re a cannabis cultivator, processor, and/or dispensary, our expert team is here to help you grow and scale your company in an industry with great potential and challenges.

Contact the CJBS team to learn how our Audit and Assurance Services, Tax Planning and Compliance, and Business Solutions can level-up your business in today’s cannabis market.