Establishing a California Marijuana Business

The California marijuana industry has been undergoing a series of major changes since the third quarter of 2016.

The latest one is the approval of the first surety bond program by the Department of Insurance of the State of California.

As California Insurance Commissioner Dave Jones explains, “my mission is insurance protection for all Californians, which includes insurance for California's legalized cannabis businesses. I encourage more insurance companies to file cannabis business insurance products with the department to meet the needs of this emerging market.”

The Marijuana-Cannabis Surety Bond is for people who have applied for a license in order to conduct commercial cannabis activities under the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA).

Commercial cannabis activities refer to the manufacture, possession, processing, cultivation, distribution, storing, transportation, laboratory testing, packaging, labeling, delivery, or sale of cannabis and cannabis products.


Step-By-Step Marijuana Business Guide


STEP 1: Choose a business name

The name should be appropriate for your business and easy to remember. It is also equally important to ensure that no other business has the same name.

If you prefer to use a different business name other than your own, you need to file a “Doing Business As” or a “Fictitious Business Name”.


STEP 2: Decide on a business entity and register with the Secretary of State

Are you starting your marijuana business alone, with a partner, or a group of friends?

You don’t need to register with the Secretary of State if you choose a sole proprietorship or general partnership as a business entity.

However, those who opted for a Limited Liability Company (LLC) or a Corporation are obligated to do so.


STEP 3: Obtain a seller’s permit and a marijuana license

Before you can apply for a license at the Department of Consumer Affairs Bureau of Cannabis Control, you need to register with the California Department of Tax and Fee Administration (CDTFA) in order to get a seller’s permit.

In addition, distributors of cannabis and cannabis products are also required to obtain a cannabis tax permit from CDTFA.

As a licensing prerequisite, applicants must provide written proof that they have been given permission by their local government to operate as well.

Make sure to submit a sufficient surety bond along with your license application if required. The current bond amount for a marijuana license is set at $5,000.

The governmental agency that you will submit your application to will depend on your license classification.

If you’re a retailer, distributor, microbusiness, testing laboratory, or a cannabis event organizer, you must apply for a marijuana business license from the Department of Consumer Affair’s Bureau of Cannabis Control.

Marijuana cultivators must send their license application to the Department of Food and Agriculture’s CalCannabis Division while manufacturers should procure a license from the Department of Public Health’s Manufactured Cannabis Safety Branch.

There are currently two temporary license types: A-License and M-License.

A-License – cannabis or cannabis products that are for adults (21 years of age and over) who don’t have a doctor’s recommendation.

M-License – for medical cannabis.


STEP 4: Get an Employer Identification Number (EIN)

For those who have employees, you must secure an EIN or Federal Tax Identification Number from the IRS.


STEP 5: File a Statement of Information

Limited Liability Companies are required to file a Statement of Information with the Secretary of State within 90 days after filing the Articles of Organization or Application to Register. After the initial filing, the Statement of Information is due every two years.


STEP 6: Pay taxes

Your tax obligation includes the following:

  • Federal taxes
  • State income tax
  • Property Tax
  • State payroll taxes


With new regulations, the marijuana industry is starting to become a force in the California business sector.  Bear in mind that this is still a volatile and evolving industry, so keep an eye on any changes that may happen soon.

Check out this Infographic!

"Establishing a California Marijuana Business"

Step-by-step guide in starting a marijuana business in California Infographic
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