What are the Best States for Starting a Cannabis Business in 2024? – Marijuana Legal Experts Weigh In!

December 18, 2023 · Cannabis.net

Have you ever pondered the landscape of cannabis regulations across the United States? Amid a shifting legal terrain where nearly half of the states have embraced recreational cannabis and 38 have legalized medical marijuana, the complexities abound. Despite federal law maintaining cannabis as an illegal substance, each state charts its course with unique rules and regulations. Deciding on the optimal cannabis state involves considering various factors, such as whether the state permits medical, recreational, or both cannabis programs, the presence of non-profit entities, and regulations surrounding commercial licenses.

Addressing this intricate question, according to Businees Insider, the Missouri-based law firm Thompson Coburn has undertaken the task of creating an updated state-by-state ranking of cannabis regulations. Their 2023 guide offers a glimpse into how 2024 rankigns will stack up and offers a comprehensive overview of cannabis laws, encompassing every state, DC, and U.S. territories. The rankings range from states with the most favorable regulations for cannabis businesses to those with the most restrictive. In a surprising turn of events, Michigan claimed the top spot in the 2023 rankings, attributed to its low taxes and minimal entry barriers at the state level. According to Michael Rosenblum, a partner at Thompson Coburn, Michigan’s success serves as a potential case study for regulators nationwide grappling with market challenges.

For those interested in exploring further, here’s a glimpse into the first four marijuana states leading the pack with the most business-friendly cannabis laws:

1. Michigan

Michigan legalized adult-use cannabis in 2018, becoming the 10th state and the first in the Midwest to do so. The Michigan Regulation and Taxation of Marijuana Act (MRTMA) governs the possession and cultivation of cannabis, allowing individuals aged 21 and older to possess up to 2.5 ounces and cultivate 12 plants for personal use. The state’s regulatory framework is business-friendly with a 6% sales tax and a 10% excise tax. However, market saturation has led to challenges for businesses, resulting in closures and financial struggles. Medical-use cannabis is regulated under the Medical Marihuana Facilities Licensing Act (MMFLA), with licenses varying based on activities. Cannabis sales in Michigan surpassed $2.3 billion in 2022, driven by a record monthly sales of $276 million in July 2023. The state’s per capita sales exceed California’s, partly due to neighboring states prohibiting adult-use cannabis.

2. Illinois

In 2019, Illinois became the first state to legislatively legalize adult-use cannabis with the Illinois Cannabis Regulation and Tax Act. The law permits residents aged 21 and older to possess specified amounts of cannabis for recreational use, but home cultivation is restricted for adult users. Social equity applicants, residing in disproportionately impacted areas with qualifying convictions, can access a $30 million loan program to support startup costs. Recreational sales commenced on January 1, 2020, but faced challenges, leading to forgivable loans and expungement of low-level marijuana charges. Illinois sold over $1 billion in marijuana in 2021, increasing to $1.5 billion in 2022. Governor Pritzker emphasized equity in the cannabis ecosystem, with 50 social equity licensees operating by September 2023. Changes in 2023 include altered application processes for social equity licensees, though regulatory developments, especially concerning delta-8 THC, have faced delays.

Illinois hosts prominent multi-state operators (MSOs) on a national scale, featuring key players such as Green Thumb Industries (GTBIF), Verano Holdings (VRNOF), PharmaCann, Cresco Labs (CRLBF), and Ascend Wellness (AAWH).

3. Arizona

Both medical and adult-use marijuana have been legal in Arizona since 2010, with physicians prescribing up to 2.5 ounces every two weeks for qualifying conditions. As of August 2023, 149,000 residents are registered for medical marijuana, down from 278,000 in 2020 due to increased recreational purchases. Medical patients enjoy employment protection. In 2020, voters approved Proposition 207, allowing recreational use. The Act permits possession of up to 1 ounce and home cultivation of six plants. Recreational sales, marked by a 16% excise tax, began on January 22, 2021. The Arizona Department of Health Services oversees licensing, with dual licensees operating retail locations for both medical and adult-use marijuana. Sales reached $1.4 billion in 2021 and 2022, with a shift from medical to recreational dominance in 2022. As of September 2023, 148 facilities operate, including major players like 4Front Ventures and Trulieve. Trulieve, a Florida-based operator, acquired Harvest Health & Recreation in 2021 and expanded its cultivation facilities in Arizona in 2022.

4. California

California pioneered medical cannabis legalization in 1996 with the Compassionate Use Act, followed by the 2016 Medical and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA). By 2022, its legal cannabis market accounted for 20% of the national industry, generating $5.3 billion in sales. The complex licensing framework, overseen by the Department of Cannabis Control (DCC), offers over 20 classifications, with no defined limits on licenses but stringent requirements. Challenges include a flourishing illicit market, high taxes, and regulatory complexities. Recent legislation addresses employment discrimination, cannabis delivery bans, and potential interstate trade. Despite a sales downturn in 2022 and ongoing credit concerns, California continues legislative efforts, such as allowing cannabis cafes, reflecting the state’s dynamic cannabis landscape.

The ranking further continues like this:

5. Nevada

6. Massachusetts

7. Missouri

8. New York

9. New Jersey

10. Oregon

Some of The Worse States But With  Little Business Promise

Within the list of the 10 least favorable states for cannabis, South Carolina, North Carolina, Wyoming, Kansas, Tennessee, Indiana, South Dakota, the U.S. Virgin Islands, Iowa, and Wisconsin stand out.

Despite its current 43rd ranking, the U.S. Virgin Islands displays considerable potential. Rosenblum notes it’s a budding marijuana state, especially since it embraced adult use just this year.

“The U.S. Virgin Islands emerges as a recently legalized state with significant potential, not only due to its substantial tourist influx (1.6 million day tourists annually) but also because of the enticing tax incentive program offered by the territory’s Economic Development Authority. This program could lead to a 90% reduction in corporate income tax for MSOs establishing a back office in the territory,” Rosenblum concluded.

Bottom Line

The 2023 state-by-state ranking of cannabis regulations by Thompson Coburn sheds light on the diverse and evolving landscape of cannabis legislation in the United States. Michigan’s unexpected claim to the top spot underscores the intricate considerations businesses face, including taxes, entry barriers, and market saturation. The rankings not only highlight leading states like Illinois, Arizona, and California but also draw attention to the challenges within the industry, such as regulatory complexities, evolving market dynamics, and the perpetual tug-of-war between state and federal laws. As the cannabis sector continues to mature, these insights provide valuable perspectives for businesses navigating the complex web of regulations and seeking optimal environments for sustainable growth. (Full Story)

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