Entering the cannabis industry is an exciting opportunity, but new entrepreneurs often underestimate the legal complexities that come with launching a compliant business. While securing funding or identifying the right location may feel like the biggest hurdles, overlooked legal missteps can derail a cannabis venture before it ever opens its doors. Natalie C. Diaz breaks down some of the most common legal mistakes new cannabis entrepreneurs make, and how to avoid them.
Signing a Lease Before Confirming Local Compliance
One of the most frequent and costly errors occurs when entrepreneurs sign a commercial lease without fully understanding local zoning and licensing requirements. Municipal regulations often impose caps on cannabis licenses, prohibit operations near schools or residential areas, or require conditional use approvals before a business can operate.
When these requirements are discovered after a lease is signed, business owners may find themselves paying rent on a property that cannot legally be used for cannabis purposes. Conducting zoning and regulatory due diligence before committing to a lease is critical to protecting both your investment and your timeline.
Overlooking Ownership and Partnership Agreements
Many cannabis businesses begin with informal understandings between partners—handshake deals that feel sufficient during the early stages. Unfortunately, those informal arrangements often lead to disputes once revenue is generated or business priorities shift.
Clear, written operating and partnership agreements help define ownership percentages, decision-making authority, financial obligations, and exit strategies. Addressing these issues upfront not only prevents conflict, but also strengthens the business’s credibility with regulators and investors.
Failing to Structure Ownership Properly
Cannabis regulators closely scrutinize ownership and control. Licenses are tied to specific individuals, and undisclosed investors, spouses, or silent partners can place an entire license at risk. Many entrepreneurs are surprised to learn how broadly “ownership” and “control” are defined under state cannabis laws.
Improper structuring or incomplete disclosures can delay approvals—or worse, result in license denial or revocation. Understanding and complying with ownership requirements from the outset is essential to maintaining regulatory standing and protecting the business long-term.
Getting It Right from the Start
Launching a cannabis business requires more than a strong concept—it demands careful legal planning. Entrepreneurs who take the time to confirm zoning compliance, document partnerships properly, and structure ownership in accordance with regulatory requirements position themselves for smoother approvals and long-term success.
Addressing these issues early can save significant time, money, and frustration, allowing business owners to focus on growth rather than damage control.
For more information, you can reach Natalie C. Diaz at ndiaz@mblawfirm.com or at 973-852-4235.