Starting a Cannabis Business in New Mexico?

In Business Tips by Ben Albright6 Comments

Here are some important issues to consider.

Recreational cannabis is legal in New Mexico and the state government is currently working to set out regulations to begin legal sales. At the latest, recreational sales will begin on April 1, 2022. So, what do cannabis entrepreneurs need to know as New Mexico moves to open a legal cannabis market?

The Federal Government

Despite cannabis being legal in New Mexico and 17 other states, the federal government still maintains cannabis prohibition through the Controlled Substances Act. Cannabis prohibition creates numerous challenges for new cannabis businesses.

According to the federal government cannabis businesses are still criminal enterprises. While LLCs cannot offer full legal protection, cannabis business owners should set up different LLCs for different aspects of their businesses, e.g., different LLCs for the medical and recreational businesses. This protects business owners in the event that the federal government starts enforcing existing laws which ban cannabis. For the same reason, business owners should keep personal financial assets and cannabis business assets separate. Failure to separate these assets could make business owners targets of RICO laws.

Other Businesses

In addition to the problems created by current federal law, many businesses will not do business with cannabis distributors because of the federal status of cannabis.

Major national banks do not work with cannabis businesses, but some local banks do. Cannabis businesses, thus, need to find a local bank who will accept the industry. Businesses should work with their bank to understand evolving regulations and make sure they are secure.

The majority of credit card companies do not currently allow cannabis transactions because of federal prohibition. This restricts the ways in which cannabis companies can receive payment to cash, checks, and cryptocurrency. Of these options, cash is the only “sure thing”. Checks come with their own hassles /headaches while some cryptocurrency vendors are not secure.

Some accountants and landlords are also hesitant to work with cannabis businesses because of the issue of federal illegality. Nonetheless, cannabis entrepreneurs can still succeed because not all accounts and landlords are opposed to working with the industry. Some advertisers are also hesitant to host cannabis content as a result of federal prohibitions. Cannabis businesses can still advertise their product with willing advertisers but can also do so by other, less traditional means. One untraditional way cannabis businesses can advertise is by drawing media attention. Thus they are not officially “advertising,” but by appearing on the news are raising the profile of their business.

Internal Business Risks – And how to Avoid Them.

Although it faces unique challenges, the cannabis industry is, in many ways, like any other business. In some instances, however, the risks faced by other businesses are simply amplified in the cannabis industry.

Working with lawyers from the start is helpful for business owners to insure they follow all rules and regulations. Hiring knowledgeable individuals with a thorough understanding of the industry is extremely important. The cash heavy nature of the cannabis industry causes it to be more susceptible to fraud, so hiring trustworthy employees is especially important.

Cannabis businesses need to be more judicious than other businesses in making sure that business records are pristine. If a cannabis business is called to court, their business records are admissible as evidence. Because courts already tend to be more skeptical of cannabis businesses, keeping neat and precise records gives them more confidence that a business owner is competent.

Some landlords are reluctant to allow cannabis businesses to use their properties in part because of federal illegality, but many who do include terms which require businesses to manage the distinctive smell of cannabis.

Taxes

The federal government taxes income. It does not care whether income was legally obtained; it just taxes whatever income citizens report. Most taxpaying businesses in the United States are allowed to take tax deductions on business expenses, but a federal law called IRC 280E prevents cannabis businesses from taking that exemption. 280E officially prohibits business deductions for businesses which deal in controlled substances, of which cannabis is still one.

Considering starting a CBD based business in New Mexico? Set up your business correctly from the start. Contact Business Law Southwest today for a consultation.

Comments

  1. Hello I’m starting a cannabis business and would like to have a consultation.

    1. Hi, Niko.

      I do apologize for the delay in responding to you. We haven’t been monitoring the moderated comments as diligently as we should.

      We sell 30-minute cannabis attorney consults, which is great to for a quick and inexpensive way to talk with an attorney, get direction and advise, have your questions answered, and pointed in the right direction. If interested, click on that link — note it sends you to our other legal brand, Law 4 Small Business, but it’s the same lawyers, same costs.

      Thank you. Larry.

  2. Hi,

    My business partner and I are opening up a grow operation and dispensary in the Albuquerque area. We are looking for a consultation and possible representation. Can we schedule and consultation? I look forward to hearing from you.

    1. Hi, Andy.

      I do apologize for the delay in responding to you. We haven’t been monitoring the moderated comments as diligently as we should.

      We sell 30-minute cannabis attorney consults, which is great to for a quick and inexpensive way to talk with an attorney, get direction and advise, have your questions answered, and pointed in the right direction. If interested, click on that link — note it sends you to our other legal brand, Law 4 Small Business, but it’s the same lawyers, same costs.

      Thank you. Larry.

  3. Good evening,

    My husband and I are wanting to start a business just the two of us producing cannabis. We are wanting to apply for a license however we aren’t to sure what type of legal structure we should go by. We would like to perhaps conduct a consultation with you.

    Thank you,

    Daniella Vine

    1. Hi, Daniella.

      Thank you for your question. In most circumstances, a LLC is going to be just fine. They are flexible and inexpensive, and provide numerous benefits from liability protection to tax savings. Our company can help you form one quickly and inexpensively, and we provide a very high-quality Operating Agreement (that serves as a partnership agreement) as part of our service. If interested, you can order from here (note this will take you to our other legal brand, Law 4 Small Business, but it’s the same law firm, with same attorneys and same pricing as Business Law Southwest).

      If you’d rather talk with someone first, before taking the leap, that’s an understandable desire. We have two options for you. First, we sell 30-minute business attorney consults, that you can order online. Such a consult is NOT cannabis focused, and just business formation focused. For a bit more money, if you’d prefer to speak with a cannabis-experienced attorney, we also provide 30-minute cannabis attorney consult. Just click on one of those links, and you can order the consult right online (again, at our other legal brand).

      Thank you again. Larry.

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