Cannabis is a growing business sector in Minnesota, but the complex laws and regulations governing its cultivation and production also make it a challenging one. If you’re considering entering the cannabis market, it’s important that you structure your business correctly from the start, as a mistake now could lead to headaches down the road.
Understanding the Unique Legal Landscape of Cannabis Businesses
Minnesota has legalized adult-use recreational marijuana. However, the cultivation and use of marijuana remains illegal under federal law. Minnesota’s cannabis law limits the possession of cannabis products by adults 21 and over, establishes a regulatory framework for the licensing, inspection, and operation of cannabis businesses, and requires testing and labeling of cannabis products. As a result, any party wishing to open a cannabis business in Minnesota must obtain state licenses and follow Minnesota’s regulations on the cannabis industry. The unique legal circumstances for cannabis businesses in Minnesota make it critical for business owners to structure their companies appropriately.
Choosing the Right Business Structure
First, cannabis businesses in Minnesota should select an appropriate legal structure, such as a limited liability company, corporation, or partnership. Limited liability companies offer owners protection from the company’s liabilities and facilitate more flexible corporate management and taxation. Corporations also provide limited liability to owners and may seem more attractive to outside investors. Conversely, partnerships do not offer limited liability protection, which means owners may face personal exposure to the company’s liabilities.
Structuring for Liability Protection
Beyond choosing a legal structure for a new cannabis business, owners should also address other structuring considerations, such as:
- Bylaws and operating agreements: Depending on the legal structure, a cannabis business may need various governance documents, such as bylaws and shareholders’ agreements for corporations or operating agreements for limited liability companies. These governance documents can include multiple legal protections for owners, such as specifying management authority, establishing procedures for ownership transfers, and requiring alternative dispute resolution.
- Segregating business functions: Cannabis companies may benefit from segregating various aspects of the business, such as real estate holdings, operations, and intellectual property, to shield liabilities from one part of the business from others.
- Insurance: Cannabis companies may need various forms of insurance in order to operate, including general liability, product liability, property damage, crop insurance, and D&O insurance. However, because cannabis remains illegal at the federal level, businesses may find it challenging to identify insurers willing to work with the cannabis industry.
Intellectual Property and Brand Protection
A cannabis company—particularly a retail-focused one—derives much of its value from its intellectual property and brand name. Although the USPTO limits trademark protection for many cannabis businesses, Minnesota cannabis companies may seek state trademark registration to secure protection for their brand names and images. When cannabis businesses work with other companies, they should also have licensing agreements or other contracts that protect their ownership of their IP rights and govern business partners’ use of the company’s brand name or trademarks.
Regulatory Compliance
Finally, cannabis businesses can protect themselves and their owners by developing a comprehensive compliance program to avoid violating Minnesota’s cannabis industry regulations. A business can best comply with state laws and regulations by developing operating procedures for record-keeping, employee training, inventory tracking, and property security. Staying compliant can help businesses and owners avoid potentially devastating consequences, such as license suspensions, fines, or criminal liability.
Contact a Cannabis Business Attorney Today
Are you thinking of starting a cannabis company in Minnesota? If so, the structure you choose for your business can help protect your new company, your personal finances, and your professional reputation. Contact Christensen Law PLLC today for an initial consultation with a Minnesota cannabis lawyer to learn how you can structure your cannabis business to protect your legal and financial interests.
