Ancillary Marijuana Businesses: A Legal Gray(er) Area

Most of our posts concern hands-on cannabis industry players — growers, processors, and retailers/medical dispensaries. That’s because the majority of our clients and the majority of our work relates to direct industry participants.

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But we also frequently provide legal services to “ancillary” businesses that have their own legal issues peculiar to the marijuana industry. Ancillary businesses are those businesses that provide services to the cannabis industry, such as packaging software, lighting, or security systems companies.

On the surface, many ancillary businesses appear to be “regular” companies that just happen to sell software or insurance policies or packaging to growers and sellers. They incorporate marijuana language and imagery into their name and marketing to varying degrees, and canna businesses may comprise only some of their overall market. Some seek to conceal their dealings with the marijuana industry. In other words, ancillary businesses can be as discreet or as blatant as they choose in demonstrating their affiliation with legal cannabis. The flexibility with marketing and branding enjoyed by ancillary businesses does not translate into flexibility with legal issues, however.

Direct industry participants operate in a gray area because they are state-legal, but, of course, still illegal under federal law. Nonetheless, many states (not most — some states still have regulatory voids — ahem, California) have created transparent guidelines under which medical and/or recreational marijuana businesses may operate. No regulatory scheme is perfect, but as legalization has gained momentum, lessons have been learned from the early adopters, and state legislatures have sought to incorporate those lessons. The result is that in most states, growers and sellers can turn to a set of statutes and regulations written especially for them to understand the basic strictures under which they must operate. These businesses also know that they are operating in violation of federal law.

The multi-state aspect of many ancillary businesses oftentimes means that they must stay apprised of the laws in multiple states. Just by way of one example, one of our cannabis compliance lawyers stays current on the packaging laws in all states in which our packaging clients sell their marijuana jars and containers. For more on the importance of complying with state packaging laws, check out Pot Puppies? Let’s Talk Labeling and Packaging. NOW.

 On the one hand, ancillary businesses have it easier than growers or sellers since many of them do not come into contact with cannabis at all. Thus, the rules related to whom and how much of your product you can sell would not apply. Zoning issues are also less likely to come into play. States also are usually far less interested in who is investing in and managing an ancillary marijuana company than a cannabis business. Even landlord-tenant and employee issues will be “more normal” for a marijuana support business than for one that physically handles marijuana.

On the other hand, ancillary business have a harder time than other businesses, precisely because there are no rules written especially for them. Where do they turn to know what is legally required of them? Particularly problematic are the federal trafficking and money laundering issues. Does your support services business help marijuana move from one place to another? Does your business help people buy marijuana? If so, an argument can be made that you too are violating federal law. If you are conducting business in more than one state, you may become interesting to the Feds.

There are no clear answers and each ancillary business’s legal risks will differ, based on what it is selling, to whom it is selling, how it markets its product, the diversity of its clientele, the state in which it is doing business … the list goes on. The main takeaway here should be that ancillary businesses face some of the same risks as direct industry participants, as well as some additional risks that hands-on canna businesses may not encounter.

Bottom Line: If you are interested in starting an ancillary business or if you already have such a business, you need to carefully consider your individualized legal landscape.