Medical marijuana businesses may be lucrative, but they aren’t easy to start. Marijuana entrepreneurs are swamped with the need for significant capital investment, and they must wade through fields of new and complex regulatory measures—many of which will change over the next few years. Are you up for the challenge?
Pennsylvania cannabis growers, processors and dispensers will be subject to new laws under the Medical Marijuana Act and regulations under the Pennsylvania Department of Health, as well as already existing federal, state and local laws that govern business, labor, health and agriculture. Regulations will continue to grow and evolve under health, economic, social, political and legal scrutiny. To succeed, hopeful medical marijuana businesses and venture capitalists must stay in touch with legislative action and regulatory affairs.
Medical marijuana businesses and health care groups permitted to use medical marijuana for business, research or treatment are referred to as “organizations” throughout the Medical Marijuana Act. Each type of organization has its unique set of governing laws, and physicians are prohibited from having a direct interest in a medical marijuana business.
If you’re not sure what type of medical marijuana business you want to form, and particularly if you’re a health care professional or a representative from a health organization interested in forming a medical marijuana business, you should consult an attorney to learn about the regulatory standards and the risks involved.
Business Formation Structures for Pennsylvania Medical Marijuana Businesses
Determining the legal structure of a medical marijuana business is one of the first and most essential steps. The business form you choose will determine your personal liability and your tax liability. The medical marijuana business is risky, and you need to be protected.
Sole Proprietorship: A sole proprietor assumes all liability for the business. Personal and business expenses can intermingle. Business income is reported on a personal income tax return. Your personal assets are not protected from liability.
General Partnership: A general partnership can be formed with two or more parties. The parties can be individuals, corporations, other partnerships, trusts, or a mix of different organizational structures. All partners can make business commitments, and all partners face liability. Pennsylvania has filing requirements for General Partnership income reporting, and they can be found on the Pennsylvania Department of Revenue website.
Limited Partnership (LP): A limited partnership consists of one or more general partners, and one or more limited partners. The general partner(s) will face the bulk of personal liability, and the limited partner(s) will have limited liability. A Certificate of Limited Partnership must be filed, and information can be found at the website for the Pennsylvania Department of State. Business income requirements are detailed on the Department of Revenue website for Pennsylvania.
Limited Liability Company (LLC): A limited liability company is formed by filing Certificate of Organization with the Department of state. This business formation has liability protections analogous to corporate protections with the less stringent reporting requirements of a partnership. Personal assets have more protection under an LLC than a sole proprietorship or general partnership.
Limited Liability Partnership (LLP): Limited Liability Partnership is formed by filing form DSCB: 15-8201A with the Department of State Corporation Bureau. Liability protections include corporate-like protections, and personal assets have greater protections than under a sole proprietorship or general partnership. Income reporting and requirements follow partnership guidelines, and are less demanding than corporate requirements.
Corporation: To form a corporation in Pennsylvania, an Articles of Corporation and Docketing Statement must be filed with the Department of State’s Corporation Bureau. Liability is limited and relative to stock ownership. Taxes must be paid on profits and dividends paid to owners. Corporations are considered C-Corporations unless an option to file as an S-Corporation is filed through IRS Form 2553. An S-Corporation allows tax filing options similar to that of a partnership. Corporations offer the greatest protection of personal assets, but there are extensive legal requirements. Attorney representation is strongly advised. More information can be found at the Pennsylvania Department of State website and its Bureau of Corporations and Charitable Organizations.
Associations and trusts are also allowed to form and be a part of a medical marijuana business. Consult a Pennsylvania attorney to learn about the potential tax and liability protections and damages that apply to your particular circumstances. An attorney can also help you file the necessary paperwork for partnerships and corporations, and guide you through the complex requirements of corporate law, including the necessary creation of corporate bylaws.
Employer Identification Number
Most medical marijuana businesses owners will need to file an Employer Identification Number (EIN). (This is an easy process, and can be completed online at the website for the IRS or by filling out and submitting IRS Form SS-4.) An employer identification number is akin to a social security number. It identifies your business to government agencies, and will be used on most of your business applications and legal documents.
Generally, a sole proprietor without any employees can use a social security number instead of an EIN, but even then there are circumstances in which an EIN would be required. More information is available at the IRS website.