International Cannabis: Guidance for Companies Entering the U.S. Market, Part 4 – Geography Matters
In prior blog posts (see here, here, and here), I described how we field regular inquiries regarding international cannabis, both from companies inside the U.S. looking internationally and from international companies looking to the U.S. market. This post deals with geography issues for international companies seeking to enter the U.S. market.
Where to locate your business?
If you have spent any time in the U.S., you know that it is very easy to travel from one state to another and that, except for weather, geography and regional cultural differences, the U.S. feels quite homogeneous. That means that as a business owner you will want to focus on where your customer base will be and whether you need to be near your customer base or can do your business from a nearby state.
For retail businesses, you will need to set up shop where your customer base is. For wholesale or e-commerce companies, you have more flexibility on where to set up your base of operations. Even retail businesses can set up operations in another region or state if it makes sense.
For instance, if California were a sovereign nation, its economy would be the 5th largest in the world. That makes California extremely attractive to businesses. But California also comes with a host of potential negative issues in both the cannabis and non-cannabis realms, whereas Nevada, which is next to California, has more favorable cannabis laws and regulations and a favorable enforcement history. Nevada’s employment laws favor employers, with much fewer regulations (including business tax levies) to deal with than California.
Ease of transportation logistics.
Most products in the U.S. travel by semi-trailer truck. If your cannabis-hemp business will have multiple locations in multiple states, or if you will be shipping directly to customers in multiple states, then you will want to consider locating close to good road transportation infrastructure. Las Vegas is situated on the I-15 freeway corridor and is only 6-8 hours from the major California and Arizona markets; 12 hours from Colorado, and 18 hours from Washington.
Looking to the eastern US, locations such as Nashville, Tennessee and Atlanta, Georgia are strong candidates for a logistics hub because each is within 12-18 hours of retail markets from Boston, Massachusetts) to Miami, Florida and many midwestern US states.
U.S. employment generally.
Each U.S. state has its own employment laws, with some states heavily favoring employee rights and others more favoring the employer. This is generally reflected in state employment tax and insurance requirements.
As noted above, Nevada is very employer-friendly, while California is extremely employee-friendly. Tennessee and Georgia are each employer-friendly states.
Depending on your business needs, you should consider whether the location of your business center or your logistics hub will be more important than the location of your employees. Consider the roles of your employees. You may prefer to have an employee based in a different geographic area than your retail locations or your logistics hub.
When you are considering employees, it is generally best to hire in an employer-friendly state as you test the U.S. market for your products.
Is state registration required?
Once you determine the geographic scope of your business, you need to determine whether you need to register to do business in a particular U.S. state, even if you are only storing product and conducting e-commerce in that state.
Each state will have its own department of labor (regarding employee matters), department of revenue (regarding taxation matters), department of commerce (regarding general business matters), and cannabis regulatory department (which could be under a state’s department of agriculture, department of alcohol and tobacco, or another specialty department).
Your particular activities within each state will dictate with which departments you need to register. You will find that most state departments are extremely accommodating, so you should plan to reach out early in your decision process. That is especially true if you are undecided as to which U.S. states will be optimal for your initial business operations.
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