It’s important to understand the difference between the cannabis supply chain and ancillary providers. The distinguishment between these two areas is very important as it relates to cannabis regulation and cannabis taxation.
To legally sell cannabis, which is considered “commercial cannabis activity”, you will need to have a cannabis license.
These licenses are issued by the state and renewed each year.
States with medical and adult-use programs might have separate license types.
You’ll often hear the term from seed to sale, when you hear this term, I want you to think about the entire supply chain of getting that seedling to the final sale to the consumer or patient.
- It has to be grown – Cultivation
- It has to be processed – Extraction
- It can be manufactured into an edible or topical – Manufacturing
- It has to be tested to make sure it’s safe for the consumer – Lab Testing
- It has to be transported from license to license – Distributor or Transporter
- It has to be packaged – Packager
- It has to be sold to the end consumer or patient – Dispensary or Delivery Service
But beyond the cannabis licenses, there is a huge group of businesses and individuals that support the cannabis ecosystem.
They are considered “ancillary” or non-planting touching providers.
Just like any industry, there are a ton of supporting service providers that help the cannabis industry.
Some are required by the regulation – like security providers or waste management services. Others are clearly needed – like lawyers, accountants, or consultants. Here’s a quick list of just some of the ancillary areas:
- Lab Testing Provider (a state cannabis license)
- Insurance Brokers
- Security Firms
- Waste Management Services
- and so many more
The most important distinguishing factor between the cannabis supply chain and ancillary providers is how the federal and state government views each of the groups.
Cannabis Licenses are considered to be trafficking and selling at the federal level under the Controlled Substance Act, while ancillary providers are not.
Ancillary providers often have access to banking, do not pay punitive taxes (IRC 280e), and are not required to have a state cannabis license (with the exception of cannabis lab testing providers).
However, oftentimes ancillary providers can be impacted by the federal government’s stance on cannabis and are susceptible to certain risks.
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