I've been in Oregon for the past two weeks, riding this wave of incredible energy with the October 1st date approaching. October 1st, 2015 is the first day that licensed medical dispensaries in Oregon can sell limited amounts of cannabis to adults, tax free. October 1st in the cannabis community in Portland, almost seems synonymous for New Years Eve or Halloween. I was leaving an interview (discussing cannabis and banking) and said to the host, "What are you doing on October 1st?" I myself will be meeting with some clients and going on a mini dispensary tour with my uncle from Dank Creative. I'm super excited to be part of Oregon history tomorrow.
Lately, our firm has been approached on the best legal entity selection to choose for a canna-business, especially with the legal recreational market opening up in Oregon. Really, there are so many variables in deciding the best entity selection for your business, which includes your forecasted revenues and profit for the next year, five years, etc; how many owners you will be working with; what type of investment funding you are looking for; and what is your overall growth and exit strategy. Depending on these factors, your entity selection could be very different. However, this post is focused on providing some insight on operating as an LLC.
What is an LLC?
The IRS defines as an LLC as a legal entity that "may be classified for federal income tax purposes as a partnership, corporation, or an entity disregarded as separate from its owner."
Different LLC elections
First, If you decide to form an LLC, you will need to select which type of entity you will elect as.
There are several benefits of choosing an LLC as your legal entity for your canna-business. The biggest advantages are (1) limited liability to all members (good asset protection) all while (2) not paying double taxation (assuming you don't elect the C corporation).
Plus, if you're looking to have investors, LLC's don't have a restriction on the number of members, unlike S Corps, and can accept foreign investors. And, if you're planning to grow and not positive on how that might match your legal entity structure, you can always convert your LLC into a corporation (it's much harder to go from a corporation to an LLC).
Does my role in the industry impact my legal entity election?
It's a combination of your role, your growth (and exit) strategy, your assets, the number of members/owners, and your projected revenues that determine the best legal entity selection and legal entity structure. Once you've assessed all of these things with a lawyer and an accountant, you can definitely make the appropriate legal entity selection.