Cannabis Business in Arkansas

By 2023, Arkansas had over 92,000 registered medical marijuana patients, according to the Arkansas Department of Health.

In the first half of 2024, the medical marijuana market in Arkansas generated $135.5 million in sales, demonstrating the growing demand and significance of the program.

Types of Cannabis Businesses in Arkansas

Cannabis-touching businesses are directly involved in the cultivation, processing, distribution, or sale of cannabis products. They must follow specific regulations and legal requirements due to their direct interaction with the cannabis plant.

Cannabis-adjacent businesses, on the other hand, provide services or products related to the cannabis industry without directly handling the plant. These businesses operate under different regulatory and legal standards.

Understanding the type of cannabis business is crucial, as each category comes with its own set of compliance challenges and regulatory measures that must be addressed.

Exploring Plant-Touching Cannabis Businesses

Cannabis-touching businesses are directly engaged in the cultivation, processing, distribution, or sale of cannabis products, maintaining a direct connection to the cannabis they manage. In Arkansas, the state chose not to implement vertical integration, instead opting to issue separate licenses for dispensaries and other cannabis operations.

Here are some examples of cannabis-touching businesses and their roles in Arkansas:

• Cultivators: These businesses are in charge of growing cannabis plants, whether indoors or outdoors. Cultivators often focus on different strains and may engage in breeding programs to create new cannabis varieties. They must adhere to state regulations to ensure their cultivation practices meet required quality standards and legal requirements.
• Processors: Processors handle raw cannabis and convert it into various products, such as oils, edibles, concentrates, and topicals. This process involves extraction, refinement, and sometimes the development of entirely new cannabis products. Processors must comply with strict state regulations to ensure their products are safe and consistent for consumers.
• Testing Laboratories: These labs play a critical role in ensuring cannabis products are free from contaminants like mold and pesticides. They perform comprehensive tests to verify the purity and potency of cannabis before it reaches dispensaries.
• Dispensaries and Retail Stores: These establishments are where consumers purchase cannabis products directly. Dispensaries and retail stores must comply with state regulations, including verifying customer age and adhering to purchase limits. They are also responsible for following state tracking and reporting systems.
• Distributors and Supply Chain Management: Distributors manage the transportation of cannabis products from producers to retailers. This includes overseeing the supply chain, ensuring secure transportation, and maintaining compliance with state tracking systems to ensure transparency and accountability throughout the distribution process.

Exploring Non-Plant Touching Cannabis Businesses

Non-plant touching cannabis businesses, often called ancillary or cannabis-adjacent businesses, are essential in supporting the cannabis industry without directly handling the plant. These businesses are crucial for maintaining the industry's operations and infrastructure. Here are some examples:

• Technology and Compliance Software: Modern cannabis operations rely heavily on technology to maintain efficiency and compliance. Tools like seed-to-sale tracking systems, Point-of-Sale (POS) systems, eCommerce platforms, and security solutions are essential for ensuring operational success and adherence to regulations.
• Financial Services and Payment Processing: Traditional banking services are often limited for cannabis businesses due to federal restrictions. Specialized financial services, including loans and payment processing solutions, are crucial for smooth operations and regulatory compliance.
• Legal Guidance and Compliance Support: Cannabis businesses must navigate complex state and federal regulations. Legal firms specializing in cannabis law provide the necessary guidance to help businesses comply with regulations and avoid legal issues.
• Strategic Consulting and Business Management: These firms offer expert advice on licensing, compliance, market strategy, and operational efficiency. They help cannabis businesses navigate the complexities of the regulated market and optimize their operations.
• Risk Management and Insurance Solutions: Protecting cannabis businesses, their employees, and products is vital. Insurance providers with industry expertise offer customized coverage that addresses various operational risks, from production to liability.
• Branding and Marketing Services: Due to stringent advertising regulations, cannabis businesses require specialized branding and marketing strategies. These services ensure that products are effectively promoted within the legal framework.
• Market Research and Data Analytics: Data-driven insights are crucial for optimizing cannabis business operations. Analyzing consumer behavior, supply chain efficiency, and product quality enables businesses to make informed decisions and stay competitive.
• Financial Management and Accounting: The cannabis industry faces unique financial challenges, particularly under Section 280E of the IRS Code, which limits tax deductions. Specialized accounting services are essential for managing these financial complexities and ensuring accurate record-keeping.
• Packaging and Product Labeling: Compliance with packaging regulations is critical in the cannabis industry. Companies specializing in packaging ensure that products meet state requirements for child-resistant, opaque, and clearly labeled packaging.
• Advocacy and Industry Representation: These organizations play a crucial role in representing the cannabis industry at the state level. They work to influence policy, advocate for regulatory changes, and provide insights that support the industry’s growth and sustainability.

Differences Between Plant-Touching and Non-Plant Touching Cannabis Businesses

The distinctions between plant-touching and non-plant touching cannabis businesses affect various operational aspects, particularly in areas such as regulatory requirements, financial management, and compliance. Here are the primary differences:

State Laws:

• Cannabis-Touching Businesses: In Arkansas, these businesses must secure specific state licenses and adhere to strict regulations, including security measures and product testing. Federal laws further complicate operations by imposing significant banking restrictions.
• Cannabis-Adjacent Businesses: Typically, these businesses only require standard business licenses and face fewer regulatory hurdles. They also benefit from easier access to financial services.

Banking:

• Cannabis-Touching Businesses: Due to federal regulations, these businesses often face substantial banking restrictions, forcing them to operate in cash and depend on a limited number of banks willing to assume the legal risks. This creates challenges in financial management and increases compliance demands.
• Cannabis-Adjacent Businesses: These businesses generally have broader access to traditional banking services, including loans, credit lines, and bank accounts, simplifying their financial operations and facilitating growth.

Accounting:

• Cannabis-Touching Businesses: These businesses are subject to Section 280E of the IRS Code, which limits their ability to deduct standard business expenses, resulting in higher tax burdens. They also face complex inventory management requirements and stringent compliance obligations.
• Cannabis-Adjacent Businesses: These businesses can take standard tax deductions and follow simpler accounting practices. They avoid the stringent compliance required for cannabis inventory tracking, making their financial operations less complex.