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How to Build a Business in the Legal Gray Zone

Chris Porteous
Chris Porteous

Industries like cannabis are taking off, but how difficult is it to start a business in a legally gray area like this? Here's how to start.

The cannabis market is rapidly budding all around the world, leading many entrepreneurs and investors to consider building a business in the legal gray zone of recreational and medicinal cannabis while they still have an opportunity to reap a massive return on their early investments. Despite the allure of making huge sums of cash by tapping into the ongoing cannabis craze, it's imperative to remember that legally dubious business propositions end in catastrophe just as often as they do in great success – if not more often.

It's possible to thrive in the current cannabis market, but it's certainly not easy, especially if you're uncertain of the legal landscape you're treading upon. Here's how to build a business in the legal gray zone without losing it all.

1. Understand that this is an inherently risky proposition.

The first and most essential thing to understand is that what you're doing may be morally acceptable and even admirable, but it's still legally dubious and liable to result in tragedy. This isn't to say that starting a business in the legal gray zone isn't worthwhile, but rather to acknowledge the reality that most such businesses don't endure for long, let alone make a hefty profit. If you're fooling yourself that you can earn a quick buck by pivoting to cannabis without doing your legal homework, you're setting yourself up for dismal failure.

Now that you know the challenges and daunting possibilities that await failed businesses, you can focus on the joyful success you may achieve if you play your cards right. The international cannabis market is booming, after all, with total worldwide sales projected to reach a whopping $40.6 billion by 2024, according to some estimates. If you tread cautiously and avoid scandals, lawsuits, and other hurdles to success, your cannabis-based business could very well reap tremendous profit in the long term, especially when markets finally become free of stigmatization and prohibition.

So, how should you go about preparing to launch a business in the legal gray zone? First and foremost, retain an excellent legal expert who can give you advice in trying times, as you may frequently find yourself in need of a good lawyer in the days to come. Don't think of this as an intimidating or negative thing; virtually every successful business needs a good lawyer, whether they're in a legally dubious industry or not, and your business will benefit tremendously from in-house expert counsel.

Hiring a lawyer for a cannabis company may seem almost hilarious, given that just a few years ago, you were more likely to hire a lawyer to get you off from a cannabis charge. Skip this step at your own peril, though – relying on your own advice when it comes to complex legal developments can land you in some serious hot water.

2. Have a plan for marketing.

The next step is to consider how you'll get the word out about your business. Marketing isn't easy when the products or services you want to advertise could well be illegal in various areas. Similarly, you may not violate the law at all but still anger consumers who don't approve of recreational or medicinal cannabis. Tapping into your target market without igniting a PR firestorm is an essential element of success in this industry. When it comes to bolstering your brand's image and getting the word out, you can't go wrong by following the examples set by companies that have already forayed into this legally gray zone.

Take some time to review the methods cannabis companies use to market themselves if you're concerned about advertising. Of course, some strategies may work for other companies yet backfire for yours, so always consider the legal and cultural context of your target market before copying someone else's marketing strategy. By injecting some personal flair into the advertisements and avoiding legally questionable methods, you'll soon attract customers to your new business without also attracting unwanted attention from legal authorities or prohibitionists.

3. Figure out how you'll store your money.

This may seem like a trivial question to many entrepreneurs or investors who are only somewhat familiar with the cannabis industry. However, banking and transferring the proceeds of your cannabis-based business is no easy feat. Public attitudes toward recreational marijuana, medicinal marijuana, CBD oil and other alluring products may be warming up, but banking regulations are infamously slow to develop and change. If you've relied on a bank for previous business endeavors, you may be shocked to discover the bank is no longer interested in doing business with you after you become involved in the cannabis industry.

This will change as time goes on, stigmatization fades, and the legal environment evolves, but for now, it's something that every prospective cannabis entrepreneur has to grapple with. The New York Times has conducted a thorough investigation into where pot entrepreneurs go when they can't find banks willing to take their money, and it's worth a review if you've yet to consider your financial prospects. If your business takes off and you end up generating hundreds of thousands of dollars in cash payments each month, you won't have time to figure this out as you go along, so some foresight could save you from a tremendous headache down the line.

You should also have a system in place for managing and paying your employees well before you open your doors, as an all-cash business in any industry can find itself in muddy legal waters when it comes to reporting incomes and fairly reimbursing workers. Always champion transparency and legitimacy in your internal financial arrangements and payment system, and you'll avoid the bulk of legal trouble that could fall upon you for dealing with such huge sums of physical cash.

4. Expect to pivot eventually. 

Finally, it's important to realize that sooner or later, you'll need to pivot from operating in a legally gray zone to running a legitimate, full-fledged business when cannabis inevitably becomes widely legal. Support for recreational and medicinal cannabis continues to skyrocket with each passing year, so don't expect your company to be operating in a legally dubious area for long. You can't rely on banks now, but eventually you may need to, and lack of access to a certain market in the present doesn't mean you'll always be prohibited from reaching out to those consumers.

In a few years, when cannabis is just about universally accepted, many budding pot entrepreneurs will be going bankrupt because they can't handle the pivot to legitimacy. Always keep the future in mind when you launch your cannabis business. Soon you'll discover that operating a business in a legally gray zone is challenging but has a unique set of rewards ripe for the taking.

Image Credit: The Cannabiz Agency / Getty Images
Chris Porteous
Chris Porteous Member
I'm a serial entrepreneur and owner of three internet ventures, including My SEO Sucks. A contributor to ZeroHedge,, Forbes,, and dozens of other media outlets, I believe in SEO as a product. I developed a proprietary technology fueling the #1 rankings of My SEO Sucks clients. In guest speaking ventures across North American, I advocate for organic search traffic as the backbone of any comprehensive digital marketing strategy.