THE BLOG
04/04/2014 05:51 pm ET Updated Aug 25, 2014

6 Things to Consider When Setting up a Marijuana Business

ASSOCIATED PRESS

Call them "ganjapreneurs," those wide-eyed marijuana enthusiasts who hope to turn the green stuff into green stuff of another kind.

Growers. Shop owners. Bakers. Glass artists. Pot tour operators. Amsterdam-style "coffee shop" owners. Venture capitalists. They're hungry to cash in on the legalization of marijuana that has already occurred in Washington and Colorado and is closing in on other states. In Washington alone, wanna-be pot businesses filed nearly 4,000 marijuana business license applications.

With a market estimated at $2.34 billion, according to a report by ArcView Market Research, the marijuana market is smoking hot -- growing faster than the smart phone market. Millennials and their aging Baby Boomer parents -- who make up today's and yesterday's marijuana market -- are clamoring to jump in to what could be their generation's gold rush.

But wait. Despite the prospects of big payoffs, there are plenty of hurdles these ganjapreneurs must face before laying out the welcome mat. Here's just a few:

1. The feds: The marijuana business -- in many cases -- is unchartered territory.

While some states have made it legal, the federal government still considers it illegal. Despite promises by the Obama administration to stand down, there are no guarantees pot businesses will be left alone. Right now, because pot is federally illegal, banks won't provide checking accounts and loans to marijuana businesses for fear of being prosecuted for money laundering. However, new banking guidelines are in the works.

2. The big bucks: Historically, many investors have boycotted tobacco, alcohol, gambling and similar "vice" businesses on moral grounds, thereby reducing demand and ultimately the price of those stocks.

This is one reason Philip Morris Companies changed its name to Altria Group, to avoid the stigma that went with the name "Philip Morris." Although plenty of marijuana venture capital firms are popping up, such as Emerald Ocean Capital and ArcView Group of San Francisco, well-known IPO underwriters, fearing a boycott or consumer backlash, may stay away. To go public, a marijuana company must demonstrate a broad, scalable and legal marijuana market in perpetuity. We are a long way from that in pot distribution.

3. Speaking of Big Tobacco: Another obstacle is Big Tobacco itself.

Why stick to growing tobacco when growing weed can be more profitable? Will Big Tobacco run Small Marijuana out of business?

4. Unknowns: The market is so new that it faces significant unknowns including price stability, black market competition and regulatory complexity, all leading to significant risk.

Similar to the tobacco litigation in the 1990s, it's likely marijuana businesses could face class-action lawsuits over yet-unknown health risks.

5. Regulations: Even in states where marijuana is legal, government officials are tasked with oversight, meaning oodles of regulations, controls and enforcement.

Entrepreneurs face hurdles in most new businesses. They'll face a regulatory climate that's in even more flux in this emerging industry.

6. The "Dude, just chill" factor: I have to wonder how hard it will be to run a business in the hazy, dreamy atmosphere of the pot culture.

Like, why show up for work on time and count the till when it's way easier to sit on the couch, play some video games and pass the munchies?

Want to join the marijuana gold rush and go for the green? The opportunities are huge. But stay focused and alert to avoid getting caught in the hype.

Correction: An earlier version of this post misattributed a report published by ArcView Market Research.