While it is enticing to start a hemp or CBD business in Nevada, there are several steps that must be followed in order to start your business legally. This is not an exhaustive list of what actions to take, but rather a broad overview of general issues that need to be addressed. If you have specific questions regarding your situation, you should contact an attorney.
STATE BUSINESS LICENSE:
First and foremost, in order to establish a legal business entity in Nevada, the business must register with the Nevada Secretary of State and obtain a business license to operate. While there are some exceptions, the overwhelming majority of businesses will need to follow this step. Through SilverFlume, a prospective entrepreneur can set up their business with the Nevada Secretary of State. However, it is always recommended that a new business consult with an experienced business attorney prior to establishing any new entity. This can save time, money and headaches in the long run. Some popular forms of small businesses are, Sole Proprietorships, Limited Liability Companies, and General Partnerships. Your particular goals will determine what type of business entity is the best fit for you. No matter what type of entity you chose, I strongly advise my clients to adopt a good set of governing documents before commencing operations; this is particularly true if you will have business partners. A good set of governing documents, such as an operating agreement or bylaws, acts like a constitution for the company.
EMPLOYER IDENTIFICATION NUMBER (EIN):
In addition to the state business license from the Secretary of State, new businesses in Nevada may also receive an Employer Identification Number (EIN). An EIN, also known as a Federal Tax Identification Number, is used to identify a business entity, similar to how a social security number is used to identify an individual. Generally, most businesses will need and EIN. Requesting and receiving an EIN is a free service offered by the Internal Revenue Service (IRS). Following this link will direct you to the IRS website where you may apply for an EIN online.
SALES TAX PERMIT / CONSUMER USE TAX PERMIT:
Virtually all businesses in Nevada need to record and report their sales and use taxes in the period when the sales transaction takes place. The Nevada sales and use tax applies to the sale, transfer, barter, licensing, lease, rental, use or other consumption of tangible personal property in Nevada. Nearly all tangible personal property transferred for value is taxable. Items not taxable include unprepared food, farm machinery and equipment, newspapers, and interest, finance and carrying charges on credit cards. Effective April 1, 2017, the Sales and Use Tax rates for Washoe and Clark Counties increased – Washoe went from 7.725 to 8.265 percent and Clark went from 8.15 to 8.25 percent. Therefore, if you are starting a hemp or CBD business in Nevada, sales and use taxes will need to be collected and reported to the Department of Taxation.
Business entities with Nevada gross revenue exceeding $4,000,000 during the taxable year should register for the Commerce Tax. In order to register for the Commerce Tax, business entities that think they may need to register can do so through the Commerce Tax Nexus Questionnaire.
Pursuant to the Supreme Court of the Unites States’ decision in South Dakota v. Wayfair, Inc., the Nevada Legislature enacted legislation that requires remote (online) sellers to collect and remit the applicable sales and use taxes on sales delivered to locations within their state – regardless of whether the seller has a physical presence in that state. Therefore, online businesses should be aware that selling products online may still necessitate the recordation and remittal of sales and use taxes not only to Nevada but to other jurisdictions as well.
NEVADA HEMP LICENSES:
If you are interested in growing, producing, or handling industrial hemp in Nevada, you will need to fill out the necessary applications, which can be found on the Nevada Department of Agriculture’s website. There are currently 3 applications:
- Industrial Hemp Grower’s Application– for those who will grow hemp.
- Industrial Hemp Seed Producer Application– for those who will grow hemp in order to sell/distribute the seeds.
- Industrial Hemp Handler’s Application– for those who will process hemp (i.e. make it into products).
Additionally, according to the NDA’s website, a “harvest report” is to be submitted by an “active grower/seed producer” 15 days prior to crop/seed harvest. Nevada requires any person other than a dealer, commission merchant or cash buyer, who negotiates the purchase or sale of any farm product and who does not handle either the farm product involved or the proceeds of a sale to register as a broker. The term “broker” applies generally to anyone who organizes the sale of any agricultural product but does not physically handle the product or the proceeds of the arranged sale. According to Nevada law, a person may not act as a broker without first obtaining a license from the Department of Agriculture. The application for the broker’s license can be accessed here.
LOCAL BUSINESS LICENSES:
Not only will new hemp businesses need a state business license, but they will also need a local business license for whatever jurisdiction they are located in. For example, a business located in Henderson will need a business license from the City of Henderson and a business located in North Las Vegas will need a business license from the City of North Las Vegas. Typically, these business licenses can be found on the local jurisdiction’s website. However, it is also important to know that if the business plans to conduct business in another jurisdiction, another business license may be required.
HOME-BASED FOOD BUSINESS:
Nevada allows for a Cottage Food Operation which may produce non-potentially hazardous foods, within certain limitations, for sale to the public from the home or farmer’s market, swap meet, church bazaar, garage sale or craft fair. A Cottage Food Operation may not exceed gross sales of $35,000 annually. Outside of a registered Cottage Food Operation, preparation of foods from a private home for sale to the public is unlawful. Therefore, if a home is being used to manufacture, store, serve, offer or display foods for sale to the public, then it is a food establishment and subject to regulatory enforcement and permitting. If a business plans to exceed $35,000 in gross sales annually, then a home-based business, at least for the production of foods, may not be possible. Alternatively, a business wishing to pursue a smaller scale operation may attempt to find a permitted food establishment that is willing to lease or rent space for food production during off-hours. However, a separate health permit, under the new lessees’ name, is required. Also, beware that the FDA does not allow CBD to be introduced into food. If you have questions about the FDA rules regarding CBD and food products, please contact an attorney who is experienced in hemp and CBD regulations.
When establishing a new business entity, especially in an industry as new as hemp and CBD, it is vital to seek the advice of experienced professionals. An experienced business attorney can help you get your business started on the right track and help you to avoid headaches down the road. If you have questions about starting a new hemp or CBD business in Nevada please contact our office about our consultation options.