How to Structure a Cannabis Business to Protect Your Personal Assets

What This Page Covers

• What an LLC actually protects
• When personal assets can still be exposed
• How liability spreads inside one entity
• Cannabis-specific risks that increase exposure
• How layered entity structures reduce risk
• Common structuring mistakes

What an LLC Does and What It Does Not Do

An LLC (Limited Liability Company) creates a legal separation between:

• You (the owner)
• The business

If the business is sued, the claim is generally against the LLC, not automatically against you personally.

However, an LLC does not protect you if:

• You mix personal and business money
• You fail to pay payroll taxes
• You personally guarantee loans or leases
• You commit fraud or regulatory violations

In cannabis, these exceptions matter more than most industries.

Why Cannabis Businesses Carry Higher Structural Risk

Cannabis businesses face risks that other industries do not:

• IRS enforcement under Internal Revenue Code §280E
• Payroll tax enforcement
• Banking instability
• Strict state regulatory oversight
• Cash-heavy operations
• Personal guarantees often required for leases and loans

Because risk is higher, structure matters more.

What Happens If Everything Is Inside One LLC

Many first-time operators form one LLC that owns:

• The cannabis license
• The retail operations
• The store equipment
• The cash
• The inventory
• The building (if owned)
• The brand

This means all assets sit inside one legal entity.

If that entity is sued, audited, fined, or liened, everything inside it may be reachable.

Real-World Example: Lawsuit Exposure

A customer slips and files a lawsuit.

The court awards $500,000.

If the operating LLC owns:

• The store
• The inventory
• The building
• The brand

All of those assets may be used to satisfy the judgment.

If the building were owned by a separate entity, it may not be directly exposed in the same way.

Real-World Example: IRS Tax Lien

Your business fails to remit payroll taxes.

The IRS assesses penalties and files a lien against the operating company.

If the operating company owns all assets, the lien attaches to all of them.

If property or ownership interests are held separately, exposure may be more limited.

How Entity Separation Works in Cannabis

Many cannabis businesses use layered structures to limit risk spread.

This may include:

1. Operating Company

This entity:

• Holds the cannabis license
• Runs retail operations
• Employs staff
• Pays vendors
• Handles daily compliance

This is the highest-risk entity.

2. Real Estate Company (If You Own the Property)

This separate LLC:

• Owns the building
• Leases it to the operating company

If the operating company faces a lawsuit or enforcement action, the building may not automatically be part of that exposure.

3. Holding Company

This entity:

• Owns the membership interests of the operating company
• Does not conduct retail activity

It may help isolate ownership interests from certain operational risks.

What About Trademarks and Intellectual Property in Cannabis?

This is where cannabis is different.

Because cannabis remains illegal federally:

You generally cannot obtain federal trademark registration for THC cannabis products or dispensary services under the Controlled Substances Act.

However:

• You may obtain federal protection for ancillary goods (apparel, consulting, software)
• You may obtain state trademark protection
• You may protect brand assets contractually

Some operators separate brand ownership into a different entity, even without federal registration, to:

• License the brand to the operating company
• Protect brand value from operational risk
• Preserve long-term equity

But federal trademark protection for plant-touching THC products is generally unavailable.

This must be considered when structuring intellectual property.

When Personal Assets Can Still Be Exposed

Even with multiple entities, personal liability may arise if:

• You personally guarantee a lease
• You personally guarantee a loan
• You fail to remit payroll taxes (Trust Fund Recovery Penalty under IRC §6672)
• You mix personal and business funds
• You ignore corporate formalities

An LLC is not automatic immunity.

Common Structuring Mistakes in Cannabis

• Using one LLC for everything
• Owning property inside the operating entity
• Mixing funds between entities
• Failing to document inter-company transactions
• Not consulting cannabis-specific legal counsel

Structure must be intentional and maintained.

Simple Risk Question to Ask Yourself

If the operating company collapses tomorrow:

• What assets are tied to it?
• What personal guarantees exist?
• What personal accounts could be exposed?

If the answer is “everything,” your structure may need review.

Important

Entity structuring decisions require professional advice.

Cannabis businesses should consult:

• A cannabis attorney
• A CPA familiar with 280E
• A corporate attorney experienced in regulated industries

This page explains structural risk logic, not legal advice.

Go Here Next

• What Happens During a Cannabis IRS Audit?
• Can the IRS Access Your Cannabis Bank Records?
• What Happens if a Dispensary Doesn't Pay Payroll Taxes?
• Can You Mix Personal and Business Funds in a Dispensary?

Source Material

• What is Internal Revenue Code §280E?
• Internal Revenue Code §6672 (Trust Fund Recovery Penalty)
• Controlled Substances Act
• USPTO trademark eligibility rules (lawful use requirement)