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Legal Bud

Head shops can be a very lucrative adventure, but some areas can be very unwilling to accept storefronts of this nature; although, if you think you have what it takes to operate a business, this may be a venture that is well worth your time.

                              

 What is a Head Shop?

The first head shop opened in the 1960’s. Typically these shops are opened in high population areas with a demographic suited for the business. College towns, inner cities, near malls, anywhere one might find a high concentration of young adults. Headshops specialize in drug paraphernalia related to recreational drugs, counterculture art, home decor, clothing, music, and magazines. They typically sell items like bongs, pipes, vaporizers, rolling papers, scales, incense, posters, blunt wraps, synthetic urine (carefull on the laws with this one) and urine/body cleansers.

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Legal Bud

Head shops can be a very lucrative adventure, but some areas can be very unwilling to accept storefronts of this nature; although, if you think you have what it takes to operate a business, this may be a venture that is well worth your time.

                              

 What is a Head Shop?

The first head shop opened in the 1960’s. Typically these shops are opened in high population areas with a demographic suited for the business. College towns, inner cities, near malls, anywhere one might find a high concentration of young adults. Headshops specialize in drug paraphernalia related to recreational drugs, counterculture art, home decor, clothing, music, and magazines. They typically sell items like bongs, pipes, vaporizers, rolling papers, scales, incense, posters, blunt wraps, synthetic urine and urine cleansers.

Legal Hurdles when Starting Head Shop

           Typically headshops are in a legal limbo. This is perhaps the biggest downfall of opening a headshop. Many partakers of recreational drugs attempt to open a headshop and bring unnecessary heat upon themselves. One must be very careful to separate work and play. Take your job seriously and remember that owning a business, even one as great as a headshop, is serious business.

           Checking local laws is imperative to succeeding in this world. Paying a lawyer to check local laws is more important than any step in this process. To get shut down, fined or even put in jail after signing a lease, buying inventory and remodeling a storefront can be financially devastating.  Your store can cater to legal and illegal drugs it is imperative that drugs are NEVER spoken of within the store. Place signs in the entrance, stating loud and clear, that the intentions of the store are strictly legal. In no way is any talk about illegal substances permitted. Inform your employees of this, and have them sign a contract stating that they are aware of this, and will be held financially responsible for their actions.

           Depending on your location, drug paraphernalia can be illegal, while in others, it’s fine. In many states it depends on the language used around, and about, the paraphernalia. Still, it is better to be on the safe side. Insist what you sell is for legal use and is intended for tobacco and legal herbs.

Choosing a location

Now that we have determined the legalities of owning a headshop, you will need to decide where to open your business. The location is without a doubt the most important part of owning a business of this nature. More often than not, leasing is the most viable option for a new business owner. However this is a matter of personal choice and it will depend on your capital investment.

Consider who your ideal customer is. Headshop customers are in the 18-35 y.o demographic, and typically an area that is middle class is best. You receive the best of both worlds. The customers have enough money to splurge on high priced items, while it is not so high class that they look to run your store out of the area.

  Pick an area that tend to attract those types of people, whether they live there or work there. Some of the most successful shops are local to a large mall. The demographic of mall shoppers is ideal for success. You can also use census data to help find suitable areas.

Drive around your prospective neighborhoods. Make note of any vacant storefronts and get contact information for each (it's often posted in the window). Also note the exact location of each one with the phone number. Use Google maps to plot and compare locations on a large scale. Call and check lease prices and the size of each space. Prices are often expressed as the price per square foot for a year. Be careful to inquire about CAM charges. These Common Area Maintenance charges add up quick, and are often used to recover lost rates when advertising a low price per square foot rate.

Set up appointments to view all of the spaces available that are even close to your price range (you may be able to negotiate terms that fit your budget). Schedule these appointments for a time of day when your business would be open, and preferably for a time that you think will be particularly busy so that you can check traffic levels.

Get a copy of the lease terms for each property you view. Review these in comparison with each other, and have your lawyer review any that you have questions about. Compare the lease rates, terms and any renovation allowances being offered. Decide on which lease best meets your needs. Try to negotiate a better lease term if possible. While you may not be able to negotiate a better rate, you might have more luck getting a bigger renovation allowance, or lowering Cam charges. Sign a lease only after your lawyer has reviewed the paperwork.

Return to the prospective storefront MANY times during the week. It is imperative that you get a good idea of what goes on around the storefront during the week. You would hate to open a store just to find out there is a Christians farmers market in your plaza parking lot during the weekends.

Business Resources

Depending on your business, it creates a lot of personal risk for the owner if they are not properly protected. Take this possible scenario into consideration. You sell a piece of glass to someone, and they use it to illegally ingest a substance such as meth. He overdose’s and his parents find the pipe and your receipt in his pocket. They instantly see an avenue to focus their anger, and their lawsuit.

The key here is to start a LLC, LLP, or Corporation (check with your Secretary of State office) and seek funding for the Company rather than seeking a personal loan. When you are seeking funding THE MOST important instrument in acquiring funding is a well thought out business plan. 

The business plan should include the following:

-Strong Executive Summary 
(Most important section, Short 1-3 pages that gives the lender/investor the key financial projections and market demand, if you can convince a lender of a profitable business idea in the Executive Summary they will be jumping to provide you with as much capital as you need)
-Market Analysis 
(Defines the specific demand for your product in the market)
-Cost Structures 
(Inventory pricing w/ comparisons to similar markets)
-Financial Forecasts 
(Cash flow analysis and Initial Cost Recovery Timeline)
-Exit Strategy 
(When do you call it quits, and how will you repay the loan if the business goes bust)

          The primary purpose of your business plan is to establish credibility and due diligence with lenders, investors, and business partners. There are any number of other components that can strengthen your business plan, and I would suggest buying a book on creating business plans if you are seriously interested in pursuing this. Also, it would be wise to consult some outside small business consultants (check into the small business bureau) speak with an accountant, speak with an attorney, establish a personal relationship with the City/Town officials, etc.

          Credit Unions, Smaller Local Banks, and Private investors are much better avenues with far lower interest rates. Starting a business is certainly not something you want to jump into without very careful planning and research. But the ultimate rewards of owning your own business can greatly worthwhile.
          One last piece of advice, it would be worthwhile to audit (take without a grade) a college business class at your local university on small business planning. Couple hundred bucks maybe, but well worthwhile if you are close to a decent university, with a business program.

          Go to http://www.score.org/index.html and in the upper left hand corner, enter your zip code. On the next screen, you will get information on the nearest SCORE chapter. Call them and arrange for a free meeting with a SCORE counselor.
          SCORE is a nonprofit association dedicated to entrepreneur education and the formation, growth and success of small business nationwide. SCORE is a resource partner with the U.S. Small Business Administration (SBA).
          SCORE has 389 chapters in locations throughout the United States and its territories, with 10,500 volunteers nationwide. Both working and retired executives and business owners donate time and expertise as business counselors.