In theory, a sharknado should work like a regular tornado, just with a little extra flair (flair = man-eating sharks). Technically speaking, since the sharknado is going to suck up sharks from the ocean, we'd be talking about a funnel cloud that forms over the water: a waterspout. Generally weaker than tornadoes, waterspouts can form from fairly innocuous clouds. But if we're looking for a weather system that is going to suck up sharks, we'll need the more powerful tornadic waterspout.
Like its land counterpart, tornadic waterspouts are whirling columns of air that develop from thunderstorms. As the condensation associated with the thunderstorm releases heat, that heat becomes the energy that drives huge upward drafts of air. This movement of air eventually can turn into a vortex where warm air on the inside moves upward and cool, dry air on the outside of the vortex sinks. The difference in temperature between the inside and outside of the vortex builds a level of instability that helps the tornado -- or in this case, waterspout -- thrive.
Once the waterspout moves ashore, it becomes a tornado. If it has managed to suck sharks up into its funnel cloud before it moves ashore, then we'd call it a sharknado.
Waterspouts typically form over warm, tropical waters. In fact, the Florida Keys have just the right balance of warmth and moisture to generate more waterspouts than anywhere else on Earth [source: Kellogg]. The common formation of waterspouts and the fact that great white sharks have been found off the Florida Keys means that our best chances of getting a sharknado to form are in the Sunshine State.