If you’re reading this article, you’re likely curious about opening a cannabis dispensary. Perhaps you’re even planning on it.
Trust us when we say: you better be in it for the right reasons. Making the proverbial “quick buck” in retail cannabis is extremely rare, and times are tough for dispensary operators.
As with most things in business, anything worth doing is going to take some real work, and that’s how it is with starting up your own dispensary. There’s a lot to consider, including licensing fees, staffing, marketing, the location, and all the regulations around cannabis advertising.
That’s why we created this guide to opening your own dispensary: to give interested entrepreneurs a checklist based on tangible knowledge from years of industry experience. We hope that this piece represents real value to your cannabis business endeavors.
So let’s get into it: how to open a dispensary.
1.) Know Your Why
This first step must take place before you do absolutely anything related to a cannabis dispensary: you have to know why you’re getting into this business.
There’s a misconception out there that anyone who gets into cannabis becomes wealthy quickly because it’s a product that isn’t available nationwide and the public has to come to them if they want their cannabis products.
However, when assessing your reasons for opening a dispensary, remind yourself that, although the U.S. cannabis industry is expected to reach $33 billion by the end of 2022, you will likely not see a real, consistent piece of that for a long time after you start up.
That’s because of the enormous costs – in both resources and your time – associated with starting a cannabis business.
A dispensary will not be the short-term solution to a desire for some quick millions.
A true passion for the industry and for how these products can help people with their various health issues will be a more sustainable driver of the patience you’ll need to make it in cannabis.
This is why we encourage you to understand your reasons for doing this before taking a single additional step toward starting a dispensary. Your “why” will inform everything that follows, including the creation of your brand.
2.) Understand the Laws of Your State
When you’re sufficiently and properly motivated to see this venture through to completion, the next step is to choose a state in which to open your dispensary, or else to look into the rules and regulations of the state you’re already living in.
Some people don’t care where they have to move to open a dispensary. They just know cannabis isn’t legal in their state and they have to move to make this dream happen.
For your reference, cannabis is legal in some form (medical or recreational) in the following states.
Choosing a state for your operations comes down to much more than just a personal preference of climate.
A huge part of starting a dispensary is about having the money to meet the legal requirements of the state you’re in, so this part matters a lot.
If investable capital is limited, and you are looking for the smallest number possible, you might be asking: Where is it cheapest to open a dispensary?
Oregon is one of the overall cheapest places to open your dispensary right now, and that’s for two reasons. For one thing, the state application fee is $250, whereas some other states will charge you thousands. You’ll pay $4,750 for the annual license, but that’s also on the lower end versus other states; some states charge tens of thousands for the initial license fee and only slightly less for annual renewals.
Note that Washington State would actually be one of the cheapest states to open a dispensary, with its $250 retail application fee and $1,381 initial and renewal license fee, but the state caps its dispensary licenses and isn’t taking new applications at the moment.
You’ll also find that Oregon has an average cannabis price per ounce of only $210.75, while the national average is above $300. That’s the cost for the retail customer, but the savings apply to dispensary owners, too. Oregon retailers can pay under $1000/lb in some cases when there is oversupply in the state. So even when retail cannabis is cheap, it’s exponentially cheaper at the wholesale level, and you can make money.
All of this makes Oregon one of the cheapest states to open a dispensary.
Even within this context, though, you still need to know the individual laws and regulations on the state where you will be doing business.
For example, in Oregon, consumers cannot purchase more than two usable ounces of recreational marijuana during a transaction. That means your dispensary can’t sell more than two usable ounces of recreational marijuana in a given transaction.
The cannabis industries in different states are peppered with regulations such as this, and you have to become an expert in those of the state where you want to set up shop.
3.) Be Prepared for Startup Costs
How much does it cost to open a dispensary?
One of the things about wanting to get into the cannabis business is that startup costs can be massive, like any other business type. All told, with everything from licensing and liquid assets to cannabis banking and staffing, you could easily look to spend upwards of $750,000 in your first year as a cannabis dispensary.
Let’s get into where these costs come from.
The first expenses you’ll encounter are those we’ve already mentioned: the application and licensing fees. Again, depending on where you are, these costs alone can run you into the tens of thousands of dollars.
On those application forms, you’ll also have to show the state that you possess the capital not only for starting up your dispensary but also for basic operating costs and weathering your inevitably rocky first year or so in business.
Those operating costs include expenses such as the following:
- The brick-and-mortar store location (whether buying or renting)
- Maintenance and repairs of that location
- Product acquisition
- Security elements such as alarms, money safes, and product vaults
- Employee salaries
- Rainy-day funds, such as to cover business downturns or increased supplier costs
We want to call out three financial challenges in particular here in regard to new cannabis businesses.
The Physical Location
Renting or otherwise acquiring a storefront location will be one of your biggest expenses as a cannabis dispensary. In some areas, you could easily pay $100,000 in annual rent for that location.
That’s just rent. As we mentioned, extra costs will come in the form of renovating the store, getting the proper signage, adding security features, and paying your staff.
You will also have to ensure that the store you want is physically compliant with the laws in your area regarding its distance from schools, day-cares, churches, and parks. These laws will differ from place to place, but they usually state that dispensaries cannot be within 1,000 feet of those types of establishments.
The other expense and inconvenience associated with opening a dispensary is the matter of cannabis banking.
It is not the case that cannabis dispensaries cannot use bank accounts. If you’re a legal dispensary in a state that allows cannabis products to be sold, you can bank.
The issue is that getting a business account at your local bank branch isn’t as easy as it is for other business types. No major national bank in the United States will take cannabis accounts because of the remaining federal illegality of cannabis. That also means you can’t get a loan from any of them.
Cannabis dispensaries are therefore left to do business with smaller banks and credit unions in their areas.
This wouldn’t necessarily be so bad, but these institutions are often still wary about accepting cannabis clients.
To many of these small banks, the risks are still too great, given the complex network of laws surrounding cannabis in the United States. The banks don’t want to get hit with non-compliance claims by the government.
As a result, the banks may simply not accept you, or may charge cannabis customers more to use their services. For example, we have come across one bank that charges medical marijuana businesses $5,000 a month for checking services.
So, once you do find a cannabis-friendly bank to work with, you should be prepared for these added costs.
Internal Revenue Code Section 280E
The final cannabis dispensary cost worth calling attention to individually is the Internal Revenue Code Section 280E.
There’s a lot of legalese associated with this provision and its relation to the cannabis industry, so we’ll distill it down to the basics.
Section 280E essentially says that taxpayers engaged in the “trafficking” of substances considered narcotics — with marijuana being a Schedule I drug according to the federal government — cannot deduct business expenses that are connected to those substances.
Because the law deals with “trafficking,” it affects dispensaries the most. The code basically means that dispensaries don’t get to deduct cannabis expenses from their taxable income, so they end up paying more in taxes than your typical non-cannabis business would.
Section 280E is a federal law that affects dispensaries no matter where they’re located. If you’re in the planning stages of opening a dispensary, this is something you’ll want to study up on beforehand.
With so many hurdles to get over as a cannabis dispensary, many experienced cannabis business owners recommend having between $750,000 and $2 million in startup capital to open your dispensary.
After all that is said and done, one more financial question might remain for you:
What is the profit margin of a dispensary?
Answering this question can be a bit tricky because of the great variety in retail stores across the United States, but the average profit margin that a cannabis dispensary makes in the country is anywhere between 15% and 21%.
Take these numbers into account as you consider the other expenses we’ve been describing.
4.) Invest in Marketing
The U.S. cannabis industry is expected to grow to $40 billion by 2025.
With so many dispensaries vying for supremacy over the competition, investing in dispensary marketing is only going to help you in the long term.
What you spend annually on marketing will be up to you, what you can afford, and how fierce your competition is.
However, you do have some restrictions on what you can say on platforms such as Google and Facebook. Because cannabis is not legal federally, advertisers can’t mention any words related to cannabis products, or else their ads will get flagged. And, good luck connecting a Google Ads account to a website that contains all sorts of cannabis keywords (we do have a trick for running Google Ads, though!)
The Heady team strongly recommends using a cannabis-specific marketing firm for your brand. Expecting a generalist marketing agency to know all the ins and outs of cannabis marketing & advertising is bound to lead to frustrations and problems with execution.
Employing a cannabis marketing firm is the equivalent of having a trusted expert in the room to help with decision-making, a valuable asset when the laws and regulations are so complicated and confusing.
Take a look at some of the different marketing services available to cannabis brands.
5.) Become Efficient with Product Operations
The final step we want to mention here is to get into a groove with your dispensary’s operations, particularly your supply chain.
You’ll want to make sure that all product you obtain are manufactured legally and in accordance with state laws. As you build up your inventory, take into account the forms of cannabis that your customers want.
Your clientele will likely expect to walk through your doors and be able to purchase cannabis as a flower, edible, extract, or topical, and you should ensure that you have not only the inventory of these forms but the variety, as well, to cater to all audiences.
You can expect to spend some time at the beginning working out the kinks of who your suppliers are and how to buy from them in efficient ways, but it will pay to get this process down and then run with it so you’re operating a well-oiled machine for yourself and your customers.
Once You Open Your Dispensary, Let Heady Help
In this post, you’ve learned how to open a dispensary and the enormous challenges associated with doing it.
But you should be encouraged by all the success that dispensary owners out there are having right now.
It isn’t easy, but if your passion lies in helping to grow the U.S. cannabis industry to bring the benefits of cannabis to the public, then this is a journey well worth taking.
Heady can be there to help with your cannabis marketing when you’re ready. Our process is one of learning about who you are first and then determining how our digital strategies can fit into your philosophy.
When you need some help marketing your dispensary, give Heady a call.