Starting A Marijuana Dispensary in Eight Steps

avatar WeedWeek / Aug 12, 2020

Starting a marijuana dispensary is a dream for many cannabis lovers. And it is a dream that is increasingly possible, thanks to the evolving regulatory climate in the United States. However, as with any small business, there are many hurdles to overcome, from legal, to financial, to a plethora of unforeseen risks. But if you follow the eight steps we’ve outlined below, and carefully plan your path towards starting a marijuana dispensary, the sky can be the limit. 

Starting A Marijuana Dispensary: How Much Does it Cost?   

The costs to start a dispensary can vary significantly, and generally range from $150,000 to $2 million. These costs depend on factors that are both within and outside your control. Costs associated with property acquisition and renovations, marketing materials and so forth are within your control. Costs associated with application and licensing fees vary from state to state, and are unavoidable. Fees can easily run into the hundreds of thousands – and keep in mind that all this investment must be made before you begin selling any product. 

What Are The Legalities Of Starting A Marijuana Dispensary?   

In 2018, the federal Farm Bill legalized non-recreational hemp for industrial uses. Hemp is defined as cannabis containing less than 0.3% THC. Any plants containing THC levels higher than 0.3% are classified as a Schedule 1 drugs and are illegal. States are free to make their own rules around marijuana and some have legalized both medical and recreational use. However, it is still federally illegal to sell marijuana. No state and local laws – no matter how friendly – will protect you from being prosecuted under federal law. But if you adhere closely to local and state laws, you may be able to sidestep any major issues and operate a successful business. This is why it’s critical to understand the legal environment of the state you are operating in. 

There are a few key pieces of proposed legislation that may make the regulatory environment in the United States much more favorable for the legal cannabis industry. The MORE Act of 2019, for example, would decriminalize weed at a federal level. The Secure And Fair Enforcement (SAFE) act would help cannabis businesses acquire funding and loans from traditional financial institutions, something that is currently challenging, as will be explained below. 

Is Marijuana A Profitable Industry?   

The marijuana industry generates a lot of cash, with demand soaring over recent years. Some estimate the global legal marijuana industry to grow to around $42.7 billion by 2024 and over $90 billion by 2027, with a compound annual growth rate of 20 percent. 

However – and this is a big however – there are risks associated with the industry, which is why investors consider it a volatile market. This uncertainty comes largely from regulatory risks due to marijuana being considered a Schedule 1 drug.  While some states have decriminalized and even legalized marijuana, there is still some risk in it being illegal at a federal level. State regulations can also change unfavorably in the future – this is a risk you will always have to keep in mind when becoming involved in the legal cannabis industry. 

Beyond these risks, there are tight margins and high taxes to consider. As more people use legal marijuana, the cost will likely go down, leaving growers and dispensaries with less profit. High banking and regulation costs are also things to be wary of. 

Starting A Marijuana Dispensary: Where Can I Do It?   

You can open a dispensary in any state that has legalized marijuana to a necessary degree. It may be easiest to start a marijuana dispensary in a state that has legalized both medical and recreational sales. These states include California, Colorado, Nevada, Washington and Alaska. Many states, including Florida, New York, and Arizona have legalized medical marijuana, but not recreational marijuana. It will still be possible to set up a medical dispensary in such a state, but there may be more regulations to abide by. 

8 Step Guide On Starting A Marijuana Dispensary  

The following are some guidelines to follow to get you going on your cannabis dispensary journey: 

Step 1: Assess Your Commitment And Eligibility   

Starting a business comes with big risks. You will likely have to pour blood, sweat and tears into it in order to become successful. And keep in mind that hard work is never a guarantee of success no matter your industry. So only think about starting a marijuana dispensary if you really love marijuana, and are prepared to love all the tasks associated with keeping your dispensary running over the years. 

Once you’ve got your commitment on lock, find out if you are eligible to start a dispensary. This eligibility varies state by state. Some states require that investors, owners and license holders not have any felony convictions on their records. Others require proof that you have at least $1 million available before you are able to obtain a dispensary license.

Step 2: Do Your Research   

After researching what state laws apply to the cannabis industry in your area and what licenses and regulatory hurdles you must overcome, it’s time for yet more research: on competition and markets. 

    Research the Competition

When researching the competition, start out with a SWOT analysis. Map out several areas you’re interested in locating your dispensary. Then map out what dispensaries are already operating in the area. Check to see whether they are the same type as yours – medical, recreational, what kinds of products and brands they serve, and what kinds of customers they cater to. Try to identify underserved areas so that you can corner a market of your very own. 

    Conduct Market Research

There are a few key steps in conducting market research: 

  • Look at broader industry’s outlook and where it’s headed
  • Identify customers (age, income, geographical location)
  • Use unbiased data from trade journals, the Census Bureau, etc. 
  • Analyse findings and organize them into sections including target market, competition, and so on. 

Step 3: Find A Rental Property   

When it comes to property, compliance is the name of the game. While regulations vary by state, some features that make properties compliant include being a certain distance from schools, churches, or residential zones. Some landlords may also balk at a leasing to a cannabis business due to the legal or social risks involved. Fortunately, companies such as 420 Property and Cannabis Real Estate can help cut down your search time by offering compliant property listings, real estate agents and can even hook you up with insurance and banking services if you need them. 

Step 4: Write A Business Plan   

Business plans are critical for small business success, and even more so for dispensaries, since some states require fully-formed business plans in order to obtain a dispensary license. Business plans generally include industry overviews, market analyses, sales and marketing plans, and management plans. Take your time in crafting a solid business plan, since this will not only help you get clarity on what to expect for your business, but also will help you attract investors. Here’s a template that can help you get going. 

    Access Capital

Unfortunately, accessing capital to finance your dispensary can be a bit of an uphill battle. Because marijuana is still illegal at the federal level, it can be more difficult for anyone in the cannabis industry to receive loans through traditional lenders, or open credit cards or merchant accounts, due to the legal risk that is associated with the cannabis industry. Also be prepared for banking costs to be higher when you do find lenders and bankers who will work with you, since legal risk is often passed along in the form of higher fees. 

One solution to the more traditional route is equity financing, meaning an investor or group of investors who provide you with capital in exchange for an ownership stake in your company. While this may feel like free money initially, keep in mind that investors will take percentages off of profits for the duration of your business’s life, until you can buy them out. 

Other financing options to explore include short-term loans, alternative lenders, and lines of credit. 

    Determine Your Budget

A solid budget will help you orient your dispensary among the ecosystem of relationships you will rely upon in the day-to-day operations, including those with customers, employees, and suppliers. 

There are four components to a solid budget: 

  1. Revenue model: how much do you sell, of what product, at what price? 
  2. Staffing model: who works at your business and what roles to they fill?
  3. Operating budget: what infrastructure will your dispensary require to operate efficiently?
  4. Projected profits and loss statement: a summary of all expenses and profits

The types of information to include in your budget are the number of customers you anticipate serving, the competition in the area, a list of accounts from your accounting system. 

Step 5: Get Licensed   

The process and costs for getting licensed for a cannabis dispensary vary state-by-state, and the costs tend to vary based on the estimated size and value of your business. In California, for example, it costs $1,000 to apply for a license. If approved, then you’ll need to pay anywhere between $4,000 to $120,000, which will depend on the estimated value of your dispensary. In Michigan, the application fee alone is $6000. In Illinois, the application fee is between $2,500-$5,000, and the license costs $60,000 for a period of two years. 

Look up the licensing process for your state to figure out your costs and the process for getting licensed. 

Step 6: Get Product   

Hopefully, if you’re this far along in the process of opening your own dispensary, you will have a network that includes a few folks who run grow-ops or have connections with brands. It’s often a good ideal to go into business with people you know and trust. Cold-calling producers is another avenue to explore as well. As with any business, relationships are important, so take time to develop these to build trust.  

Step 7: Build A Team   

When building a team for your dispensary, try to select people who are as passionate about marijuana as you are, at every level: from executives to customer services representatives. Everyone who works at your business should feel like a valued member of a greater whole, and be able to speak to the products and help sell. Ensuring all staff are over 21 is important, as is checking track records for felonies to ensure you abide by local regulations.  

Step 8: Market Your Dispensary   

What makes your dispensary unique? Why would people choose yours above others? Figure out these angles and put them out into the world to entice the masses through your doors. Take out billboards and online advertisements. Sites such as Weedmaps, one of the largest social platforms for the cannabis community, can be a great way to attract and retain customers. 

Conclusion   

Starting a marijuana dispensary is no small task. Yet it can be a rewarding experience. As long as you go into the process with a full understanding of legal regulations and risks, a solid business plan and a good chunk of change, you can have a shot at owning your own dream business dedicated to the plant you love. 

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