Dispensary Laws In California
Medical marijuana has been legal in California since 1996, recreational marijuana since 2016.
Any adult in California can possess up to 1 ounce of cannabis or 8 grams of marijuana concentrate. Registered medical marijuana patients can posses up to 8 ounces of cannabis.
Dispensaries can sell up to 28.5 grams of cannabis and 6 immature plants to each customer per day.
At the state-level, recreational cannabis is taxed at a net effective rate of 35% to 45%, including a 15 percent retail excise tax and a cultivation tax of $9.25 per dry-weight ounce for cannabis flowers and $2.75 per dry-weight ounce for cannabis leaves adjusted for inflation. Medical marijuana does not carry a sales tax.
To open a dispensary in California, you need a storefront retailer, or type 10, license. Or if you only want to do deliveries, you can opt for a non-storefront retailer, or type 9, license.
You will need a separate license if you want to do any cultivating, manufacturing, distributing, or testing – unless you have less than 10 employees, in which case you can apply for a vertically-integrated microbusiness license.
Keep in mind that in California, getting a dispensary license from the state is usually the easy part. At one point in 2019, 80% of cities in California had banned recreational storefronts. The cities that do allow recreational cannabis dispensaries often only do so for a limited time during designated application windows, and competition for these licenses is often high.
Application and License Fees
Here is a general idea of some additional costs you may have to incur in the form of legal fees when owning a marijuana dispensary in California.
- Initial license fee: $1,000 (non refundable)
- Annual fee: $4,000 – $72,000 (scales based on revenue)
- Approval fees: $5,000 – $30,000 (scales based on scope and size)
- Permits and assessments: $0 – $30,000 (scales based on scope and size)
The Cannabis Market in California
California is the largest single cannabis market in the world. Arcview Market Research and BDS Analytics estimate sales of up to $3.8 billion in 2020, and they expect the market to surpass $6 billion by 2025.
In comparison, the second largest cannabis market in the US, Colorado, and the entire country of Canada are only expected to bring in about $1.7 billion each, or less than half of California.
This despite the fact that California still has an illicit market that’s nearly double the size of the legal cannabis market, at a total of $8.7 billion in estimated sales.
According to the Cannabiz Media license database, there are around 700 licensed dispensaries in the state, including over 130 in the Los Angeles area.
How to Open a Dispensary in California
Step 1: Establishing Your Business
The California Secretary of State website has a helpful guide on how to start and register your business in the state. You can choose to register as one of these types of businesses:
- Limited Liability Company
- Limited Partnership
- General Partnership
- Limited Liability Partnership
- Sole Proprietorship
One good thing about opening a cannabis business in California is that, since medical marijuana has been legal for so long and the state has always had a robust illegal cannabis market, it’s easier to find people experienced in cannabis to help you start your business than it is in other states.
Step 2: Plan
California requires you to submit a few planning documents as part of the application process, including:
- A detailed diagram of your store
- List of investments and loans
- Procedures for:
- Quality control
Your city will probably require additional materials, too, since they’re going to want to compare you to other applicants. You’ll want to submit a business plan that emphasizes your past experience, funding, preparedness, understanding of the industry, and social consciousness.
Put these plans together now, early. They’ll help guide your decision making and build confidence with potential investors.
Step 3: Get Funding
Speaking of investors and funding, you’re probably going to need a lot of funding to open a store in California, where everything from goods and labor to real estate is expensive. Plus, you’re competing with an especially strong black market, one that will undercut you on price and that many people are already comfortable buying from, and that isn’t really a high priority for local law enforcement.
On the positive side, there are a lot of rich people in California. Maybe you know some of them; you can get funding from them or a local investment firm. They may be more likely to invest since cannabis is viewed as a new and exciting industry with lots of potential.
There’s also limited ethical opposition to cannabis in California, though based on the data is seems that many only support legalization as long as the dispensaries are in someone else’s neighborhood.
Also, California even offers state-based funding for the industry, including a recently-announced $30 million grant program.
Step 4: Find a Home
Real estate in California is already expensive, at least in many prime urban and suburban areas. The fact that retail cannabis is only allowed in 20% of cities figures to drive up your costs even more. So be sure to put a lot of thought into where you locate your dispensary.
Make sure your dispensary is the required 600 feet away from a place of worship or a school.
You’ll also have to submit an environmental impact analysis if you’re doing any cultivation or chemical processing at your location.
Step 5: Get Your Licenses
As mentioned above, for most businesses getting the local city license will be the key. These licenses are more difficult to get than the state ones and tend to only be available from time to time, at least in competitive areas like Los Angeles, Orange County, and San Francisco.
In filling out your application for a city license, follow the directions carefully and focus on the points that weigh most heavily on the city’s scoring system if they have one – usually prior experience, funding, local hiring plans, connections to the community, and/or status as a veteran, woman, or person of color.
Here’s an example of the application page for the city of Santa Ana, CA. Search for information on the process in your city of choice.
In addition to your cannabis license, you’ll also need a seller’s permit from the California Department of Tax and Fee Administration.
Step 6: Set Everything Up
Ok, you’ve got your real estate and you’re good to go on licenses. Nice. Now it’s time to get everything set up. That includes:
- Hiring smart, energetic people that know cannabis or are willing to learn
- Designing and setting up the aesthetics of your store – including furniture, paint, signs, art, and display cases
- Planning and initiating operations, including employee scheduling, hiring and onboarding procedures, developing employee manuals, etc.
- Designing and implementing your tech, including your POS, TV menus, surveillance system, and back office network
- Buying and setting up company delivery cars, if needed
- Working out deals with manufacturers and distributors to sell their products
This is a lot of work for one person to handle, so don’t try to do it all yourself. Surround yourself with a team you trust and find partners and vendors you can work with to lighten the load and focus your efforts on the aspects of your business that matter the most.
Step 7: Launch!
Now that you’re ready to launch, it’s time to get the word out. California has relatively lenient marketing and advertising rules for cannabis.
You have to make sure that at least 71.6 percent of your advertising audience is over the age of 21, and you can’t depict any minors in your ads or use any iconography such as cartoon characters that might appeal to children.
You also can’t do any free giveaways including BOGOs and contests, and can’t put any billboards within 15 miles of the state border on an Interstate Highway.
Also make sure that you receive confirmation that someone is over the age of 21 if you market to them directly. You’ll see an example of this whenever you try to access a dispensary’s website.
How Cure8 Can Help
Cure8 can make the difficult process of opening a dispensary in California easy by handling the design, installation, and management of all your tech, including your POS, surveillance, and seed-to-sale systems. If you ever need help, just reach out to us at [email protected].