Starting a dispensary isn’t the easiest thing in the world, but it’s not as if there aren’t a lot of other industries that are heavily regulated. As an entrepreneur you should expect to put in a lot of work and deal with a lot of somewhat ticky-tacky regulations and paperwork to get started with any business.
Plus, while dispensaries might be new to you, medical marijuana dispensaries have been around for nearly 20 years and retail dispensaries for nearly 10 years.
Many businesses have succeeded in both building large-scale chains like MedMen as well as very successful small chains and individual stores, so you know there’s money to made here, and you can learn a lot from both your predecessor’s triumphs and mistakes. (We’ve incorporated many such lessons in this article.)
At the same, the industry still remains relatively unconsolidated and open to newcomers – so there’s money to be made here by YOU and not just some multi-state conglomerate.
Keep in mind that we’ve put these steps in a certain order, but that order may be different for you or may be done simultaneously. For example, you may want to start building your team and your connections with vendors right from the start.
How Big is The Cannabis Market in The United States
Research indicates that the legal cannabis market will increase rapidly over the next decade. By 2027, it is predicted that $57 billion will have been spent on legal marijuana globally. The market for marijuana for recreational use is anticipated to account for 67% of this overall number, with medical marijuana accounting for the remaining 33%. From $9.2 billion in sales in 2017 to an estimated $47.3 billion in 2027, North America’s legal cannabis market will account for the greatest share of global consumption.
How Big is The Cannabis Market in Canada
In 2022, Canada’s legal adult-use marijuana market had a value of $4 billion USD. The projection for this market is 7.7 billion dollars by 2026.
In 2023, the medical cannabis market is expected to generate US$0.63 billion in revenue.
How Much Does It Cost to Open a Dispensary?
On average, it costs $750,000 to start a new dispensary.
Following startup costs for dispensary business can be expected:
- Minimum startup cost $150,000
- Maximum startup cost $2 million
- Average startup costs $750,000
1) Check Your Local Cannabis Laws
Before you put any serious thought or effort into starting a dispensary, you should double-check your local cannabis license rules and availability.
Just because your state allows marijuana dispensaries doesn’t mean your city does, and just because your city allows dispensaries doesn’t mean there are any licenses currently available.
To check the laws in your area, just search on Google for “[your state] cannabis laws” and “[your city] cannabis laws]”, and/or “[your state] cannabis licenses” and “[your city] cannabis licenses”.
This should give you a general idea, though you’ll probably want to consult with a lawyer, real estate agent, and/or cannabis consultant to ensure the likelihood of receiving a license before proceeding any further.
In most cases you’ll need a license from both the state and the city where you want to open your dispensary.
Many localities put a cap on the total number of licenses available and only make them available for a certain period of time.
Even if you get a license, you have to worry about real estate availability. Most localities require dispensaries to be a certain distance from both schools or day-cares and other cannabis businesses, which means you can only open in certain areas and properties in these areas will be marked up accordingly.
You’ll also want to check if you are personally qualified to receive a license or be involved in the running of a dispensary. Some localities have residency requirements or at least factor in residency in the license selection/drawing process.
You may also be ineligble to open a dispensary if you have a criminal record (and everyone that works in a dispensary has to submit to a background check), though in many localities low-level drug convictions won’t count against you due to the now standard perception in cannabis-legal states that past drug laws were overly harsh.
Don’t Let the Hurdles Discourage You
This isn’t to discourage you from opening a dispensary, just to remind you that cannabis is a highly-regulated industry, and there are a lot of rules and regulations to consider before opening one.
If you’re motivated and patient and flexible and meet the basic qualifications, opening a dispensary shouldn’t be too difficult or daunting – not much more so than opening any successful business, anyway.
2) Establish Your Business
It may vary depending on your local laws, but actually forming your business is one of the areas where cannabis businesses and most other types of businesses are fairly similar.
Some localities require cannabis businesses to register as nonprofits only. But otherwise you’re free to choose your structure as you would with any business. Your options include:
- Sole proprietorship – all income is yours; you personally pay the taxes; all liability is yours
- Cooperatives – staff members or customers own the company, elect a board of directors
- Partnerships – you and your business partners share income, tax responsibilities, and liabilities equally
- Limited liability partnership (LLP) – you and your business partners share income, tax responsibilities, and liabilities in proportion to your business investment
- Limited liability corporation (LLC) – income and taxes pass through to the owners while protecting them from liabilities
- C Corporation – limited liability for company owners, with the ability to offer equity shares for investors
- S Corporation – a C Corporation with tax benefits but increased oversight
Next steps to register your business include:
- Picking a unique name
- Registering with your state
- File for an Employee Identification Number (EIN) with the IRS
- Register for a seller’s permit with your state
Again, consult a lawyer if you’re ensure about the process of legally establishing your business.
3) Create a Business Plan
Creating a formal business plan is a good idea in general.
You might have a clear idea of your business plan in your head and be a bit of an improviser, but creating a formal business plan can still help you clarify and organize your approach and expose any errors in your thinking.
More importantly, it’ll help show potential investors that you’re serious and demonstrate a clear path towards growth and return on investment.
And many licensers require you to submit a formal business plan to be considered in the first place, and the professionalism of your plan may factor in to whether you’re approved or not.
What It Should Include
The key components of a formal business plan include:
- Your business’s story – what makes you different? What’s your business’s mission and vision?
- Key people – describe your business partners and yourself; what about you (experience, education, financial backing, references, etc.) makes you qualified to execute the business plan?
Your plans to achieve your business’s mission, including:
- Your plans to achieve your business’s mission, including:
- Current and planned funding
- Operations plan – how you plan to run your dispensary operations
- Marketing plan – how are you going to get the word out to your target audience?
- Security and compliance plan – are you able to get and maintain the licenses you need to operate? What are your plans for protecting your dispensary from criminals?
- Planned locations and layouts – where are you planning to open your dispensaries? Have you verified that real estate and licenses are available in those areas?
- Sourcing plan – are you going to be a vertically-integrated dispensary that grows and packages your own products? If not, do you already have connections with cultivators/growers, distributors, and manufacturers so you know you can reliability source your products at a profitable price?
- Financial plan – budget and financial projections, including estimated costs and revenue, expected ROI, and time to profit
Speak Your Investors’ Language
With your business plan, focus on answering the question, “Why should I invest with you?” Consider what would get you to invest in your company if you were them.
Make sure you speak in the language of dollars and cents, since that’s what most investors will be interested in – they might not be as excited as you about, say, selling the best cannabis products in the area.
4) Get Funding
One thing that’s certain about funding your dispensary: your funding most likely won’t be coming from traditional banks, which are restricted under federal law from dealing with cannabis businesses.
Your best bet is with friends and family and investment firms that specialize in funding cannabis businesses.
5) Rent or Buy Your Store Location
As we mentioned earlier, you may have somewhat limited options in where you can open your dispensary due to:
- Cities not allowing dispensaries
- Cities offering only a limited number of licenses
- Regulations limiting dispensaries to certain areas (at least 1000 feet from schools and a certain distance away from other cannabis businesses)
- Property owners marking up their rents significantly since they know you’re limited in where you can go
The Importance of Winning Over Neighbors
On top of that, property owners may not want to rent to cannabis businesses for various reasons. Neighboring business owners or community leaders may oppose you and do what they can to prevent you from opening a dispensary there.
For that reason, you may want to build connections and get a feel for the level of tolerance for a cannabis business in a community before trying to open a dispensary there.
You can point out the security measures that you intend to implement to discourage criminals and loiterers and screen out underage patrons, as well as the environmental measures you’ll use to limit any cannabis odor in the neighborhood.
Finding The Right Place
Once you have all the funds you need, you may start looking for a good location to start your business. Many business owners prefer to rent their first site since cannabis dispensaries are much riskier than other businesses. However, if you are renting, you need to let the owner know that you want to run a dispensary there.
Make sure the property you are considering complies with all applicable local laws. Here are some important factors to take into account, when choosing a location for a cannabis business in most states:
1) The location cannot be within 1,000 feet of a public or private school.
2) The location must be less than 300 feet from a community facility that was open on the date the Department received the application for the proposed cannabis business.
Additionally, you can use web resources to locate an appropriate location and learn about traffic patterns, demographics, and traffic generators. These resources might help in your selection of the best sites for your dispensary.
Even though you’re usually going to have to pay a premium for your real estate as a dispensary, the silver lining is that 1) your immediate legal competitors have to pay these inflated prices too, so they don’t get any advantage over you; 2) the profit margins as a dispensary are usually good enough to cover the increased overhead
6) Get Your Licenses
In most places you’re going to need cannabis licenses from both the state and the city where you’re opening your dispensary.
Check your state and city websites for details on applying.
Applications typically require:
- An application fee
- Details about yourself and other owners, as well as any employees you may have already
- Proof that you own the dispensary real estate
- List of investments and loans made to your business
- Your security plan
- Your plan for deliveries
As mentioned at the start, most localities offer only a limited number of total licenses for a limited period of time.
Most localities receive a surplus of qualified applications, so make sure to fill out your application in such a way that gives you the best shot at being accepted.
Make sure your application is accurate and legible, all your forms and fees are submitted on time, and your application includes as much info about you to convince the locality that you’re the right choice. This includes mentioning any prior experience in the industry and the number of jobs you expect to create in the community.
Even if you don’t get a dispensary in the location you want, you still have other options, including:
- Trying to open one in a nearby location (or far away, depending on residency requirements and how far from home you’re willing to travel
- Purchasing a license on the secondary market
- Purchasing an existing dispensary and making it your own
- Simply waiting until more licenses become available
7) Find Your Products
Now that you’ve got your building, it’s time to fill it with stuff that people want to buy – cannabis products, specifically.
Assuming you’re not a vertically-integrated cannabis company that grows its own products, here’s what you need to do.
Product Buying Is a Full-Time Job
First you should know that buying cannabis products for a cannabis dispensary is a full time job. If you don’t have the time to do it, you probably need to hire someone to handle just this aspect of your business.
There are so many complex aspects to cannabis procurement, including:
- Building and maintaining relationships with quality growers, manufacturers, distributors, and testers
- Verifying the quality of the products you bring in
- Creating and retaining accurate records of all your transactions
- Ensuring you don’t keep too much product at each location (for both compliance and security reasons)
- Tracking inventory on at least a day-to-day basis (if not hour-to-hour)
- Ensuring products are properly and securely stored at each location
- Making sure all deliveries, both to and from vendors and customers, are properly logged and completed
As if this weren’t complex enough, these transactions all have to be done with cash due to the banking restrictions on the industry.
So you have to keep enough cash on hand to do these deals – enough to do business, but not so much that you can be wiped out with a single robbery – and this cash has to be appropriately secured.
The Products You Need
You need a good variety of quality products, including:
- Vape pens
- Cannabis accessories like pipes, lighters, and rolling papers
These products should range in quality and price if you want to attract a broad audience.
To find good products, check out rating sites like Weedmaps and Leafly, or visit cannabis conferences or competitors to try out products for yourself.
Note that many localities prohibit you from selling anything aside from cannabis and cannabis accessories at a dispensary, including non-cannabis food and alcohol.
8) Design and Set Up Your Store
Start With Security
When it comes to designing and setting up your store, security and compliance should be a top consideration.
Many dispensaries have a small lobby or waiting room with a secure door, where you can check IDs and/or register new patients or customers, since most localities prohibit you from letting people directly into the area of the store where the cannabis is from the street.
You need the areas where you store your cannabis and cash to be especially secure and to prevent too much of the cannabis scent from escaping, even to the point of installing an environmentally-controlled vault for it.
You need the area where you make and receive deliveries to be secure as well, preferably off-street and/or with a truck docking ramp.
As far as creating a cool-looking store that people will actually want to visit goes, you’ll want to check your local regulations first – there may be restrictions on how you design the inside and outside of your dispensary.
Many localities prohibit you from displaying your cannabis in such a way that it’s visible from the street, for example, or from using designs like cartoon characters that might appeal to children.
Many dispensaries design their interior to look like a cross between a coffee shop or bakery, a modern dentist office waiting room, and a sterile research lab.
Check out your competitors in the area. What do their dispensaries look like? If they look professionally-designed, you’ll probably want to work with an interior designer to make sure yours looks clean and professional too.
We’d recommend not focusing on aesthetics too much over other aspects of your business – ultimately it’s your products, people, and processes that will make or break your dispensary, because that’s what’s going to help you attract and keep a loyal customer base.
9) Hire Employees
Hire employees like you would for any business, with some caveats:
Don’t necessarily hire someone just because they’re passionate about or are knowledgeable about cannabis. Budtenders and managers need to be adept at customer service, and your buyers and execs need to be very detail-oriented and good with numbers.
All employees need to pass a criminal background check and be registered with the state and/or city.
All employees need to be trained on the particulars of your security plan, delivery plan, track and trace processes, tech, etc, if they’re relevant to their duties.
10) Market Your Business
Marketing is all about defining your target audience and getting their attention and their business.
For your target audience, you might want to just target everyone in your area. Or you might want to focus on specific segments like current or new cannabis users, older or younger patrons, or connoisseurs or people just looking for the lowest price.
As far as getting their attention goes, cannabis businesses are prohibited from advertising on platforms such as Google and Facebook, but you can still advertise in print or use things like SEO, email marketing, flyers, street teams, and attending cannabis events to get the word out.
You can also offer classes for new cannabis users or host events like yoga classes to draw in foot traffic and build trust.
Of course, you’ll also need a website and social media accounts, and you may want to list on sites like Weedmaps, though these listing sites have a reputation for being somewhat expensive.
A marketing agency can help you with some of these initiatives, though unless you’re willing to spend a lot of money you don’t want to outsource too much of your marketing to a third party firm.
An outside company isn’t going to have the same passion for your business or knowledge of your customers that you have.
Hooray! It’s launch time.
It was a lot of hard work to get your first dispensary up and running.
Fortunately, you only have to open your first dispensary once, and if you want to open more, you’ll know what to do. Best of luck with your new business!
Opening Dispensaries in Specific States
If you’re looking to open a cannabis dispensary in a specific state, check out one of these guides.
Need Any Help?
If you need any help with your tech, don’t hesitate to contact the cannabis tech experts at Cure8. We’re here to help you with procurement, setup, maintenance, support, and anything else you need!