What do luxury mattresses and marijuana have in common?
They’re both profitable; millennials love them; and they practically sell themselves thanks to a bevy of recreational and health benefits associated with them.
But, while mattress store investment may soon subside, entrepreneurial interest in marijuana is higher than Snoop Dogg in a nineties music video. Legal cannabis sales added north of $16 billion to the US economy last year, and there are more dispensaries in Colorado than Starbucks and McDonald’s stores combined.
There’s never been a better time to cash in on cannabis; but there’s also never been more confusion around how to open a dispensary. We’re here to clear that up.
In this guide, we’ll answer five key questions about how to open a dispensary:
How to Open a Dispensary
Where is it Legal to Open a Dispensary?
Note: US marijuana laws are in constant flux, and it’s possible the law has changed since we last updated this article on 09/22/18. We’ll do our best to keep you posted.
Trying to open a dispensary without knowing the law is like skydiving into a battlefield without a parachute. If by some miracle you do manage to land in one piece, you won’t be in good shape to survive for long.
Marijuana is prohibited under federal law, but 45 out of 50 US states allow the sale of marijuana for medical and/or recreational use.
States in Which Marijuana is Outlawed
The five states in which marijuana is completely illegal are Idaho, South Dakota, Nebraska, Kansas and Georgia.
States that Allow Only Medical Marijuana
States that Allow Recreational and Medical Marijuana
US State Marijuana Laws Mapped
How Much Does it Cost to Open a Dispensary?
So you’ve decided where to open your dispensary. That’s great; just don’t expect it to be cheap. Every state government imposes high licensing and application fees, high startup capital requirements, and high taxes on cannabis companies. Oh, and throw high rental fees into the mix while you’re at it.
Application and Licensing Fees
Acquiring a license to run a medical marijuana dispensary involves paying two types of fees: a non-refundable application fee, and a yearly licensing fee.
Application fees run at $5,000 in all states. Yearly licensing fees vary by state, ranging from $150 in Louisiana to a whopping $20,000 in New York.
Startup Capital Requirements
A different capital requirement applies in every state. In Arizona you need $150,000; in Nevada the threshold is $250,000. Crucially, you must be able to show that you have this money in the bank – profit forecasts alone won’t cut it.
In reality, it takes considerably more than the minimum capital requirement to open a dispensary. When you add up all the costs, and factor in the competition you’re up against, you’ll be hard pressed to start one for less than $1 million.
Taxes on Dispensaries
Different tax rates apply in each state, but one thing’s for sure: wherever you go, dispensaries pay more taxes than other retail businesses. Why, you ask? Well, federal law classifies cannabis as a Schedule 1 narcotic – the most dangerous kind of controlled substance. Even though public opinion on this is shifting, until the law changes, dispensary owners can’t deduct operating expenses like rent and payroll from their tax bill. Recreational dispensaries also face heavier taxes than medical marijuana dispensaries.
Dispensary Rental Fees
You can only open a dispensary in locations that comply with local laws. In San Diego, for example, compliant properties can’t be within 1,000ft of churches, schools or other compliant properties (some variation of these requirements is common in most cities).
In practice, this means demand for dispensary rental space usually outstrips supply. Which, as you’d imagine, drives rental prices up.
With that in mind, be prepared to pay a premium for your dispensary rental space.
How Can I Raise Funds for a Dispensary?
“Raising funds for marijuana” used to mean pawning your phone as collateral for half a kilo of kush from your local dealer. Nowadays, raising money to open a proper dispensary is a totally above-board process – if you know the right way to go about it.
Can Banks Issue Small Business Loans for Dispensaries?
No. For now at least, the federal illegality of marijuana means banks can’t issue small business loans for dispensaries. If you’re dead set on opening one, there are a couple of other funding sources you might consider:
Angel Investors and Venture Capitalists
Angel investors and venture capital firms foot most dispensary startup capital in the US. Large dispensary chains, like Curaleaf and Native Roots, owe their fast growth to the backing of a few wealthy individuals.
Meeting angel investors is easier said than done. Industry events, like the National Cannabis Summit, are great places to build your network. Just make sure your business plan is watertight before you take it on Shark Tank.
Crowdfunding has been used successfully by some of the marijuana industry’s most exciting players. Eaze Solutions, a cannabis distribution company (read: Deliveroo for weed), raised part of a $1.5 million infusion via the crowdfunding website AngelList.
Under Security and Exchange Commission (SEC) rules, a company can raise up to $1 million annually from crowdfunding backers. A typical online crowdfunding campaign has to specify a target funding goal and a timeframe for reaching it. Other than those requirements, you’re free to pitch to the public however you like.
Crowdfunding is ideal for very early-stage companies who don’t yet have the clout to attract venture capital. There’s less red tape than with a commercial bank loan, and you don’t necessarily even need a financial track record to launch an online campaign.
One point to bear in mind is that some crowdfunding sites, like Kickstarter and Indiegogo, flat out refuse to work with cannabis companies. The good news is that plenty of other platforms are less picky. To learn more about crowdfunding, check out our guide to the top 15 crowdfunding sites for small businesses.
How Can I Create a Professional Storefront for a Dispensary?
So you’ve nailed your business plan, and you’ve set up shop next to 420-friendly neighbors. We’ll be honest, though; that’s only half the battle.
See, it’s one thing knowing how to open a dispensary; it’s another thing to run one. Running a retail business isn’t just about having the best product. It’s about providing the best service.
Here are two things you’ll definitely need to create a smooth customer experience:
1. A Professional Point-of-Sale Setup
A Point-of-Sale (POS) system will be one of the most important pickups you make as a dispensary owner. At its core, a POS system is a touchscreen-enabled cash till that makes it easier to take payments and record transactions.
But a cannabis-specific POS system does so much more. A well-designed one can aid with:
- Logging customers’ buying histories
- Helping service staff provide helpful product recommendations
- Managing inventory and purchase orders
- Reporting sales data for different weights and strains of cannabis
- Keeping your dispensary compliant with state regulations
That last point is a big deal, since compliance is easily the biggest administrative burden you’ll have to deal with running a dispensary. Given that breaching state laws can lead to your dispensary license being revoked, it’s well-worth investing in the right POS system.
2. A World-Class Website
In case you haven’t realised, the marijuana industry is inherently risky (but oh-so rewarding). Some of your potential customers will have questions about the legality of what you’re doing; questions you’ll need to answer before they even consider buying from you.
A polished website can quell any concerns your customers have. The best web designers draw on years of experience to make websites look the part and ooze credibility. They’re skilled at optimizing web pages to load quickly and rank highly in Google search results – both essential factors for winning new customers.
Legally speaking, dispensaries can’t sell cannabinoid products online – all sales have to be completed face-to-face, with payment in cash. That said, some states allow you to take online orders and deliver to the customer’s house, a bit like a pizza delivery. All in all, a website can be a very valuable channel through which to find customers.
If you’re in the market for professional dispensary web design, check out our guide to the top ten web design companies.
How Can I Store and Transport Product to and From the Dispensary?
Having to take payments in cash has serious downsides, not least of which is increased vulnerability to theft. Like banks, dispensaries are a popular target for thieves thanks to the large cash holdings they keep on the premises. They also face the separate issue of armed robberies during deliveries of marijuana shipments.
Armored cargo vans are the vehicle of choice for most dispensary owners looking to protect their investments. Fleet management software is another essential tool, which you can use to keep tabs on the locations of delivery vans.
You now know how to open a dispensary. If you’re lucky, you could soon be joining the ranks of America’s minted marijuana moguls.
If you achieve success, consider taking it a step further by opening more dispensaries or consulting – a booming satellite industry.
Just remember, with marijuana laws changing often, it’s important to follow new developments even after you’ve opened your dispensary, to ensure you’re operating in a safe and legal manner.