Today, we’re going to focus on the benefits as well as risks involved in opening a legal marijuana dispensary, and walk you through the entire process. From applying for a license, obtaining your initial funds. All the way to open doors for your business.
With half of the country now legalizing the use of marijuana, a new green rush is sweeping across the nation. New businesses are springing up quite like weeds dispensaries, processing facilities, grow operations, to name just a few.
How to Open a Legal Marijuana Dispensary
The truth of the matter is, the marijuana industry is extremely lucrative. Recent estimates indicate the return on investment in this industry is higher than it was at the peak of the internet boom. Most new cannabis dispensaries are profitable within their first year of operation. And an incredible 80% of them are breaking even or at least sufficiently recovering their operating costs.
Most states have a checklist on their official websites that detail how the application process works. You’ll definitely want to have a look at it. But generally speaking. There are four important factors to consider when opening a marijuana dispensary, location, licensing, financing and business plan. Let’s take a look at these factors in more detail:
In most states, before you even fill out the paperwork for your license application. You’ll need to have an ideal physical location for the dispensary. This means you’ll need to do thorough research of the various locations you’re considering. Paying particular attention to the local population as well as any additional compliance hurdles at the municipal level.
Ultimately, without a license, you won’t be able to open the dispensary- so this is an excellent place to begin doing your research. Work with a qualified attorney and familiarize yourself with federal, state and municipal laws, along with all licensing requirements. This industry has tricky laws that are hard to understand. Don’t risk losing your investment, getting your dispensary closed down, or worse- being jailed for ignorance of laws.
Simply put, no financial institution is going to give you a loan to start a cannabis dispensary. You can’t turn to the SBA either, because cannabis is still classified as a schedule I drug under federal law. This means the two primary sources of capital for most small businesses aren’t available for you. As such, you need to put in additional work to come up with a plan to raise the initial capital either through personal funding or bringing in investors.
4. Business Plan
A business plan is one of the most important documents you’ll need; you will use to it to secure financing from investors as well as demonstrate to the state that your operation satisfies their legal requirements. A plan typically covers the location you intend to put up your dispensary. Where you will source your flower. Your financing, the operations of our business. Your contributions to the local community such as donating to charity and other essential operation elements.
While no two dispensaries are the same, you’re probably not going to get started in any location with less than $150k, and in states with substantial capital requirements. You may need an upward of $1 million or more. Sometimes. This is because some entities don’t want to be involved in the cannabis industry, such as banks. Other times, it’s because operating a dispensary will require hiring specialized legal and financial advisors with cannabis-specific expertise.
Let’s look at a breakdown of the major startup costs for an average dispensary, starting with some basic estimates:
Application and Licensing Fees:
For application fees, $50,000 is a reasonable estimate, though it can be lower in states like Louisiana and higher in states like New Jersey. Licensing costs are generally higher, and there can be numerous other additional fees as well.
Real Estate Fees:
On an annual basis, $50 to $100K for an average sized facility in a competitive area. You might also use an additional $20 to $50k on renovations to furnish the space in the style you desire.
When starting out, you may have to hire qualified, marijuana-specific legal and financial experts. You can easily spend $50k or more on various professionals depending on the size of your business.
Come up with a work schedule for your employees including budtenders, administrative managers and security personnel, then count up the hours. Paying six employees an average of $20 per hour adds up to about $250k annually.
Here’s another area where costs vary significantly by state. Arizona requires applicants to have at least $150k in available capital. Nevada requires a minimum of $250k; Pennsylvania requires not less than $2million, $500k of which must be liquid money.
Now that we have some basic cost estimates in hand, we are going to discuss a few ways to raise capital to cover these costs:
- Self-Funding: this is the most popular financing option for entrepreneurs in the cannabis industry, primarily due to difficulty in securing funds from financial institutions.
- Family/Friends: This is another popular financing option for cannabis entrepreneurs
- Partners: There are likely several compatible individuals that may be interested in forming a partnership. Not only is this an excellent source of capital, but their skillet can also complement yours and take you far in the industry.
Licensing and Application Must-Haves
- A Business plan: You won’t get anywhere without a well-written business plan
- Financial Proof: You should be able to clearly demonstrate possession of the required starting capital to the state licensing board
- Full Team List: You should have a complete list of your employees for background checks and fingerprint verification
- Location: You should ensure that your chosen location is fully compliant with all state and local laws
- Security and Surveillance: You should have an excellent security plan for your facility
We’have tried our best to provide you with an overview of what’s involved in opening a legal cannabis dispensary. However, this isn’t enough, and we know it. We know you’re going to have more questions than answers, as you begin navigating this industry. When you find yourself looking for additional information, we hope that you’ll turn to our blog for help- it’s full of marijuana business-related articles and other strategic insights that will help you start and operate a legal marijuana dispensary successfully.