It’s no surprise that the cannabis market is growing at a significant rate now that adult use cases have been legalized in many states. According to MJBizDaily, the cannabis industry is expected to contribute approximately $100 billion to the economy in the United States in 2022 alone. Thirty-three billion of this will be attributed to retail sales.Â
There’s an abundance of opportunity awaiting those looking to venture out into this green market—if they’re willing to put in the hard work. If you’re interested in learning about how to open a dispensary, this guide will give you vital information and solutions to various problems that will serve as a solid foundation for your entrepreneurial endeavor into the cannabis industry.Â
Things to Consider Before Opening a Cannabis Dispensary
Ensuring legal cannabis compliance, securing cannabis financing, and setting up proper security measures are the first things you should consider when thinking about opening a cannabis dispensary.
Legality
Cannabis is still illegal at a federal level, and at the lower level, regulations vary significantly from state to state. To date, recreational cannabis use is legal in the following 19 states (including the District of Columbia):
- Colorado
- Washington
- Alaska
- Oregon
- Washington, D.C.
- California
- Maine
- Massachusetts
- Nevada
- Michigan
- Vermont
- Illinois
- Arizona
- Montana
- New Jersey
- New York
- Virginia
- New Mexico
- Connecticut
- Rhode Island
But since laws and regulations around use remain extremely complex and dig down to the local level, it’s imperative that you take the time to comprehend the legal landscape in which you’ll be operating. Banking, processing and financing are all activities that are implicated by its federal legal status.Â
Security
Retailers in the cannabis industry are especially susceptible to many types of security threats simply due to the nature of the business. Those threats can come in many forms—from product theft to money theft, especially considering that many dispensaries keep large amounts of cash on hand. There’s also a higher risk of litigation because businesses in the industry can be targeted for fraud.Â
The most important step you’ll take before setting up security measures is looking into both state and federal requirements for dispensary security. Regulations and codes can vary from state to state, so we recommend leveraging a platform such as Casetext.com to make sure you’re crystal clear on your security obligations.
How to Open a Dispensary
Below are some key steps you should take before you begin selling on the market:
1. Create a Business Plan
Drafting a business plan is a crucial first step when starting any business. It’s also one of the major requirements for securing licensing.
A solid business plan gives you a blueprint for your entrepreneurial endeavors and can serve as a north star for making important decisions and ensuring you remain focused and targeted with your efforts.Â
2. Secure financing
You may be thinking, “Okay, let’s get to the money—how much to open a dispensary?” Estimates on dispensary startup costs vary, but the general range is from around $250,000 to as much as $2,000,000. However, there are a few routes you can take to generate the capital you need to start your cannabusiness.Â
Self-Funded
Some individuals prefer to go the self-funded route. While this is risky in the sense that you’re using your own money, you’ll have more freedom, as you won’t need to balance the responsibility of managing investor and/or co-funder relationships.
Co-Funded
Another option is to work with a co-founder. This is a business partnership that can alleviate your financial burden. However, you’ll need to choose your partner wisely, ensure you’re on the same page, and be flexible and collaborative.Â
Investors
Acquiring startup capital through angel investors is also a possibility. This method removes a great deal of the financial burden from your shoulders, but there may be very rigid structures in place to hold you accountable for your investors’ funds.
3. Find a Location
Sourcing a location is another important factor to think about before opening and operating a retail cannabis dispensary. It’s one thing to think about the state you plan on conducting business in. For instance, factors involving location and operations will vary quite significantly if you’re looking to put down roots in northeastern states such as New York, New Jersey, Connecticut, or Rhode Island, versus states in the Midwest or West such as California, Oregon, Colorado or Washington.
It’s important to conduct research on not just the local market but also the regional market to get a broader understanding of the surrounding competitive environment. Also, take some time to visit the areas you’re interested in and feel them out.Â
If you’re looking for a high-traffic spot in a cool district, expect to pay the price for it. There are obvious upsides to choosing such locations, but don’t rule out smaller markets and towns where the competition is often low and licensing is extremely limited.
State and Local Laws
If you’re interested in opening up a cannabis dispensary, we encourage you to research not only federal and state laws but also local laws, as regulations and requirements continue to vary significantly across localities, and there are many restrictions for cannabis operators to be aware of.
According to The National Law Review, 19 states such as Alaska, Maine, Massachusetts and Nevada have fully legalized cannabis for both medicinal and recreational use, and 37 states currently allow the medicinal use of cannabis with various restrictions through state-run programs. As far as decriminalization goes, 38 states have laws in place that authorize the use of cannabis for either medicinal or recreational use.Â
However, 14 states are still hitting roadblocks in their attempts to decriminalize the adult use of cannabis. Furthermore, many of the states where cannabis use is not fully legalized or decriminalized vary on issues such as adult non-medical use, decriminalization laws, and type of products allowed for retail.
Target Customer Base
The cannabis industry is an extremely competitive market, so you’ll need to be well-prepared when it comes to knowing your customers. Acquiring an in-depth understanding of your audience’s psychographics and demographics is key to sales performance. In many instances, the best option is to contract with a research vendor who can either conduct an audience survey or provide you with audience insights that are already pre-packaged for consumption.
4. Licensing
Preparing for licensing requirements is another crucial step when preparing to operate a dispensary business. You must have a robust understanding of what will be needed from you, and this understanding should be specific to the state and locality in which you’ll be operating.
How Much Is a Dispensary License?
Cannabis application and licensing fees vary between states. Licensing and application fees in Illinois will quite likely vary from licensing and application fees in other states such as Michigan, Vermont or Montana. In some instances, these fees can also vary based on factors such as the size or type of business you’re operating or how much revenue you’re generating. Generally, you can expect to pay around $1,000 in application fees. While most states don’t charge much more than this, in Michigan and a few other states, fees can go as high as $6,000.
Retail license fees range from $2,000 to as much as $25,000 or more, depending on where you’re operating. You’ll also want to consider the cost of renewals, which can happen on an annual or bi-annual basis.Â
State Procedures
Something you’re going to get used to hearing is that regulations and procedures vary significantly from state to state. This is why it’s vital to conduct your own research.Â
For instance, to open up a dispensary in Alaska, you would need $1,000 for your application, $5,000 for your retail license, and $7,000 for annual renewal. However, in California, retail licensing fees vary from as little as $4,000 to as high as $120,000 annually, depending on the estimated value of your planned operations. On the other hand, states such as Illinois have incentives for certain social equity applicants, which can help reduce or waive certain fees.Â
Required Documentation
The documentation that you’ll be required to compile for your application also varies from state to state. A business plan is a universal requirement. In New Mexico, you’ll need to include documents such as a form of authorization for release of information, proof of age for every controlling person, a social and economic equity plan, a location attestation form, and a water rights review accession form.
 Other states, such as Nevada, require additional forms of documentation, including zoning approval letters, pre-operating inspection letters, landlord approval letters, and a certificate of occupancy.
Investigation and Consultation
Once your license has been approved, you’ll need to undergo some investigative and consultation processes. There are firms you can enlist to help you with conducting checks on your employees and business associates and ensuring you’re shielded against physical, legal, financial, and electronic security threats.
Local Procedures
We want to continue to emphasize the importance of conducting your own research when it comes to ensuring your business remains compliant. As previously stated, laws and regulations vary greatly not just from state to state but also between localities. It’s imperative that you have a complete understanding of compliance at not just a federal and state level but at a county and municipal level as well.
Fees
In addition to application fees, you should check if you’re liable for other types of fees associated with cultivation licenses, product manufacturer licenses, or lab licenses, to name a few. You may also need various permits, and in many instances, cannabis business owners are required to have a predetermined amount of liquid assets available per establishment.
5. Hire Your Team
When setting up operations, having a full team of staff available to handle various aspects of the business is crucial. Marijuana retailers need to hire for a few positions that are unique to the industry. These include budtenders, security personnel, inventory management personnel, general managers, and a compliance/operations manager.Â
Depending on the unique needs of your business, you may also consider hiring for transportation personnel (both product-specific and cash-specific), as well as positions that are staples to any business, including marketing, accounting, IT, and human resources.
6. Shop for Equipment
Before your retail cannabis business becomes operational, you’ll need to purchase necessary equipment in order to ensure that your various departments are able to run and thrive. Examples of equipment needs include:
- Cultivation: Infrastructure, lighting, lab, inventory supplies, soil, chemicals, fertilizer, IT & software, PPE, environment monitoring, cleaning supplies
- Harvest: Harvesting toolsÂ
- Post-Harvest: Drying racks, dehumidifiers, curing and storage equipment
- Production: Lab supplies, sanitation supplies and machinery
- Distillation: Distillation equipment and systems such as extractors, winterization and decarboxylation and filtration equipment
- Packaging: Packaging machines and shipping materials
- Retail: Product showcasing, storage, IT & software, security infrastructure and POS systems
Choosing a reliable payment processing system is key to ensuring smooth operations and a seamless customer service experience. For more details, check out our Guide to Dispensary Credit Card Processing [insert link].
7. Make a Security Plan
Cannabis retailers are particularly susceptible to security risks due to the nature of the business and industry. It’s essential to develop a solid security plan that outlines processes and protocols for employees to follow.
There are also security requirements that vary depending on the state and locality in which you’ll be operating. Investing in a strong security system, equipment, and personnel is key to ensuring everyone’s safety.
8. Sourcing Your Cannabis
Figuring out a plan for sourcing your product is another important step you’ll need to take as a cannabis business owner. There are various options to consider, and the choice you make depends on your unique needs and budget.Â
Some retailers prefer to buy product in bulk via wholesale methods. Others opt for growing flower in-house. If you choose the latter, you’ll need to ensure you’re budgeting properly for the various fees associated with acquiring a cultivation license and/or laboratory license. You should also factor in additional expenses related to equipment and real estate.Â
Regardless of the route you choose, you’ll need to consider some additional factors when evaluating the prices of cannabis, such as the amount and type of product, quality control, and potential transportation.
How Payment Pluss Can Help Your Dispensary Thrive
Opening a cannabis dispensary is no small feat; it’s a complex endeavor with various moving parts. One of the most crucial decisions you’ll make as an operator is choosing a payment processing solution.
Payment Pluss is a trusted partner that can bring you peace of mind by providing you with the equipment and support you need for your business to thrive. Our portfolio includes notable companies such as Nike, Spotify, Apple, Amazon, and Google. If you’re interested in learning more about how we can support you on your journey, contact us today at [insert contact method].
Sources:
https://www.getkisi.com/blog/how-to-open-a-dispensary-in-california
https://www.covasoftware.com/how-to-open-a-dispensary
https://www.cure8.tech/how-to-open-a-dispensary-in-california/
https://mjbizdaily.com/marijuana-industry-will-add-nearly-100-billion-to-us-economy-in-2022/
https://www.natlawreview.com/article/summer-2022-brief-cannabis-legalization-update
https://www.khaderlaw.com/how-do-i-select-an-attorney-for-my-cannabis-company
https://mjbizdaily.com/choosing-the-best-cannabis-retail-location/
https://flowhub.com/dispensary-security-guide
https://flowhub.com/learn/dispensary-hiring-guide-cannabis-retail-staff