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How to Open a Marijuana Dispensary

How to Open a Marijuana Dispensary - ZenBusiness

Colorado legalized recreational marijuana in 2012, sparking momentum for cannabis commerce nationwide. As of 2020, marijuana is still illegal under federal law, but 33 states (plus Guam and the District of Columbia) allow some form of marijuana use. Five more states voted to legalize marijuana in the 2020 elections, with legislation going into effect soon.

Plus, multiple legalization efforts are on the ballot in other states. As more entrepreneurs look to cannabis, starting a marijuana dispensary is not a cheap or easy business decision. But with this guide you can learn how to make headway in the growing cannabis industry.

Benefits of Opening a Marijuana Dispensary

Colorado legalized recreational marijuana in 2012, sparking momentum for cannabis commerce nationwide. As of 2020, marijuana is still illegal under federal law, but 33 states (plus Guam and the District of Columbia) allow some form of marijuana use. Five more states voted to legalize marijuana in the 2020 elections, with legislation going into effect soon.

Plus, multiple legalization efforts are on the ballot in other states. As more entrepreneurs look to cannabis, starting a marijuana dispensary is not a cheap or easy business decision. But with this guide you can learn how to make headway in the growing cannabis industry.

Checklist for How to Start a Marijuana Dispensary

Starting a cannabis dispensary is not the same as starting another type of retail business. Marijuana laws, regulations, guidelines, licenses, taxes, finances, and costs are complex and vary state to state. Use the checklist below to help you understand factors you may need to consider.

Checklist for How to Start a Marijuana Dispensary
 

1Create a Marijuana Dispensary Business Plan

2

Choose a Business Structure

3
Determine Your Startup Costs
 
4
Create a Dispensary Business Name
 
5
Register Your Marijuana Business and Open Financial Accounts
  
6

Purchase Equipment for Your Marijuana Dispensary
 
    7Market Your Dispensary Business

1: Create a Marijuana Dispensary Business Plan

Your cannabis business plan can be an essential partner as you make your way along the twists and turns of taking your dispensary from dream to day-to-day operation. Writing a business plan can take as little as a few pages, but the exercise will help focus your idea, double-check assumptions, and help give your company a better chance of success.

  • USP (Unique Selling Proposition): The marijuana industry is competitive. What will you offer that’s better than the competition?
  • Target market: Cannabis customers are diverse. Is there a slice of the market you can specialize in? If so, how will you get people in the door?
  • Physical and digital presence: Your dispensary’s physical location can be an essential component to your business’s health and growth. However, many states and localities restrict where dispensaries can operate. Plus, you’ll want to establish a solid website and social media presence that reinforce your brand and appeal to your market.
  • Branding: Some dispensaries go over the top with their branding, and others are subtle. Identify the values and presentation that are true to your business’s brand.

Medical cannabis, recreational, or both — the type of cannabis use legal in your state changes how you may plan your business. If both medical and recreational use are allowed, look at how you can appeal to customers of each. Otherwise, you may only be able to open a medical marijuana dispensary, or vice versa.

Understanding your team and supply chain is also key. Building your network of growers, suppliers, testers, and more can help you shore up the relationships you’ll need to help your business thrive.

Not sure where to start? Chat with an existing marijuana business owner. Remember your internal team too. What are you looking for in employees, and how will you train your team so they can provide the best service while staying in the bounds of state and local government cannabis laws?

2: Corporation vs LLC: Choose a Dispensary Business Structure

Given marijuana’s illegal federal status and varying legality around the country, selecting the right entity for your dispensary is not always straightforward.

For example, while sole proprietorships and general partnerships are technically two common forms of business structure, odds are they are not the optimal choice for a dispensary in the state where you want to go into business.

Starting an LLC (aka limited liability company) and creating an operating agreement can be a solid path for cannabis businesses. However, consider talking with legal and financial professionals to discuss potential implications around liability, tax deductions, regulatory compliance, and other factors that could impact your business down the line.

A common choice for a cannabis company is to form a corporation. While more complex and costly than an LLC, incorporating your dispensary can be more advantageous for taxes and liability. Plus, running your dispensary as a corporation may help you attract outside private investment.

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3: Determine Your Marijuana Dispensary's Startup Costs

Startup costs usually run into six figures for cannabis retailers. Depending on your initial scale, growth plan, and state, typical costs run about $150,000 on the low end, and can easily top $1 million just to get your dispensary’s doors open.

Your mileage may vary, but here’s a rough breakdown of how dispensaries were spending their startup capital in 2017:

  • 40%, renovations and overall real estate costs
  • 20%, inventory
  • 13%, application processes, licensure, and permitting
  • 13%, professional services (e.g., attorneys, CPAs, etc.)
  • 12%, security and monitoring
  • 11%, payroll and personnel
  • 11%, equipment
  • 6%, insurance

For example, dispensary license application fees alone can run around $5,000 (and licensure is not guaranteed). Annual licensing fees may also vary, from around $20,000 for a dispensary in New York state, to about $150 in Louisiana.

How will you fund your startup costs?

Funding your startup costs can look different from other businesses. Since marijuana is still illegal under federal law, federal funding is off the table, and so are loans from conventional commercial banks. However, that doesn’t leave you without options.

For starters, you could bootstrap your dispensary. If your personal pockets are deep enough, savings, retirement/investment accounts, or selling property could be ways to get the capital you need to start your dispensary. The investment is significant though, so consider the pros and cons of putting your personal assets on the line.

Some credit unions work with cannabis businesses. Getting to know credit union personnel in your area could help you feel out options that may be available to marijuana retail startups.

Private investment can also be on the table. Venture capitalists nationwide are focusing on cannabis businesses, with backers including prominent figures such as Peter Thiel (co-founder of PayPal) and Calvin Broadus, Jr. (who may be on one of your music playlists as Snoop Dogg).

4: Create a Marijuana Dispensary Business Name

Higher Ground. Mile High Green Cross. Lightshade. Spacebuds. Dispensary names can evoke anything from campy cannabis puns to a high-class boutique feel.

A good rule of thumb to keep in mind is that your dispensary’s name makes up a potential customer’s first impression of your business. A name that’s easy to say, spell, and understand can make it easier for people to spread the word — or search for your dispensary online.

Knowing how to name your LLC or corporation is a crucial part of your branding. As you work through name ideas, check that the name isn’t in use by another business in your state, and see what matching domain names and social media accounts are available too.

5: Register Your Marijuana Dispensary Business and Open Financial Accounts

Your state will have guidelines for the various licenses, state laws, permitting, and more that your cannabis business will need to apply for and obtain in order to open. There will also be processes to follow to officially form your new business.

Insurance regulations vary by state. Consider talking with a local insurance agent, particularly one with experience in cannabis businesses, about the right coverage for your dispensary.

Lastly, banking can be a challenge. Cannabis businesses may have to conduct business in cash and maintain additional security measures to prevent theft due to having large amounts of cash on hand. A growing number of banks and credit unions allow cannabis businesses to have deposit accounts, but they may charge additional risk fees — sometimes $2,000 a month.

6: Purchase Equipment For Your Marijuana Dispensary

Like other retail businesses, your dispensary will need equipment that helps you store and display product, tally sales, manage the back office, secure the premises, and more, such as:

  • Display fixtures and shelving
  • Security cameras
  • Computers and point-of-sale countertop or handheld devices
  • Labels and price stickers for products
  • Lighting
  • Cleaning and sanitation supplies
  • Product packaging
  • Breakroom supplies

There’s a great list of essential gear for a dispensary at TrustCapitalUSA, and CannaSafe puts out a thorough supplies guide.

7: Marketing Your Marijuana Dispensary Business

Cannabis is a competitive industry, and the right marijuana marketing is a way to give your cannabis business a chance to earn its slice of the pie.

Use advertising and on-location signage to promote specials, new customer exclusive deals, or other incentives to get people in the door. Partner with other service, product, or destination businesses in your area on events, public information campaigns, contests, or giveaways.

Educate the public about cannabis by posting original content to your social media platforms and/or your dispensary’s website. On your website, offer a coupon or other incentive to encourage people to join your email list. Then you can send regular emails to keep your dispensary in the front of your customer’s minds.

Examples of Marijuana Dispensary Niches

As the market for cannabis grows, so do the opportunities to specialize. Here are some niche markets or other specialities to consider for your dispensary:

  • Women’s wellness
  • Organic or vegan products
  • Edibles and tinctures
  • Spa services
  • Senior wellness
  • Athletes
  • Beauty products
  • Professional performance

Start Your Marijuana Dispensary Business

Starting up your marijuana dispensary can be a great opportunity in a growing industry. Yes, there are costs and hurdles. However, with the right business plan, team, funding, savvy, and perseverance, you could be on your way to becoming an indispensable dispensary owner.

Do-It-Yourself (DIY) ZenBusiness Pro Plan
Starting Price
state fee $199 + state fee
Average Filing Time
2-3 weeks 5-8 business days
Registered Agent
+$99/yr Check
Operating Agreement
+$35 Check
State Compliance Help
$119/yr Check
EIN
+$70 Check
DOMAIN NAME
+$25 No
DOMAIN PRIVACY
+$10 No
BUSINESS WEBSITE
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BUSINESS EMAIL ADDRESS
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First Year Price
LegalZoom $1017
ZenBusiness $199
SAVE 80%
excluding State Fees3
Second Year Price
LegalZoom $529
ZenBusiness $199
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TOTAL TWO YEAR PRICE
LegalZoom $1,546
ZenBusiness $398
SAVE 74%
First Year Price
LegalZoom $1017
ZenBusiness $199
SAVE 80%
excluding State Fees3
Second Year Price
LegalZoom $529
ZenBusiness $199
SAVE 62%
TOTAL TWO YEAR PRICE
LegalZoom $1,546
ZenBusiness $398
SAVE $1,148
Do-It-Yourself (DIY) ZenBusiness Pro Plan
Starting Price
state fee $199
Average Filing Time
15 business days 5-10 business days
Registered Agent
+$249/yr Check
Operating Agreement
+$99 Check
State Compliance Help
$280/yr Check
EIN
+$60 Check
DOMAIN NAME
+$25 No
DOMAIN PRIVACY
+$10 No
BUSINESS WEBSITE
+$100 No
BUSINESS EMAIL ADDRESS
+$25 No
SHOW ALL DETAILS
1 All prices and services presented above were reviewed and verified as of 11/2/19.
2 The Starter plan is $49/year the first year and increases to $119/year after that
3 This chart does not include state fees because those will vary in each state.
LegalZoom Standard Package ZenBusiness Pro Plan
Starting Price
$329 $179
Average Filing Time
15 business days 5-10 business days
Registered Agent
+$159/yr Yes
Operating Agreement
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State Compliance
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EIN
+$60 Yes
SHOW ALL DETAILS

FAQs

Which states are good for starting a marijuana dispensary?

California, Colorado, Florida, Massachusetts, and Nevada can be good states for a new dispensary, along with Oregon, Washington, and Arizona. Several states just legalized, and those are excellent markets for a new dispensary business.

What kinds of books and records do I need to keep for my dispensary?

Here are examples of records you’ll want to maintain (and generally retain for at least 5 years):

  • Income and expenses
  • Transfer and transportation logs
  • Financial statements such as balance sheets and profit and loss statements
  • Maintenance and cleaning reports
  • Approvals for packaging, advertising, etc.
  • Tax returns
  • Visitor log
  • Inventory
  • Receipts
  • Paid taxes
  • Personnel records

Is a marijuana dispensary profitable?

As of 2016, nearly 90% of dispensaries, recreational cannabis stores, wholesale cultivators, and companies specializing in infused products reported that they were realizing profits or, at minimum, breaking even.

How much revenue do dispensaries make?

Over 25% of American dispensaries have reported annual revenues over $1 million.

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