It’s no secret that the Cannabis industry is growing fast. With more and more states legalizing the plant for adult recreational use, entrepreneurs all over the country are rushing in to become a part of the cannabis gold rush. Excited at the prospect of large profit margins, and high customer demand, many business owners have invested in the construction of dispensaries, a market that is expected to triple over the next few years to over $30 billion. 

While starting a dispensary seems like a cash cow at first glance, the high startup costs and heavy regulations make the financial and legal reality of opening a cannabis store quite difficult. With the right research and planning however, you can be prepared when it comes time to start building your business. 

Check out this quick guide to learn how to open a dispensary so you can build your own path in the cannabis industry.

How Much Does It Cost To Open A Dispensary?

One of the biggest questions entrepreneurs ask is, “How much money do I need to open a dispensary?

Truth is, there’s not a magic number to answer this question. The costs of opening a dispensary can fluctuate depending on store location and the state you’re in. Most state laws require that new applicants for dispensaries have a certain amount of liquid cash on hand, and the more money you have, the better chance of getting granted the proper licensing from your state. 

Generally speaking, you’ll need about $500,000 on average to cover the costs of fees, down payments and taxes, and real estate for your dispensary. If your location is small and in a quiet area, the upfront costs of opening may only be a few hundred thousand. On the other hand, developing a dispensary in a busy area with heavy foot traffic may require more cash on hand. 

Selecting a Location

While it may cost a hefty amount upfront, having the right location for your cannabis business is the best way to ensure consistent sales and high revenue. Being located in an area with high customer traffic is obviously important, but you first need to ensure that your dispensary is properly following state and city regulations. 

For example, most states require that dispensaries can not be 1,000 feet from a school, and sometimes even public parks and libraries. Some locations are even required to be in their own building, not a part of any strip mall or shopping center. 

Another important consideration is whether or not you’ll be owning or leasing your dispensary location. If you choose to rent or lease, it’s best to be fully upfront with your plans to use the property for a cannabis business, as misrepresenting your business can lead to serious legal problems down the line.

dispensary open sign with green neon lettering and a cannabis leaf on a store window

Determine Your Legal Entity, and Set Taxes

One step of planning a dispensary is registering your business name with your local government as well as trademarking your business name and any intellectual property associated with it. You’ll also need to choose a legal entity for your business and determine whether you want to be a sole proprietorship, Partnership, LLC, or Corporation. 

In most cases you’ll want to register your dispensary as an LLC, but if you have outside investors registering as a corporation for tax purposes.

The next step is to register your business with the IRS, in order to get an employer identification number so you can hire staff for your dispensary. You’ll also need to assign the appropriate sales tax to your POS system, and ensure that you’re following the cannabis tax laws for your state. 

Dispensary Licensing

Before any dispensary can open, it needs to have the proper licensing and approval from the government. This process starts by sending an application to your state government, and if all goes right you’ll be awarded a permit to sell cannabis!

Here is some of the information you’ll need prepared when applying for a license:

  • Completed business plan
  • List of standard operating procedures 
  • Budget detailing your rental/leasing costs, employee salaries and benefits, security, utilities, supplies etc.
  • List of business partners and key employees (background checks completed)
  • Proof of funding and relationship with bank
  • Proof of real estate/dispensary location

Make sure to do your research on the proper licenses needed for your state. Some areas require additional licensing if you’re planning to grow your own cannabis, and also have different regulations for purchase limits and how much THC can be in a single product. 

Also keep in mind that the licensing process is quite expensive, so be prepared to pay several thousand in fees in order to complete your dispensary application.

Building Your Online Presence

After you’ve been granted permission to sell cannabis in your state, and secured a location for your dispensary, you’ll want to begin marketing your business and building an online presence. Start by getting your business registered with sites like Yelp, Google Business, and Facebook, so customers can easily find your location, store hours and contact info. 

The next step is building a solid website for your store. Having a good online presence not only helps build brand awareness, it also gives customers a chance to see your online menu and order items to be picked up at a later time. 

Opening Day

Once you’ve created a website and social media accounts, it is time to advertise the grand opening of your store! Set up your grand opening as an event/party where local cannabis enthusiasts in the area can come to learn more about your product. Offering a deal or discount on certain products for your opening day will help draw a crowd, and encourage customers to come back for a second visit. 

Final Thoughts

Now that you’ve learned the basics of how to open a dispensary, you should start to look into your state’s licensing process, consider the costs of an application, and start to put a plan in place. 

Green Space Accounting services the cannabis space through accounting, cash flow management, payroll, and compliance services. We invite you to schedule a complimentary consultation with us to discuss your cannabis business finances and cashflow. We look forward to hearing from you!