You might be one of the entrepreneurs rushing to enter the dispensary market. Businesses are flourishing as more states legalize the sale of recreational marijuana. There is no wonder that cannabis is the gold rush (or "green rush" if you prefer) of the present day, with such enormous profit margins and an insatiable consumer market. By 2025, the cannabis market value is expected to triple to over $30 billion. This value will rise even further with the growing use of CBD.
It is not easy to open a dispensary from scratch. Startup costs average $775,000 for a dispensary. In addition, it is heavily regulated, so business owners have to ensure they have all the necessary permits and licenses. If you do not comply, you will be fined steeply or your store may close. Though we'll cover the basics of opening a dispensary in this blog post, you should seek legal counsel before taking the plunge because of these legal issues. I hope this guide will help you get started and inspire you to learn more about the first steps toward starting a cannabis retail shop.
1. Hire a Great Dispensary Team
Millions of Americans work in retail. It's not always easy to find the right employee for your store since there is so much demand for great retail employees. Retailers are looking for hardworking, passionate, and relatable individuals to staff their stores. Dispensaries are no exception. Team members must be attentive to detail, have extensive knowledge of each product, be familiar with all the regulations regarding cannabis, and be able to customize the experience for each shopper.
2. Plan Your Financials
Setting up your financial details and ensuring that you have a solid business in place is a less exciting part of launching a cannabis dispensary.
In reality, state rules require all new dispensary applicants to produce proof of capitalization as well as a particular quantity of liquid cash on hand. The greater the number, the better.
Opening a new cannabis dispensary is both difficult and costly. Entrepreneurs in most states will face stiff competition from other candidates. And the amount of cash on hand at the outset is sometimes a deciding factor in which enterprises get the essential permits and which don't.
Because most banks will not lend to dispensaries, the state will need to show that you have the necessary funds to get the business off the ground. In general, you'll require a minimum of $250,000 to be accepted.
3. Find the Right Location for Your Dispensary
Dispensaries, like any other retail store, must choose the best location. Cannabis retailers, on the other hand, face the extra problem of needing to follow additional rules while locating their location.
Dispensaries cannot be located within 1,000 feet of a school, church, or community center, according to state regulations. They must also be housed in their own structure rather than being part of a strip mall or shopping complex.
You'll also have to decide whether to buy or rent a building. When you buy a property outright, you have complete freedom to do whatever you want with it. However, dispensaries may face extra scrutiny and outright denial from property owners if they are operating under a lease.
To avoid long-term legal problems, it is imperative you disclose your intended use of the property before you rent it.
4. Get the Right Business Plan
The most important part of cannabis business that no one wants to deal with is the business plan. However, it's the most important step in the process of opening a new dispensary.
Your dispensary's mission statement and goals should be defined first. Will your store cater to recreational users or focus on providing high-quality medical marijuana? Will you provide stable jobs and income for locals?
You'll also need to get into greater detail about the products you'll be selling and who you expect to buy them. As with any industry, competitors are fierce. If you have a professionally written cannabis business plan, you will be able to demonstrate to potential investors and state authorities how your company will stand out.
You must also put out your operational, marketing, and financial strategies. These show that you have a good understanding of how your company will be structured, what employee remuneration and perks will be, how you'll hire, and so on. This shows your initial strategy, as well as contingency in case things don't go as planned.
1. Inventory Control
Cannabis retailers are required to track each seed until it is sold by law. In order to comply with this, you'll need a comprehensive inventory management system. That's where your dispensary POS system comes in!
2. Product Safety
Providing a consumable product requires following all safety procedures to ensure that it's safe for consumers.
3. Security and Staffing
Security guards and an adequate number of staff members are required at every dispensary. It is important to protect against theft since the product being sold may be illegal in neighboring states or counties.
5. Choose Your Legal Entity
Your business name and any DBAs should be registered with your local government. If you want to trademark your name and restrict others from using it, you'll need to contact the United States Patent and Trademark Office to get the necessary permission.
Copyright laws must also protect any intellectual property that your company owns. These can include creative work, product names or themes, logos, slogans, and more, in addition to your business name.
Dispensaries, like any other business, must register with the IRS to obtain an employer identification number so that employees can properly file taxes with their employer.
Finally, decide on your legal form. Dispensaries will typically have four options:
- Sole Proprietorship – One of the most unusual types of business for an operation the size of a dispensary, a sole proprietorship means that only one person owns and manages the business.
- Partnership – As with sole proprietorships, partnerships have multiple partners, but taxes are paid from personal income.
- LLC – The most common type of business entity, LLCs protect partners from financial obligations.
- Corporation – Corporations have no owners, so they pay taxes through the corporation rather than through an individual or group.
6. Set Up State and Federal Taxes
This applies to both recreational and medicinal marijuana. Because medical cannabis can only be recommended and not prescribed, the FDA does not protect it from being taxed.
Because of this, cannabis retailers need to assign a tax to every sale through their point of sale system.
Taxes on cannabis vary widely by state, so check with your local government. For a quick look, this guide offers basic information on the cannabis tax laws for each state in which it’s legal.
7. Start a Business Bank Account and Line of Credit
Traditional banking is not an option in most cases. Cannabis are still illegal on the federal level; thus far, banks have stayed away to avoid damaging legal battles.
Furthermore, opening a dispensary is a high-risk endeavor. FDIC insurance protects banks against default. As a result, banks and their customers are assured that their money will always be available. The insurance is invalid if a bank deals with businesses that break federal laws. It's improbable that lending to a dispensary will cause a bank to fail, but the risk is simply too great for them.
However, there are other options for obtaining finance.
1. Equity Funding for Dispensaries
The sale of shares is how equity finance raises money. A dispensary can sell shares of a firm in exchange for cash. This money is typically obtained through venture capital, angel investments, crowdfunding, or good ol' friends and family. You can even try to seek funding from Snoop Dogg if you're feeling brave. For years, his Casa Verde Capital has been lending to emerging cannabis businesses.
2. Debt Funding for Cannabis Shops
Another option is to borrow money. If you have good credit, you can qualify for substantial personal loans or high limit credit cards. As both of these have substantial interest rates, they are less than ideal for many new business owners.
As cannabis is legalized in more states, the funding situation will likely change. As soon as it is legalized nationally, banks and other traditional lenders will accept these loans (though they will still be high-risk and more difficult to obtain), giving new dispensary businesses more options.
8. Get All Cannabis-Related Licenses, Permits, and Business Insurance
Cannabis cultivation, manufacturing, sale, and usage are all governed by a plethora of laws. It's also critical for business owners to follow all applicable city, county, state, and federal laws. Licensure, permits, and insurance are all important parts of this.
As of the end of 2022, 34 states, as well as the District of Columbia, Guam, Puerto Rico, and the US Virgin Islands, allow for the sale and consumption of medicinal marijuana. The remaining 16 states and territories have made it illegal to use marijuana.
Let's go through some of the typical paperwork things that you'll need if you're launching a business in an area that allows it, such as a seller's permit, the period of the seller permit, and a cannabis-specific seller license.
9. Market Your Cannabis Shop Grand Opening
After you've completed all of the difficult tasks, devise a strategy for pre-opening marketing and the grand opening.
Begin by registering your dispensary on all relevant websites, including any that are specifically for dispensaries. But don't forget about Yelp, Facebook, Google My Business, and other sites. These are extremely important for increasing brand awareness and image. They also make it simple for potential customers to locate your store as well as any basic information such as reviews, pricing, and hours.
Make your grand opening a one-of-a-kind experience for your first-time customers. You want to express gratitude to those who come out on the first day, generate a large crowd, and urge them to return shortly. You don't want to offer a deal that is too good to be true, so use your inventory management and sales reporting software in your point of sale to measure your margins beforehand.
10. Build a Great Website
Lastly, you should focus on building a great website for your store. Cannabis shops don't require much information, but they should provide basic information on your products and store details.
Though shoppers cannot use credit cards to purchase cannabis products, making eCommerce impossible, dispensaries should set up online menus that allow remote shoppers to pre-order products. By doing this, they can order something online and pick it up at a later time. By doing this, they can avoid standing in line.
The online menu should integrate with your POS inventory management so that all inventory listed as in stock on the site is accurate. Customers should not order items that you do not have in stock.
