For entrepreneurs who aren’t afraid to roll up their sleeves, cut through a decent chunk of bureaucratic tape, and hand over some cash upfront, opening a medical dispensary is a great opportunity.
A dispensary will allow you to be a pioneer in what is soon to be a massive, national industry.
Marijuana Business Daily projects revenue generated by dispensaries and retail stores reached between $6.5 and $8 billion in 2019.
When considering this type of business, you are sure to have a lot of questions. People often ask:
- How much does it cost to start a dispensary?
- What are the legalities of starting a dispensary?
- Is marijuana a profitable industry?
- Where can I open a dispensary?
Here’s the ultimate 9 step guide on how to start a medical cannabis dispensary business.
- Research the risks and eligibility factors
- Research policies, legalities, licensing, cost, and location
- Cannabis training
- Write a business plan
- Acquire funding
- Build a team
- Secure a location
- Branding and marketing you cannabis dispensary
- Open your doors
Let’s take a look at what you need to know to get started.
1. Research the risks and eligibility factors
Understanding the legal risks
Despite the increasing number of states that have legalized medical (and recreational) marijuana use, there are risks. Marijuana is still considered illegal at the federal level.
Medical cannabis is classified as a Schedule 1 drug under the federal Controlled Substance Act. This means that it’s classified as a potential drug use product, and it can only be suggested, not prescribed.
There’s not much case law on this topic so the true legal status of dispensaries (when it comes to federal law) is cloudy.
This can make it difficult for a dispensary to know how to stay within legal parameters, which in turn can expose your business to legal risks.
(This is one reason we suggest including a lawyer well-versed in this type of venture when building your team.)
It’s not news that opening a business takes a substantial financial investment. When considering cannabis retail, there are some additional challenges to obtaining the financial backing needed.
Securing funding in the cannabis industry has proven to be very difficult through traditional methods, and due to risks, most banks won’t even allow you to transaction your cannabis business through them.
This can mean having to operate your business on a cash basis, which can make you more susceptible to theft.
It will take some creativity on your part, and perhaps the entire contents of your savings, to get the ball rolling. The capital required to open a dispensary can be upwards of $250,000 – $750,000.
Are you qualified? Local governments have a series of “must-haves” in order to apply to be a dispensary owner, as well as red flags that will disqualify you immediately.
NORML has a good resource to look up marijuana laws and license requirements by state to get a full understanding of whether you are eligible and what you’ll need. In general, a few standard requirements include:
- Owner, investors and license holders may not have any felony convictions
- Dispensary location must be more than 500-1000 feet away from schools, churches, and other restricted locations (varies by state)
- Must have a complete business plan with an outline of property ownership, costs, business licenses, etc.
- Compliance with all safety regulations
2. Research policies, legalities, licensing, cost, and location
So you are pretty convinced this is for you, but you have more questions.
This is the time to jump into research and answer those burning questions.
- What are the laws in my state for dispensing and use?
- Would my business be protected by state laws?
- What are the costs associated with starting a dispensary?
- What licenses and applications are required?
A total of 34 states, District of Columbia, Guam, Puerto Rico and US Virgin Islands have approved a comprehensive, publicly available medical marijuana/cannabis programs. (See Table 1 below for more info.) Approved efforts in 12 states allow use of “low THC, high cannabidiol (CBD)” products for medical reasons in limited situations or as a legal defense. See Table 2 below for more information about those programs. Low-THC programs are not counted as comprehensive medical marijuana programs. NCSL uses criteria similar to other organizations tracking this issue to determine if a program is “comprehensive”:
- Protection from criminal penalties for using marijuana for a medical purpose;
- Access to marijuana through home cultivation, dispensaries or some other system that is likely to be implemented;
- It allows a variety of strains or products, including those with more than “low THC;” and
- It allows either smoking or vaporization of some kind of marijuana products, plant material or extract, and
- Is not a limited trial program. (South Dakota and Nebraska have limited, trial programs that are not open to the public.)
Licenses, insurance, and taxes
Paperwork. It’s probably the least exciting part of starting a new business — but often times the most important.
When starting a dispensary, you want that paper trail of protection.
So, what exactly is required? That depends where you live.
Let’s take a look at California’s requirements:
- Seller’s Permit: Like other businesses selling goods, individuals and startups interested in selling cannabis or cannabis products will need to register for a seller’s permit. This is a basic prerequisite when applying for a cannabis dispensary license.
- Cannabis duration license: There are two types. Temporary (up to 120 days) and non-temporary (which must be renewed every 12 months)
- Cannabis dispensary license: Nonrefundable dispensary application fees generally range from $1,000 to $5,000, with registration or annual fees typically between $5,000 and $20,000.
In order to be approved for a dispensary license in Florida, you must have the following plans in order:
- Business Plan
- Cultivation Plan
- Marijuana Processing and Manufacturing Plan
- Employee Manual
- Environmental Plan
- Financial Plan
- Fire Safety Plan
- Inventory Control Plan
- Recordkeeping Plan
- Patient Education Plan
- Product Safety Plan
- Security Plan
- Staffing Plan
- Suitability of Proposed Plan
- Transportation Plan
The license rates and tax fees vary state by state. Drastically.
For example, in Louisiana, the licensing fee is $150, while New Jersey applicants must fork out a staggering $20,000.
You can see a full comparison of each state here.
Also, remember that most states require you to register your business if the trade name under which you operate your business differs from the legal name of your business.
For example, if your registered company is an LLC and is named Three Brothers, LLC, you cannot operate that business lawfully in most states if you’re selling products under the trade name Three Tigers. That’s because the registered name, and your trade name, are different.
Fortunately, this is not a difficult problem to overcome. You can simply register your actual trade name with your state (and or local government) by filing a “doing business as” (DBA) certificate. DBAs are also commonly called “assumed name”, “fictitious business name”, or “trade name”. Here’s a terrific resource that explains what a DBA is, the DBA state requirements, and how to file a DBA for your business in all 50 states and U.S. territories.
Insurance is the best way to protect your hard work against fire, damage, and theft.
You’ll want to protect your investment with the proper insurance:
- General liability: typically required by landlords and at a state level. This protects against general damages and injuries.
- Product liability: this covers inventory and dispensary equipment.
- Medicine: Medicinal coverage protects inventory against fire or theft both in your brick and mortar location, as well as during transportation from manufacturer to your storefront.
As this fantastic industry grows, so do the insurance companies willing to protect your business assets.
Medicinal but not a prescription.
Because medical cannabis can only be suggested and not prescribed, it is not protected by FDA tax exemptions.
This means that the product will be required to be issued a state tax. Check out a sampling of state tax requirements below, or check out a full list here.
3. Cannabis training
You now have a strong understanding of the risks and requirements to start a dispensary.
You are eager and willing to jump in and get your hands dirty.
Before you begin to sign those application checks over — make sure you understand your product.
Educating yourself on various forms of cannabis, your customer base and how your product will benefit them is essential.
Hemp Staff shares,
When customers come in, they may be anxious or nervous about trying medical marijuana. This is especially true if they have never used cannabis before. Your job is to both reassure and show them which products work the best for their problem.
Working at a dispensary means your clients need to learn to trust you and your knowledge. They gain that trust by purchasing products that you recommend that work. Therefore, you need to come to interviews prepared to give excellent advice and demonstrate your knowledge of the plant.
Consider taking a dispensary training course, to grasp a firm understanding of the products you will be selling. Doing so will educate yourself and your employees on cannabinoids and which specifically to recommend based on clients’ needs.
Founded in 2007, Oaksterdam University was the first cannabis college, with educational roots going back to 1995. OU boasts over 40,000 Alumni worldwide. The primary focus on their programs is a full-spectrum look at the cannabis industry from business to botany. Oaksterdam prides itself on being a leader in training in the canna industry, emphasizing that this new emerging world of cannabis dispensaries can be both transformational as well as transactional.
4. Write a business plan
Studies show that entrepreneurs who take the time to write a business plan are 2.5 times more likely to follow through and get their business off the ground.
As we previously mentioned in how to start a business:
Traditional business plans have the following sections:
- An executive summary. This section summaries the entire plan, so it is generally written last. Anyone reading your plan will read this first, so it’s an important element.
- An industry overview. This section gives a brief overview of the industry sector your business will operate in. It includes key players, industry trends, and estimates of industry sales.
- Market analysis. This looks at the target market for your product or service. It has a breakdown of your market segments, their geographic location, and what their needs are. This section shows anyone reading that you have a thorough understanding of the people you plan to sell to or serve.
- Competitive analysis. Who are your direct and indirect competitors? How do they currently meet your target market’s needs, and how will you differentiate your product or services?
- Sales and marketing plan. What is your unique selling proposition? How are you going to promote your business and persuade your target audience to buy? This section goes into detail on questions like these.
- Management plan. This section outlines your legal and management structure. It shows who your leadership team is and what your staffing needs will be. If you plan to seek funding, you should describe your advisory board here, as well.
- Operating plan. Your business location, facilities, equipment, and what kind of employees you’ll need are in this section. Any suppliers, manufacturing processes, and any other operating details also appear here.
- Financial plan. This section is for all things financial. There are three key financial documents of any business that go here: an income statement, a balance sheet, and a cash flow statement.
- Appendices and Exhibits. Any information that helps support your business idea goes here, including market studies, legal agreements, photos of your products, and more.
A good business plan guides you through each stage of starting and managing your business. Check out the Legally Rooted’s comprehensive business plan for medical marijuana dispensaries.
5. Acquire funding
Financing any business can be a headache. Funding a medical dispensary can be a full-bodied migraine.
Because, marijuana is still not legal at the federal level, it’s more difficult for owners of medical marijuana dispensaries to apply for loans, merchant accounts, or receive other types of financing to cover operating expenses.
The cost of opening a dispensary really vary depending on the county, city, and state requirements.
Startup investment averages between $250,000 to $750,000. This sum can include everything from securing insurance, hiring employees, and renting a storefront.
If you’ve been fortunate enough to find an investor to hand over this kind of cash, congratulations! If not, don’t fret — there are other options!
Is traditional banking an option?
In short, probably not.
Because of the federal illegality of cannabis, most financial institutions will not consider investing in an effort to protect themselves.
A dispensary is considered a high-risk venture, and even if you were able to find a financial institution ready to back you, the increased costs and fees can quickly make doing business with them unprofitable.
Merchant Maverick explains:
Banks are insured by the Federal Deposit Insurance Corporation. A bank that works with companies that violate federal law will not be insured by the FDIC. This includes medical marijuana dispensaries. Instead of taking on this risk, most banks opt to simply avoid working with businesses in the cannabis industry.
There are also legal issues that a bank could potentially face when working with businesses in the cannabis industry. For example, a bank could be charged with money laundering for accepting deposits from a medical marijuana dispensary. Although the odds of this law being enforced are slim, lenders simply don’t want to take that risk.
Alternate Funding Options
If you find yourself being turned down by banks and other financial facilities, you are going to need some alternative ways to start your business.
Sure, funding can be more challenging to acquire, but, as hundreds of small business owners can attest, it is possible!
You just may need to get a little creative!
Equity funding is gaining popularity as the canna-market continues to increase.
Equity financing is the process of raising capital through the sale of shares.
Companies raise money by selling shares of ownership in their company in return for cash. Equity financing for your new business can come from many sources; for example, personal friends and family, and investors.
Fundera shares three main types of equity funding: Venture Capital, Angel Investors, and crowdfunding.
There are a handful of venture capital firms that focus specifically on cannabis startups, including Snoop Dogg’s Casa Verde Capital. If you’re beyond the seed funding stage, then these firms can be worth a try. New Cannabis Ventures has a list of VCs, and a quick Google search can also turn up some results, too.
Just like there are plenty of VC firms looking to invest, cannabis has peaked the interest of angel investors, too. To find your angel, you can start by checking out AngelList, which actually has a section dedicated to helping startups find angels who are interested in investing in marijuana. An offline option is to try tapping your network or any angels you may have previously worked with to see if they can point you in the right direction. Cannabis industry conventionsand meetups also exist, and it never hurts to attend some and see who you connect with.
Crowdfunding has recently arisen as a popular option for funding startups. The two most well-known platforms are Indiegogo and Kickstarter. Indiegogo, for one, has approved some cannabis companies to raise funds on their platform. StartEngine, a lesser-known platform, has also approved weed startups. Finally, there are a couple marijuana-specific platforms, including CannaFundr and Fundanna.
Startup costs funded by debt, be it loans or business credit can be tricky to secure – but new alternative lenders have been able to assist entrepreneurs in getting the funding they needed.
If you have a good credit score and steady income, you may qualify for a personal loan to help with start-up costs.
Personal loans are the option many startups choose because the industry, time in business, and usage of funds aren’t taken into consideration for loan approval.
You will, however, have to disclose how the funds will be used.
A business credit card is a good (but very expensive if you don’t pay it off monthly) option. They can be utilized to pay recurring expenses, cover an emergency, or pay for startup costs.
The bottom line
Opening a medical cannabis business can be a very lucrative business, but managing the finances of it can be a bit challenging. There is good news though! It’s possible to get the funding you need, and as the industry grows, so will the willingness of investors to see that growth benefit them directly.
6. Build a team
Running a successful dispensary relies on much more than modern decor and a great product selection.
As Henry Ford said, “If everyone is moving forward together, then success takes care of itself.”
When it comes to building the best team possible at your shop, you need to think about two types of individuals – your professional support that works behind the scenes and your day-to-day staff.
If both groups are both trustworthy and skilled, you will find yourself on the fast track toward success!
The truth is your dispensary will have a lot of moving pieces that require support your clients will know nothing about.
As the business owner, your most critical interest is to be sure everything is being done correctly with your I’s dotted and t’s crossed.
As with most businesses, two of the most vital people to add to your team are a lawyer and a CPA.
Blogger Dave Emmett writes,
Knowing how to open a dispensary can be challenging; it often requires that you deal with a lot of red tape, and it helps to have someone who can make sure you’re doing things by the book.
Speaking of books, given that dispensaries must adhere Asto specific tax codes, it’s best to hire a trained professional to keep an eye on the numbers.
Many dispensaries hire a compliance officer, as these individuals make it their business to follow all regulations to the letter.
Day to Day Operations
The front end of the dispensary, the end that helps clients is equally as important. You should employ the following to help with day-to-day operations.
- Budtenders: Budtenders have to be qualified to work in a dispensary and must have a wide range of cannabis knowledge. In order to provide customers with a positive experience at a dispensary, budtenders need to demonstrate their knowledge of strains, cannabis products, and medical use.
- Managers: Aim to find someone who has experience in the cannabis industry. They should have a passion for the industry and be someone who can manage your team when you are not around.
- Administrative Assistant: bookkeeping, accounts payable and receivable, or in-house IT.
- Security: Security detail is required by some states, but a good idea for all. Security will protect your employees, customers, and investments.
- Board of Directors/Influencers: When adding to trusted business associates to put on a board of directors, consider adding a physician to oversee the entire patient care process.
7. Secure a location
When it’s time to find the perfect location — understand that when it comes to dispensary real estate, “perfect” will be synonymous with “compliant”.
As with most things cannabis-related, compliance codes vary from state to state.
Renting vs. Buying
Renting, for now, is a popular choice among cannabis entrepreneurs.
Because of the ever-changing environment of the marijuana industry, a property that is compliant now might not be in two years.
A compliant property means different things in different places, and even when you find a property within regulation, you have to be upfront with the landlord about your plans to open a dispensary there, and know they might not be supportive.
When searching for a place to open your dispensary, also consider if it is convenient for potential customers.
Resources to find a property
With the rise in this industry, there are real estate agencies and brokers who specialize in finding cannabis-friendly corporate spaces. Utilize some of the resources below to find a space that may work you for you
- 420 Property is an excellent resource if you are looking to purchase a marijuana-friendly property.
- Weed Rentals specializes in corporate and private spaces for rent.
- Cannabis Real Estate Consultants specializing in corporate real estate for sale.
8. Branding and marketing your cannabis dispensary
The cannabis industry is in a transition period, from what was considered a “black market” to now a legitimate medical need. Part of that transition is getting the branding right, in a way that presents medical dispensaries in an accepted and celebrated space.
If your dispensary business is going to get noticed, you need to consciously develop your brand identity.
As we’ve previously discussed,
…your brand is your company’s public identity. Ideally, your brand should embody the best (and most essential) attributes of your company.
Here are a few questions to guide you as you think about your brand:
- What personality do I want my brand to project?
- Who will want to buy my cannabis products?
- What can customers get from my cannabis products that they can’t get anywhere else?
- What makes my brand unique?
- What is the most important part of my customer’s experience?
Your answers to these questions (and others like them) will build the core of your brand. All of your future branding decisions should expand on these ideas. Your business name, your business logo, your website design, how you design the exterior and interior of your dispensary, and everything else visual about your brand, should all grow from the concepts you layout here.
So, take the time to think – really think – about your brand from the start. And maintain that brand as your dispensary business evolves and grows. This consistency of brand personality (and the quality of your products) will keep loyal customers coming back.
Your website is one of your dispensary’s most important ambassadors. As we explained previously:
Today, it’s impossible to reach most customers without a website. This is especially true for new small businesses and startups trying to compete in an increasingly noisy world. but it’s also true for even established companies.
Don’t believe me? A recent study shows that 97% of consumers research their purchases online before they buy something.
Your website is a crucial component of your marketing and branding strategy.
So, put this vital business tool to work for your business. Start by ensuring that your website design truly embodies your brand. Visitors should be able to understand who you are and what your brand is about as soon as they arrive.
Your website’s visual design and marketing copy should project your brand’s voice and identity. Here are some suggestions:
- Use your brand’s colors.
- Prominently feature your logo.
- Share your philosophy as a dispensary.
- Write copy with your target consumer in mind.
In addition to serving as a brand ambassador, your website is also a great venue for attracting a wider customer base.
Finally, strong website design will lend credibility and legitimacy to your business. Make sure you’re using your website to its fullest capacity.
To learn more about great website design, check out Grow Your Small Business With These 7 Website Design Best Practices and 7 Modern Web Design Trends for 2019.
As the cannabis industry grows at a rapid pace, it can feel overwhelming to keep up-to-date with the constantly-changing federal and state regulations.
Advertising regulations are strict, and many marketing platforms restrict or outright ban cannabis advertisements due to the substance’s federal status.
The popular website Leafly, put together a state-by-state guide to cannabis advertising regulations that should help cannabis businesses adhere to the guidelines set forth by both the state they’re operating in as well as any states in which they want to advertise.
9. Open your doors!
Congratulations! You have considered the risks vs benefits, shelled out a bunch of cash, hired the right people, and begun advertising your medical dispensary within the community! Now is the time to open shop!
One of the best ways to launch your business forward from the start is to host a grand opening.
When hosting a grand opening, considering offering the following:
- Meet the Team
- Patient Education
- Product Information
- Sales & Specials
Meet The Team
You spent a significant amount of time gathering the best team for your clients.
As we mentioned earlier, acceptance in the community is a vital step in your business’s success. Meeting your team and providing information, will make your business be even more approachable to those in the community who are unsure.
Show your passion for the industry, your commitment to medical standards, and full cooperation with community and law enforcement rules and regulations.
You may be surprised how quickly you gain support.
Consider Patient education of popular topics that your audience may be interested in learning about. This is an ideal time to learn more about your patients and grow e-mail and prospect lists.
These may include the processes of qualifying for medical marijuana, the processes or purchasing cannabis from your store specifically, what products would work best for them, and the most up-to-date research on cannabis.
Sales & Promotions
Most consumers would say their favorite part of a grand opening is the steals, deals, and today-only promotions.
Deliver, and deliver well. You get one chance to make a first impression. Make a great one you will likely gain a life-long customer.
There’s no doubt about it – starting a medical marijuana dispensary business is hard work.
But with planning and hard work, you can become a pioneer in this rapidly growing industry.
Interested in other types of businesses or how-to guides? Here are our comprehensive guides:How to Start a Business: The Complete 12 Step Guide to Starting a Business in 2020 How to Start a Successful Consulting Business in 2020: The Complete 10 Step Guide How to Start a Real Estate Business in 2020: The Complete 11 Step Guide The Complete 6-Step Guide to Starting a Cleaning Business in 2020 How to Start a Successful Clothing Brand or Clothing Line From Scratch in 2020: The Definitive Guide How to Start a Brewery Business in 2020: The Complete 9 Step Guide How to Start a Medial Marijuana Dispensary Business in 2020 How to Start an Etsy Shop: Your Comprehensive, No-Stress Guide to Starting an Etsy Shop in 2020 How to Start a Successful Photography Business in 2020: The Complete 10 Step Guide How to Start a Business in Texas: The Complete Step-by-Step Guide (Updated for 2020) What is Brand Identity and How To Create a Unique and Memorable One in 2020 The Definitive Guide to Creating a Compelling Visual Brand for Your Restaurant in 2020 Facebook Messenger Chatbot Marketing: The Definitive Guide (Updated for 2020)
We regularly update this guide to keep it current. It was most recently updated on April 20, 2020.
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