How To Open a Cannabis Dispensary: The Definitive Guide
Marijuana viewed through a magnifying glass
How To

How To Open a Cannabis Dispensary: The Definitive Guide

Marijuana viewed through a magnifying glass
How To

How To Open a Cannabis Dispensary: The Definitive Guide

Author Contributing Writer
PUBLISHED
May 31, 2022
read time 6 MIN
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An overwhelming majority of the U.S. population has access to legal marijuana – recreational, medical, or both. As a result, new cannabis businesses are booming. Grow operations, processing facilities, and dispensaries have become the modern-day equivalent of ’90s tech startups. The fact is that entering the legal cannabis industry can be incredibly profitable. 

Cannabis is poised to pass the NFL in terms of revenue. Dispensaries enjoy a healthy profit margin, and most new dispensaries turn a profit within the first year — over 75% are profitable or at least cover their operating costs. But, when asking yourself how to open a dispensary, there are a lot of essential factors to consider first.

Launching a business is expensive, no matter the industry. A few critical pieces of information to be aware of when learning how to open a dispensary or cannabis retail store. It can be very challenging to secure traditional financing. Before designing your shop and opening for business, there are licensing and permit fees. Even modest retail operations can cost upwards of $250,000 to get up and running.

As you explore how to get into the legal weed business, know that local governments define specific requirements and “red flags.” In most states, you must be a resident of the state to which you are applying and not have a criminal record. Significantly, these requirements can vary from state to state; Washington requires spousal background checks. Before writing a check for non-refundable licensing fees, verify that you meet the qualifications in your target area.

On the journey to understanding how to open a legal marijuana dispensary, finding a proper location for your dispensary might be more complicated than expected. Each state has its legal mandates or zoning laws that restrict where a retail cannabis location can exist. For example, cannabis stores cannot be located within a 600-foot radius of a daycare center, school, or youth center in California.

In addition, it’s essential to think about how both residents and fellow retailers might perceive your new dispensary. Take time to study the demographics of areas to determine where you might find the most success. As you learn how to open a legal marijuana dispensary, you’ll discover that it entails more than just marijuana.

Obtaining a cannabis license can be a complex process. Every U.S. state has a unique application process. Any careless error can disrupt or cancel your chances of licensure. Though it may be costly, it is in your best interest to engage with a lawyer or consultant that has successfully filed applications for cannabis with the local government. Because marijuana is illegal at the federal level in the United States, the cannabis industry is filled with more risks than other types of operations. 

Every business owner needs a team they can rely on. Often it boils down to two types of employees – the professional support and the day-to-day stuff. It’s crucial to create and implement standard operating procedures and training programs to set all employees up for success. If the store manager, store supervisors, and budtenders are trustworthy and skilled people, you’ll be able to count on your staff and be on the fast track toward success.

There are still several significant legal, financial, social, and security-related challenges and risks that dispensaries must successfully navigate and overcome. 

For example, learning how to open a weed dispensary, many are surprised to discover that it requires a large amount of starter capital and careful attention to compliance with laws and regulations. 

“You’re not going to make money if you aren’t following these rules,” said Lincoln Fish, CEO of OutCo Labs. “It’s an expensive business to run.”

Cannabis is a highly regulated industry. The biggest challenge for new cannabis dispensaries is compliance. Those with only a retail background could find ideas hamstrung by compliance issues. 

For those without retail experience wanting to know how to start a weed dispensary, many areas of business ownership will arise quickly — real estate, marketing, hiring employees, store layouts, inventory management, merchandising, logo/branding, and accounting.

Despite those challenges, learning how to open a legal marijuana dispensary is an opportunity to be a pioneer in what is becoming a massive national industry. Some industry experts project dispensary and retail sales of legal recreational cannabis to reach an estimated 25 billion U.S. dollars by 2025. Even though cannabis isn’t yet federally legalized, it’s still an excellent time to get into the burgeoning industry.

In 2010, when Mitch Woolhiser, owner of Northern Lights Cannabis Company in Denver, Colorado, was researching how to get into the legal weed business, he saw a great business opportunity in the budding marijuana industry. But he cautions against opening a dispensary only for the financial gain. 

“If the only reason you’re getting into this is money, you’re not going to have a good time,” said Woolhiser. “It’s not a ‘get rich quick scheme. It’s a long game. You have to have something more to motivate you.”

It’s also important to realize that a significant component of how to open a cannabis store is that background checks are often required – for the owner, the investors, and employees. Furthermore, if medical marijuana is not legalized in your state and the city or county hasn’t passed any cannabis regulations, the default position would be to shut down the dispensary. The Cole Memorandum gives guidance to U.S. state attorneys on prioritizing the enforcement of marijuana laws. Business owners in California will need to learn how to open a dispensary. Dispensary owners are well-advised to read Proposition 215 and Proposition 420. A lawyer specializing in this area is a good asset when researching how to open a cannabis store.

One of the biggest and most unexpected hurdles is determining how to accept payments as a cannabis business. The lack of federal legalization makes business banking and accepting credit cards challenging. To help navigate these complicated regulations, new cannabis business entrepreneurs are advised to hire a lawyer and a CPA. A close study of U.S. Code 280E is also recommended – it’s a tax code that can complicate a dispensary owner’s budgeting. It’s essential to know these factors when looking into how much it costs to open a weed dispensary.

Because marijuana is a Schedule I narcotic, only the cost of goods sold is deductible from revenue before taxes. 

“Say you buy the product for $500, put it on the shelf, sell it for $1000. You would have to pay taxes on $500 profit before taking out your rent, employees, so forth,” Fish said. As a result, many dispensaries get hit with enormous tax bills. 

Every state with legal cannabis sales has an official seed-to-sale software tracking provider. Although some states have opted to forego a track-and-trace system, these are the three primary providers:

  • Metrc (Marijuana Enforcement Tracking Reporting Compliance) is developed by Franwell. The states currently using this tracking system are Alaska, California, Colorado, Washington, D.C., Louisiana, Maryland, Massachusetts, Michigan, Missouri, Montana, Nevada, Ohio, and Oregon.
  • BioTrackTHC (cannabis and hemp traceability system) is currently used in Arkansas, Delaware, Hawaii, Illinois, New Hampshire, New Mexico, New York, and North Dakota.
  • Leaf Data Systems (powered by MJ Freeway) is currently used in Pennsylvania and Washington as the seed-to-sale cannabis tracking solution.

Like any new business, startup capital is required. So, when considering the question of, how much does it cost to open a weed dispensary, know that even a smaller dispensary startup can require upwards of $250,000 to open the doors. Again, due to the federal criminal classification of cannabis, federal banking restrictions limit the ability to obtain financial services and lead to a preponderance of cash transactions.

Because of the federal illegality of marijuana, there aren’t bank loans for a dispensary. When a new owner is trying to figure out how to get a loan to open a dispensary, sticking to personal funds for starter capital is frequently the best way to get off the ground – angel investors, friends, and family.

When investigating how to get a loan to open a dispensary, it’s essential to do research. Often, investors won’t take a meeting until you have many of the required elements nailed down.

“If you have a compliant property, it becomes easier,” said Fish. 

“We got into it with about fifty thousand dollars and some credit cards,” says Woolhiser. “Now, you wouldn’t be able to break into it without at least a half a million because of the regulations.”

As you learn how to open a dispensary, you’ll discover that all dispensary owners have significant security concerns. Because of banking restrictions, a dispensary frequently has thousands of dollars in cash on hand. Because this cash, or even product, can easily be stuffed into a pocket, dispensary owners must be on the lookout for internal and external theft and robbery. A strong security and surveillance system must stay compliant with the law. The litany of challenges in opening a cannabis dispensary is indeed formidable, but so are the rewards.

Another consideration in your business plan is to draft a clear budget. It’s often helpful to consult wholesalers in your area to determine the cost of products.

“You will not be able to do it on a shoestring,” said Fish. “You have to be prepared for it to grow slowly.”

Market research can help determine the marketing and pricing strategy for your dispensary. It’s an essential aspect of the business plan to know the level of consumer demand and the demographic and psychographics.

Another unexpected challenge – in addition to studying the existing competition – is knowing about the unlicensed operators in the area. Researching crime busts on unlicensed operations in your area can be helpful information to inform your business plan. Are the unlicensed dispensaries allowed to function freely, or is law enforcement working on getting rid of them? These are crucial considerations when investigating how to open a weed dispensary.

It’s virtually impossible to compete with an unlicensed cannabis provider that is open 24/7 and is not paying federal taxes, payroll taxes, or social security for its employees.

Dispensary advertisements for both brick-and-mortar, and delivery in local publications, will give an idea of the unlicensed operators in the area. Knowing the cannabis market landscape is crucial for any potential business owner to understand how to get into the legal weed business.

As you’re learning how to get into the legal weed business, it can be daunting to discover that getting licensed to open a medical marijuana dispensary is difficult and expensive. The first part of the licensing process is always online researching your cannabis license procedures. A quick online search will yield links to an overview of state regulations, including licensing requirements. Fees vary by state, but in Colorado, the application fee for a medical marijuana dispensary can cost as much as $15,000.

“I have known people who have spent upwards of three to four thousand dollars in legal expenses to get their license,” said Fish.

Dispensaries that don’t stay current with compliance regulations get closed or acquired by larger cannabis companies. Being knowledgeable and diligent are essential aspects of knowing how to open a legal marijuana dispensary.

As you’re learning how to get into the legal weed business, you’ll want to ensure your company meets age and residency requirements. Double-check to eliminate any potential red flags within your business plan that may cause your application to be denied. Criminal convictions or not meeting age or residency requirements can trigger a denial.

The next step in learning how to open a legal marijuana dispensary is filling out all the state-required forms and applications. In the U.S., it’s necessary to obtain a FEIN from the IRS, along with your tax number and any required documentation relevant to your corporate structure. If any problems turn up during the state’s investigative portion of the process, the applicant is notified and allowed to respond. It’s crucial to fully understand how to start a weed dispensary.

After the state and local legal requirements are met, the next important step in understanding how to open a dispensary is obtaining the product. The biggest question for new dispensary owners is, “where do dispensaries get their products?” It’s critical to ensure you receive your cannabis and cannabis products legally – it’s a crucial aspect of opening a successful dispensary. 

Many dispensaries grow their marijuana, and in some states, this is mandatory. For Mitch Woolhiser, the answer to the question, “where do weed shops get their weed” was to create a cultivation facility for his Northern Lights Cannabis Company. 

“Open a retail facility first and then put an eye toward having your own cultivation facility,” Woolhiser said. He is also an advocate of purchasing dispensary supplies wholesale. “Get the retail off the ground with wholesale products.”

Opening a dispensary doesn’t mean selling only marijuana flowers. Many new owners are eager to learn how to open an edibles shop. 

Many consumers and patients prefer edibles, oils, dabs, and concentrates. It’s straightforward to find and do business with sellers of these forms of marijuana. Built on existing product models, these companies have tremendous sales forces. The requirements for opening an edibles shop are not markedly different from what you need to open a dispensary that primarily carries flowers.

In all cases, compliance regulations will require some products packaged in child resistant packaging. For other items, tamper evident packaging will be a must. In some cases, the requirements overlap. The essential difference is that child-resistant packaging is easy for adults to open and extremely difficult for children to open. Tamper-evident packaging shows clear indications that the packaging has been opened, preventing tampering at any production stage.

Another consideration is the wholesale packaging that ongoing operations will require. Many types of cannabis packaging design will be the best fit for your undertaking. For nearly all dispensaries, weed jars and Mylar bags are staples. A fun part of the wholesale supply process is being able to customize your supplies. It could entail storewide branding or selecting only custom weed bags. Either way, custom branding often goes farther than traditional advertising.

All that remains is to design your dispensary floorplan (four basic, but not the only, options: Bank model, Pharmacy model, Mobile model, Kiosk model) and select the POS technology for the best customer experience.

As you can see whether you’re motivated to learn how to open a recreational dispensary or 

How to open a medical dispensary, the process requires study, diligence, devotion, and commitment.

“It’s still at the ground floor of the whole thing, considering the federal illegality of it,” says Mitch Woolhiser. “It’s still a good time to get in.”

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