How Much Does it Cost to Open a Dispensary? Your Marijuana Business Questions, Answered
With the recent spate of marijuana legalization initiatives, several states have now authorized the opening of marijuana dispensaries across the country. In 2014, Oregon approved ballot measure 91, which permitted sales of medicinal marijuana to persons with a doctor’s prescription. In 2017, Oregon put in place a process so that businesses could apply for licenses to sell recreational marijuana.
During the 2020 election, New Jersey, Arizona, South Dakota, and Montana all carried marijuana legalization initiatives on their ballots. Currently, 11 states have legalized marijuana for recreational use, and 22 states have legalized marijuana for medicinal use.
What does this mean? Business opportunities. Marijuana dispensaries are now opening at a rapid pace. Still, figuring out how to open a marijuana dispensary is not simple, as the situation is different from state to state. Here, we’ll present all the information you need as an aspiring dispensary owner to help you understand more about this growing trend, and learn about the cost to open a dispensary.
Opening a Dispensary: The Basics
Since it’s such a new industry, there are many hurdles to overcome in opening a dispensary. First, researching how much to open a dispensary can be confusing. Marijuana platform Zencanna estimates that a new marijuana dispensary needs at least $150,000 in starting capital and probably more. The actual costs to renovate and prepare a site for legal marijuana sales are usually much more. The cost to open a dispensary varies wildly from state to state.
Research and planning is essential. If you’re planning to open a cannabis dispensary, there are several things you will need to consider:
- Rent and renovation at your dispensary
- Labor and staffing: A team that is not only trained in dispensary operations but also in compliance. This also includes costs for background checks.
- Inventory: Actual cannabis products and accessories
- Security: Both electronic systems and hiring of security personnel
- Marketing materials and design: Sales materials, packaging, logo design, and online marketing costs
- Professional counsel: Legal and accounting help who are familiar with the cannabis industry
- Licensing and application fees
- POS and labor timekeeping systems, accounting software (specific to the cannabis industry, legally compliant)
How Much Does It Cost to Start a Dispensary?
All of these costs will vary from state to state. It’s estimated that, on average, licensing feeds for dispensaries are typically $5000 yearly. POS and accounting systems are estimated to cost $250 per year. Most other costs are situational.
According to most sources, it costs between $500,000 and $2 million on average to run a dispensary on a yearly basis. However, these costs vary wildly based on locale, local labor costs, regulatory and licensing fees, and other factors.
Another challenge to consider: While Congress has recently passed protection for banks when dealing with cannabis businesses, many banks are still shy about dealing with cannabis dispensaries, due to marijuana still being illegal on a federal level. Instead, many investment groups rely on credit unions and alternative financing to help with their cash management needs. There are even such things as private marijuana banks! Most dispensaries raise their initial capital by a set of investors coming together and pooling money under an LLC or S corp structure.
The dispensary license cost for California in 2020 is $1000 for the initial application fee and between $4000 to $120,000 yearly, depending on the value of your cannabis operation.
In contrast, the Texas dispensary licensing cost, which only allows medical marijuana, is $488,000 for the two-year licensing fee and $7000 for the application. Texas does not allow for recreational marijuana use.
Day to Day Costs
Once you’ve found a site, performed renovations, trained your staff, and set up all the proper measures for security, compliance, and initial inventory, you’re ready to begin. Now comes the need to measure the cost of day to day business.
Sources such as COVA estimate that yearly costs can run into the tens of thousands of dollars, broken down as such:
- Security systems and electronics: $25000
- Advertising and marketing: $25000
- Legal counsel retainer: $50000
- Product: $1500 per pound
- Labor: $250000 for a trained staff and manager, versed in marijuana compliance and all state regulations. This does not count security costs.
These are all thumbnail costs. Anyone who plans to set up a dispensary should put together a business plan, a marketing plan, and project operations from two to three years. After this research, you can answer the question of “how much does it cost to open a dispensary?” to the satisfaction of yourself and fellow investors alike.
Growing Your Own
Some dispensaries grow their own product, under state guidelines. This can have a number of advantages, such as reducing middleman costs for products. In the cannabis space, there are also a growing number of dispensaries that offer artisanal products, similar to how craft breweries operate. However, this can also mean greater scrutiny from local and state authorities, and a higher investment in growing facilities, seed, and staff.
How Much Does it Cost To Open a Dispensary? L3 Funding Can Help You Find the Answer
L3 funding works with small businesses to help them achieve success. Do you want to learn more about how to open a dispensary? Reach out to us. We’d love to answer your questions on small business working capital and our other merchant funding services.